As filed with the Securities and Exchange Commission on April 17, 2002
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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Xerox Corporation
(Exact name of registrant as specified in its charter)
New York 16-0468020
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
800 Long Ridge Road
P.O. Box 1600 3577
Stamford, Connecticut 06904-1600 -----------------
(Address of Principal Executive Offices) (Primary Standard Industrial
Classification Code Number)
Martin S. Wagner, Esq.
Assistant Secretary and Associate General Counsel
Xerox Corporation
800 Long Ridge Road
P.O. Box 1600
Stamford, Connecticut 06904-1600
(Name and address of agent for service)
(203) 968-3000
(Telephone number, including area code, of agent for service)
Copy to:
Phyllis G. Korff, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
4 Times Square, New York, NY 10036-6522
(212) 735-3000
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If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum
Title of Each Class of Securities Amount to be Offering Price per Aggregate Offering Amount of
to be Registered Registered Note (1) Price (1) Registration Fee
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9 3/4% Senior Notes due 2009... $ 600,000,000 100% $ 600,000,000 $55,200
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9 3/4% Senior Notes due 2009... (Euro)225,000,000 100% (Euro)225,000,000 $18,230(2)
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f) promulgated under the Securities Act of 1933,
as amended.
(2) Calculated using an exchange rate of (Euro)1.1355 = $1.00.
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The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until this registration statement shall become effective
on such date as the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
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EXPLANATORY NOTE
This registration statement on Form S-4 is being filed pursuant to the terms
of the Registration Rights Agreements, each dated as of January 17, 2002, by
and among Xerox Corporation and the initial purchasers named therein. We
entered into the Registration Rights Agreements in connection with the issue
and sale of $600,000,000 aggregate principal amount of our 93/4% Senior Notes
due 2009 and (Euro)225,000,000 aggregate principal amount of our 93/4% Senior
Notes due 2009 (collectively, the "Notes") that we issued and sold on January
17, 2002. Pursuant to the Registration Rights Agreements, we are required to
file this registration statement no later than April 17, 2002.
On April 11, 2002, the Company concluded its settlement with the Securities
and Exchange Commission (the "SEC"). The settlement agreement concerns the
settlement of proposed allegations on matters that have been under
investigation since June 2000. Pursuant to the settlement agreement, on April
11, 2002 the SEC filed a complaint and a consent order in federal district
court for injunctive relief and a civil penalty of $10 million. We
simultaneously settled this complaint. We neither admitted nor denied the
allegations of the complaint, which included claims of civil violations of the
antifraud, reporting and other provisions of the securities laws.
This settlement agreement calls for a restatement of our financials for the
years 1997 through 2000 as well as an adjustment of previously announced 2001
results. The restatement will primarily reflect adjustments in the timing and
allocation of lease revenue recognition and could involve a reallocation of
equipment sales revenue in excess of $2 billion from 1997 through 2000. Those
revenues will be reallocated among equipment, service and finance revenue
streams as appropriate applying a methodology different than the one we had
used during those years. The resulting timing and allocation adjustments cannot
be estimated until the restatement process has been completed. In any event,
there will be no impact on the cash that has been received or is contractually
due to be received from these leases. Furthermore, the monetary value of the
leases does not change. The restatement will also include adjustments that
could be in excess of $300 million due to the establishment and release of
certain reserves prior to 2001 and other miscellaneous items.
We sell most of our products and services under bundled contracts that
contain multiple deliverable elements. The contracts typically include
equipment, service, supplies, and financing components for which the customer
pays a single monthly-negotiated price as well as a variable service component
for page volumes in excess of stated minimums. The SEC claims that our
revenue-allocation methodology for these contracts did not comply with the
Statement of Financial Accounting Standards No. 13.
As part of the settlement agreement with the SEC and to allow for the
additional time required to prepare the restatement and adjustment on April 11,
2002 the SEC issued an Order pursuant to Section 36 of the Securities Exchange
Act of 1934, as amended, permitting us to file the 2001 10-K, as well as our
quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2002, with
the SEC on or before June 30, 2002. This exemptive order provides that such
filings made on or before June 30, 2002 will be deemed to have been filed on
the prescribed due date.
For the foregoing reasons, we have not included the following information in
this registration statement:
. Selected Consolidated Financial Data
. Management's Discussion and Analysis of Financial Condition and Results
of Operations for the years ended December 31, 1999, December 31, 2000
and December 31, 2001
. Consolidated Financial Statements for the years ended December 31, 1999,
December 31, 2000 and December 31, 2001
Any information as of December 31, 2001 that has been included in this
registration statement is unaudited and will change as a result of the
restatement of our financial statements described in the foregoing paragraphs.
Any such changes will be provided in updated information included in a
pre-effective amendment to this registration statement.
The information contained in this prospectus is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
Subject to Completion--Dated April 17, 2002
PRELIMINARY PROSPECTUS
[GRAPHIC] X
XEROX CORPORATION
EXCHANGE OFFER FOR
$600,000,000 PRINCIPAL AMOUNT OF
9 3/4% SENIOR NOTES DUE 2009
AND
(Euro)225,000,000 PRINCIPAL AMOUNT OF
9 3/4% SENIOR NOTES DUE 2009
OFFER TO EXCHANGE ALL OUTSTANDING 9 3/4% SENIOR NOTES DUE 2009 FOR 9 3/4%
SENIOR NOTES DUE 2009 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED.
THE EXCHANGE OFFER
We are offering to exchange all our outstanding 93/4% Senior Notes due 2009
that are validly tendered and not validly withdrawn for an equal principal
amount of exchange notes that are freely tradable.
You may withdraw tenders of outstanding notes at any time prior to the
expiration of the exchange offer.
The exchange offer expires at 5:00 p.m., New York City time, on ,
2002, unless extended. We do not currently intend to extend the expiration date.
We will not receive any proceeds from the exchange offer.
THE EXCHANGE NOTES
The terms of the exchange notes will be substantially identical to those of
the outstanding notes, except that the exchange notes will be registered under
the Securities Act and will be freely tradable. See the "Description of Notes"
section on page 58 for more information about the exchange notes.
RESALES OF EXCHANGE NOTES
There is no existing public market for the outstanding notes or the exchange
notes. We have agreed to use our reasonable best efforts to have the notes
listed on the Luxembourg Stock Exchange. We do not intend to list the exchange
notes on any other securities exchange or seek approval for quotation through
any automated trading system. The exchange notes may also be sold in the
over-the-counter market, in negotiated transactions or through a combination of
such methods.
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EACH BROKER-DEALER THAT RECEIVES EXCHANGE NOTES FOR ITS OWN ACCOUNT PURSUANT
TO THE EXCHANGE OFFER MUST ACKNOWLEDGE THAT IT WILL DELIVER A PROSPECTUS IN
CONNECTION WITH ANY RESALE OF THOSE EXCHANGE NOTES. THE LETTER OF TRANSMITTAL
STATES THAT BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, A BROKER-DEALER
WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF
THE SECURITIES ACT. THIS PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM
TIME TO TIME, MAY BE USED BY A BROKER-DEALER IN CONNECTION WITH RESALES OF
EXCHANGE NOTES RECEIVED IN EXCHANGE FOR OUTSTANDING NOTES WHERE SUCH NOTES WERE
ACQUIRED BY SUCH BROKER-DEALER AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER
TRADING ACTIVITIES. WE HAVE AGREED THAT, FOR A PERIOD OF 20 DAYS AFTER THE
EXPIRATION DATE OF THE EXCHANGE OFFER, WE WILL MAKE THIS PROSPECTUS AVAILABLE
TO ANY BROKER-DEALER FOR USE IN CONNECTION WITH ANY SUCH RESALE. SEE "PLAN OF
DISTRIBUTION" ON PAGE 101 OF THIS PROSPECTUS.
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 11 OF THIS
PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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The date of this prospectus is , 2002.
MARKET SHARE, RANKING AND OTHER DATA
The market share, ranking and other data contained or incorporated by
reference in this prospectus are based either on management's own estimates,
independent industry publications, reports by market research firms or other
published independent sources and, in each case, are believed by management to
be reasonable estimates. However, market share data is subject to change and
cannot always be verified with complete certainty due to limits on the
availability and reliability of raw data, the voluntary nature of the data
gathering process and other limitations and uncertainties inherent in any
statistical survey of market shares. In addition, consumption patterns and
consumer preferences can and do change. As a result, you should be aware that
market share, ranking and other similar data set forth herein, and estimates
and beliefs based on such data, may not be reliable.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the information requirements of the Securities Exchange
Act of 1934, as amended (the Exchange Act"). In accordance with the Exchange
Act, we file annual, quarterly and current reports, proxy statements and other
information with the SEC. However, please see the "Explanatory Note" above for
certain important information regarding our settlement agreement with the SEC
and the extension of time granted by the SEC for the filing of our annual
report on Form 10-K for the year ended December 31, 2001 and our quarterly
report on Form 10-Q for the quarter ended March 31, 2002, the restatement of
our previously restated financial statements for the years ended December 31,
1997, 1998, 1999 and 2000 and adjustment of previously announced 2001 results.
Our SEC file number is 1-04471. You can read and copy this information at the
following locations of the SEC:
Public Reference Room Midwest Regional Office
450 Fifth Street, N.W. 500 West Madison Street
Room 1024 Suite 1400
Washington, D.C. 20549 Chicago, Illinois 60661
You can also obtain copies of these materials from the Public Reference
Section of the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, at prescribed rates. Please call the SEC at 1-800-SEC-0330 for further
information on its public reference room. The SEC also maintains a web site
that contains reports, proxy statements and other information about issuers,
like us, who file electronically with the SEC. The address of that site is
www.sec.gov.
We have filed with the SEC a registration statement on Form S-4 under the
Securities Act with respect to the exchange notes offered in this prospectus.
This prospectus, which forms part of the registration statement, does not
contain all of the information that is included in the registration statement.
You will find additional information about our company and the exchange notes
in the registration statement. Any statements made in this prospectus
concerning the provisions of legal documents are not necessarily complete and
you should read the documents that are filed as exhibits to the registration
statement or otherwise filed with the SEC for a more complete understanding of
the document or matter.
If for any reason we are not subject to the reporting requirements of the
Exchange Act in the future, we will still be required under the indentures
governing the notes to furnish the holders of the notes with certain financial
and reporting information. See "Description of Notes--Certain Covenants
Applicable At All Times--Reports to Holders" for a description of the
information we are required to provide.
FORWARD-LOOKING STATEMENTS
From time to time, we and our representatives may provide information,
whether orally or in writing, including certain statements in this prospectus,
which are deemed to be "forward-looking" within the meaning of the Private
Securities Litigation Reform Act of 1995 ("Litigation Reform Act"). These
forward-looking statements and other information relating to us are based on
the beliefs of management as well as assumptions made by and information
currently available to us.
i
The words "anticipate," "believe," "estimate," "expect," "intend," "will,"
and similar expressions, as they relate to us, are intended to identify
forward-looking statements. Such statements reflect our current views with
respect to future events and are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated or
expected. We do not intend to update these forward-looking statements.
In accordance with the provisions of the Litigation Reform Act, we are
making investors aware that such "forward-looking" statements, because they
relate to future events, are by their very nature subject to many important
factors which could cause actual results to differ materially from those
contained in the "forward-looking" statements. Such factors include, but are
not limited to, those discussed in the section that follows the heading "Risk
Factors" as well as the following:
Competition -- We operate in an environment of significant competition,
driven by rapid technological advances and the demands of customers to
become more efficient. There are a number of companies worldwide with
significant financial resources which compete with us to provide document
processing products and services in each of the markets we serve, some of
whom operate on a global basis. Our success in future performance is largely
dependent upon our ability to compete successfully in the markets we
currently serve and to expand into additional market segments.
Transition to Digital -- presently black and white light-lens copiers
represent approximately 20% of our revenues. This segment of the market is
mature with anticipated declining industry revenues as the market
transitions to digital technology. Some of our new digital products replace
or compete with our current light-lens equipment. Changes in the mix of
products from light-lens to digital, and the pace of that change as well as
competitive developments could cause actual results to vary from those
expected.
Expansion of Color -- color printing and copying represents an important
and growing segment of the market. Printing from computers has both
facilitated and increased the demand for color. A significant part of our
strategy and ultimate success in this changing market is our ability to
develop and market machines that produce color prints and copies quickly and
at reduced cost. Our continuing success in this strategy depends on our
ability to make the investments and commit the necessary resources in this
highly competitive market and the pace of color adoption by our prospective
customers.
Pricing -- Our success is dependent upon our ability to obtain adequate
pricing for our products and services which provide a reasonable return to
our shareholders. Depending on competitive market factors, future prices we
can obtain for our products and services may vary from historical levels. In
addition, pricing actions to offset the effect of currency devaluations may
not prove sufficient to offset further devaluations or may not hold in the
face of customer resistance and/or competition.
Customer Financing Activities -- On average, we have historically
financed approximately 75-80 percent of our equipment sales. To fund these
arrangements, we have historically had to access the credit markets and use
cash generated from operations. The long-term viability and profitability of
our customer financing activities is dependent on our ability to borrow and
the cost of borrowing in these markets. This ability and cost, in turn, is
dependent on our credit ratings. Currently our credit ratings are such as to
effectively preclude our ready access to registered capital markets and we
are currently funding our customer financing activity from cash generated
from operations as well as from cash on hand, unregistered capital markets
offerings and securitizations. There is no assurance that we will be able to
continue to fund our customer financing activity at present levels. We
continue to discuss implementation of third-party vendor financing programs
and possible sales of portions of our existing finance receivables
portfolios, and we continue to actively pursue alternative forms of
financing including securitizations and secured borrowings. These
initiatives will significantly reduce our debt and finance receivable levels
going forward. Our ability to continue to offer customer financing and be
successful in the placement of equipment with customers is largely dependent
upon obtaining third party financing.
Productivity -- Our ability to sustain and improve profit margins is
largely dependent on our ability to maintain an efficient, cost-effective
operation. Productivity improvements through process re-engineering,
ii
design efficiency and supplier cost improvements are required to offset
labor cost inflation, potential materials cost changes and competitive price
pressures.
International Operations -- We derive approximately 40 percent of our
revenue from operations outside the United States. In addition, we
manufacture or acquire many of our products and/or their components outside
the United States. Our future revenue, cost and results from operations
could be affected by a number of factors, including changes in foreign
currency exchange rates, changes in economic conditions from country to
country, changes in a country's political conditions, trade protection
measures, licensing requirements and local tax issues. Our ability to enter
into new foreign exchange contracts to manage foreign exchange risk is
currently severely limited, and we anticipate increased volatility in our
results of operations due to changes in foreign exchange rates.
New Products/Research and Development -- the process of developing new
high technology products and solutions is inherently complex and uncertain.
It requires accurate anticipation of customers' changing needs and emerging
technological trends. We must then make long-term investments and commit
significant resources before knowing whether these investments will
eventually result in products that achieve customer acceptance and generate
the revenues required to provide anticipated returns from these investments.
Revenue Trends -- Our ability to return to and maintain a consistent
trend of revenue growth over the intermediate to longer term is largely
dependent upon expansion of our worldwide equipment sales as well as sales
of products and services occurring after the initial equipment sale (post
sale revenue) in the key growth markets of color and multifunction. Revenue
growth will be further enhanced through our consulting services in the areas
of document content, and knowledge management. The ability to achieve
equipment sales growth is subject to the successful implementation of our
initiatives to provide advanced systems, industry-oriented global solutions
and services for major customers, improved direct sales productivity and
expansion of our indirect distribution channels in the face of global
competition and pricing pressures. The ability to grow usage may continue to
be adversely impacted by the movement towards distributed printing and
electronic substitutes. Our inability to return to and maintain a consistent
trend of revenue growth could materially affect the trend of our operating
results.
Liquidity -- The adequacy of our continuing liquidity depends on our
ability to successfully generate positive cash flow from an appropriate
combination of operating improvements, financing from third parties, and
additional asset sales including sales or securitizations of our receivables
portfolios. With $4.0 billion of cash on hand at December 31, 2001, we
believe our liquidity is presently sufficient to meet current and
anticipated needs going forward, including all scheduled debt maturities,
subject to timely implementation and execution of all of the various
initiatives and other matters discussed in the sections that follow. These
initiatives include our refinancing of the $7 billion of loans outstanding
under our Revolving Credit Agreement (the "Revolver") that mature in October
2002.
We are currently in active negotiations with our bank group to refinance
a portion of the Revolver and to extend its maturity beyond 2002. Management
believes that significant progress has been made in such discussions. The
principal terms and conditions for refinancing a portion of the Revolver,
including the extension of its maturity beyond October 2002, have been
circulated to the 57 banks in the Revolver. Commitments to the refinancing
are being sought from the 57 banks in the Revolver. Consummation of the
refinancing is subject to agreement of all Revolver banks, completion of due
diligence and negotiation of definitive agreements. Although we are
optimistic of a successful conclusion, there is no assurance that the
Revolver refinancing will be consummated on terms acceptable to us. In
addition to Revolver matters, we have undertaken initiatives to increase our
cash position and cash flows from operations, including, among others, cost
reductions, asset monetizations and focusing on more profitable revenue.
However, the results of such initiatives may not enable us to fully satisfy
the Revolver at maturity. In the event that we are unsuccessful in
renegotiating the Revolver with satisfactory terms and conditions by October
22, 2002, the bank group could declare a payment default and take steps to
recover the $7 billion, including the commencement of legal proceedings
against us. In such event we would be required to consider the full range of
strategic measures available to companies in similar circumstances. These
circumstances raise would substantial doubt about our ability to continue as
a going concern.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information included elsewhere or incorporated by reference into this
prospectus. Because this is a summary, it may not contain all the information
that may be important to you. You should read the entire prospectus before
making an investment decision. All references to ''dollars" and ''$" are to
U.S. Dollars.
Xerox Corporation
Xerox is a global leader in the document management business, offering the
widest array of products, services and solutions in the industry. Xerox makes
the digital world work better with an array of innovative document solutions,
services and technology including color and black-and-white printers, digital
multi-function devices and digital copiers designed for offices and production
printing environments.
Core Strategy
Our goal is to develop document technologies, products and services that
improve our customers' work processes and business results. Our strategy rests
on three different, yet synergistic value propositions.
First, we create advanced document devices that seamlessly link into the
enterprise electronic workflow, enabling enhanced productivity and business
performance. We focus on the most profitable and highest growth segments of the
document markets, and have been an industry leader in developing and
introducing new technologies to our customers. Xerox created the
print-on-demand industry with our 1990 introduction of the DocuTech Production
Publisher and was the first to introduce digital copiers and networked
multi-function devices for the office with the 1997 launch of our Document
Centre family. As our customers increasingly move towards color documents, we
have responded with our DocuColor 2000 series of digital color presses and the
ongoing development of DocuColor iGen 3, the next generation of color
technology, designed to expand the digital color print-on-demand market. The
DocuColor iGen 3 can create output with the traditional look and feel of offset
prints, while offering unprecedented speed, personalization capabilities and
cost advantages. Initial customer engagement began at the end of 2001 and
product launch is scheduled in the second half of 2002. Our January 2000
acquisition of the Color Printing and Imaging Division of Tektronix, or "CPID,"
and its line of Phaser solid ink and laser color printers, has moved Xerox to a
strong number two market share position in the fast growing networked office
color printing market.
Second, we work with our customers to build tailor-made solutions that
harness our technology and products to their critical business needs. These
solutions include printing books, pamphlets, parts catalogues and other
mission-critical documents "just-in-time." We customize document production to
enable "one-to-one" marketing by providing variable print solutions that enable
the printing of personalized documents.
Third, we offer consulting, implementation and ongoing management services
that apply advances in imaging technology, document, content and knowledge
management to improve enterprise work practices. These offerings include the
re-design of document intensive work processes to the management of in-house
document technology centers on our customer sites.
We continue to be a leader in providing worldclass document technology to
our customers. But we are also taking significant steps to satisfy our
customers' increasing demand for more advanced services and solutions. Our
products, technology, services and solutions are geared to match the needs of
rapidly growing markets such as high-end, Internet driven distributed digital
printing and custom publishing, graphic arts and on-demand printing and
publishing. Our success is derived from our ability to understand our
customers' needs and to provide true document management services and
outsourcing capabilities. As we increasingly make use of our
1
direct sales force to serve customers seeking more advanced capabilities and
solutions, we will simultaneously expand our use of more cost-effective
distribution channels such as dealers, agents and concessionaires.
Market Overview
We estimate the global document market that we serve, excluding Japan and
the Pacific Rim countries served by Fuji Xerox, was approximately $103 billion
in 2000 and will grow to about $134 billion in 2004 reflecting a compound
annual growth rate of approximately 7 percent.
Office
Office systems and services encompass monochrome devices at speeds up to 90
pages per minute, including our family of Document Centre digital
multi-function products; color laser, solid ink and monochrome laser desktop
printers, digital copies, light-lens copiers and facsimile products. The office
market comprises the largest single segment and is expected to decline modestly
from approximately $53 billion in 2000 to approximately $52 billion in 2004.
Page volume in the office market is expected to be unchanged as high growth in
color pages (from a very small base) is offset by modest black and white page
volume declines. We are targeting the growing segments of the office
market--driving the market to color printing and copying by making it as easy,
fast and affordable as black and white and driving the migration from single
function (copiers and printers) to multi-function devices that copy, print,
scan and fax by ensuring that multi-function is more cost-effective, while
offering both. We offer a full line of networked office color printers that use
either color laser or solid ink printing technology. In 1999, we introduced the
Document Centre Color Series 50, the first color-enabled Document Centre that
produces 12.5 full-color pages and 50 black and white pages per minutes and
includes a Xerox network controller built into every machine. This product
combines the advantages of a relatively low equipment price, the production of
color pages at operating costs significantly lower than other color
copier/printers in this class, and unlike other color products, the operating
cost of producing black and white prints is similar to that of monochrome
digital products. Our Document Centre family of modular black and white digital
multi-function products deliver speeds ranging from 20 to 90 pages per minute
and offer copy, print, scan and fax capabilities in one device.
Production
Production products include DocuTech, high speed printers, color products
for the production and graphic arts markets and light-lens copies over 90 pages
per minute. The production market was approximately $36 billion in 2000 and is
expected to grow to $41 billion in 2004, reflecting a compound annual growth
rate of 3 percent. Our strategy is to drive the "new business of printing" by
introducing innovative production systems and solutions focused on the higher
growth segments, particularly color. The new business of printing is
characterized by fast turnaround times, precise quantities, personalization and
customization and is built on the solid foundation of the digital production
print on demand market, which we created in 1990 with the introduction of our
DocuTech Production Publisher. We provide content creation and management,
production and fulfillment solutions and services. As an example, utilizing our
digital technology to personalize marketing communications, response rates can
rise from 2 to 30 percent. Inventory and warehousing costs can be eliminated by
printing on demand. We believe our DocuColor iGen 3, the next generation of
color technology, will expand the digital color print-on-demand market due to
its speed, image quality and personalization and cost advantages.
Services
The services market is the fastest growing market that we serve. We offer
consulting, implementation and ongoing management solutions and services that
apply advances in imaging technology, document content and knowledge management
to improve enterprise work practices. We currently have a demonstrated managed
services capability of integrating people, process, and technology in document
outsourcing. We are also bringing together professional consulting resources
across the company in order to move up the services continuum to deliver higher
value content, knowledge and document management services to our customers.
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Competitive Advantages
Research and Development
We believe investment in research and development, "R&D," is critical to
drive future growth, and to this end Xerox R&D is directed toward the
development of superior new products, solutions and services capabilities in
support of our strategy. The goal of Xerox R&D is to continue to create
innovative technologies that will expand current and future markets. Our
research scientists are deeply involved in the formulation of corporate
strategy and key business decisions. They regularly meet with customers and
have dialogues with our business units to ensure they understand customer
requirements and are focused on products and solutions that can be
commercialized.
In 2001, R&D Expense was $1,010 million, compared with $1,044 million in
2000 and $992 million in 1999. We expect to spend approximately 3 percent of
revenues on R&D in 2002. We continue to invest in technological development to
maintain our premier position in the rapidly changing document processing
market, with a heightened focus on increasing our R&D investment in rapid
market growth areas such as color and high-end services and solutions, as well
as time to market. Xerox R&D is strategically coordinated with Fuji Xerox,
which invested $548 million in R&D in 2001 for a combined total of $1.6
billion; an amount we believe to be adequate to remain technologically
competitive.
Marketing and Distribution
Xerox document processing products are principally sold directly to
customers by our worldwide sales force totaling approximately 11,000 employees,
and through a network of independent agents, dealers, value-added resellers and
systems integrators. We are expanding our use of cost-effective indirect
distribution channels for simple commodities, and utilizing our direct sales
force for our customers' more advanced technology, solutions and services
requirements.
We market our Phaser line of color and monochrome laser-class and solid ink
printers through office information technology industry resellers, who access
our products through distributors such as Ingram Micro, Tech Data, CHS and
Computer 2000. These distributors supply our products to a broad range of
IT/IS-oriented Resellers such as Dealers, Direct Marketers, VARs, Systems
Integrators, Government resellers, Corporate Resellers, and E-Commerce
Business-Oriented Resellers, such as CDW. This family of resellers in turn
market, sell, install, and in some cases help support our products to end-user
customers. We also sell directly to some of these resellers, rather than
through a distributor. As a result of the acquisition of the Tektronix Color
Printing and Imaging Division, completed in January 2000, we have significantly
increased the number of active resellers and nearly doubled the channel
activity on Xerox-branded network printers. In addition, new initiatives are
being undertaken for the printer line to add channel capacity through
direct-to-customer e-commerce and direct-to-customer selling using Xerox's
direct sales force in select large accounts.
Service
We have a worldwide service force of approximately 19,000 employees and a
network of independent service agents. We are expanding our use of
cost-effective third-party service providers and utilizing remote service
technology for simple commodity service, while continuing to focus Xerox's own
direct-service force on production products and serving customers in need of
more advanced value-added services. In our opinion, this service force
represents a significant competitive advantage: the service force is
continually trained on our new products and its diagnostic equipment is
state-of-the-art. Twenty-four-hour-a-day, seven-day-a-week service is available
in major metropolitan areas around the world. As a result, we are able to
guarantee a consistent and superior level of service nationwide and worldwide.
Xerox is a New York corporation and our principal executive offices are
located at 800 Long Ridge Road, P.O. Box 1600, Stamford, Connecticut
06904-1600. Our telephone number is (203) 968-3000.
3
The Exchange Offer
Issuer...................... Xerox Corporation ("Xerox" or the "Company")
Securities Offered.......... $600,000,000 aggregate principal amount of new
93/4% Senior Notes due 2009 and (Euro)225,000,000
aggregate principal amount of new 93/4% Senior
Notes due 2009, all of which have been registered
under the Securities Act of 1933, as amended, or
the Securities Act. The terms of the exchange
notes offered in the exchange offer are
substantially identical to those of the
outstanding notes, except that certain transfer
restrictions, registration rights and additional
interest provisions relating to the outstanding
notes do not apply to the exchange notes.
The Exchange Offer.......... We are offering to issue registered exchange
notes in exchange for a like principal amount and
like denomination of our outstanding notes. We
are offering to issue these registered exchange
notes to satisfy our obligations under the
registration rights agreements that we entered
into with the initial purchasers of the
outstanding notes when we sold them in a
transaction that was exempt from the registration
requirements of the Securities Act. You may
tender your outstanding notes for exchange by
following the procedures described under the
heading "The Exchange Offer."
Tenders; Expiration Date;
Withdrawal................ The exchange offer will expire at 5:00 pm, New
York City time, on , 2002, unless we
extend the exchange offer. If you decide to
exchange your outstanding notes for exchange
notes, you must acknowledge that you are not
engaging in, and do not intend to engage in, a
distribution of the exchange notes. You may
withdraw any notes that you tender for exchange
at any time prior to , 2002. If we
decide for any reason not to accept any notes you
have tendered for exchange, those notes will be
returned to you without cost promptly after the
expiration or termination of the exchange offer.
See "Exchange Offer--Terms of the Exchange Offer"
for a more complete description of the tender and
withdrawal provisions.
Conditions to the Exchange
Offer..................... The exchange offer is subject to customary
conditions, including that the exchange offer not
violate applicable law or any applicable
interpretation of the staff of the SEC. This
exchange offer is not conditioned upon any
minimum principal amount of the outstanding notes
being tendered.
U.S. Federal Income Tax
Consequences.............. Your exchange of outstanding notes for exchange
notes in the exchange offer will not result in
any gain or loss to you for U.S. federal income
tax purposes. See "Certain United States Federal
Income Tax Considerations."
Use of Proceeds............. We will not receive any proceeds from the
exchange offer.
Exchange Agent.............. Wells Fargo Bank Minnesota, N.A. is serving as
the exchange agent in connection with the
exchange offer. The address and telephone
4
number of the exchange agent are set forth under
"Exchange Offer" at page 48 of this prospectus.
Procedures for Tendering
Outstanding Notes......... If you wish to tender your notes for exchange in
this exchange offer, you must transmit to the
exchange agent on or before 5:00 p.m., New York
City time, on the expiration date either:
. an original or a facsimile of a properly
completed and duly executed copy of the
letter of transmittal which accompanies this
prospectus, together with your outstanding
notes and any other documentation required
by the letter of transmittal, at the address
provided on the cover page of the letter of
transmittal; or
. if the notes you own are held of record by
The Depositary Trust Company (DTC) in
book-entry form and you are making delivery
by book-entry transfer, a computer-generated
message transmitted by means of DTC's
Automated Tender Offer Program System (ATOP)
in which you acknowledge and agree to be
bound by the terms of the letter of
transmittal and which, when received by the
exchange agent, will form a part of a
confirmation of book-entry transfer. As part
of the book-entry transfer, DTC will
facilitate the exchange of your notes and
update your account to reflect the issuance
of the exchange notes to you. ATOP allows
you to electronically transmit your
acceptance of the exchange offer to DTC
instead of physically completing and
delivering a letter of transmittal to the
exchange agent.
To tender your book-entry interests in
outstanding euro notes on the records of
Euroclear or Clearstream, Luxembourg
(Clearstream), you must contact Euroclear or
Clearstream, as applicable, to arrange to block
your account with the outstanding euro notes. In
lieu of delivering a letter of transmittal to the
exchange agent, you must notify Euroclear or
Clearstream, as the case may be, to deliver to
the exchange agent prior to 5:00 p.m., New York
City time, on the expiration date, a
computer-generated message, in which you
acknowledge and agree to be bound by the terms of
the letter of transmittal.
In all other cases, a letter of transmittal must
be manually executed and received by the exchange
agent before 5:00 p.m., New York City time, on
the expiration date.
In addition, you must deliver to the exchange
agent on or before 5:00 p.m., New York City time,
on the expiration date:
. if you are effecting delivery by book-entry
transfer, a timely confirmation of
book-entry transfer of your outstanding
notes into the account of the exchange agent
at DTC; or
5
. if necessary, for dollar notes, the
documents required for compliance with the
guaranteed delivery procedures.
Special Procedures for
Beneficial Owners......... If you are the beneficial owner of book-entry
interests and your name does not appear on a
security position listing of DTC as the holder of
the book-entry interests or if you are a
beneficial owner of outstanding notes that are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and you wish to tender the book-entry interest or
outstanding notes in the exchange offer, you
should contact the person in whose name your
book-entry interests or outstanding notes are
registered promptly and instruct that person to
tender on your behalf.
Guaranteed Delivery
Procedures for Dollar Notes If you wish to tender your outstanding dollar
notes and:
. time will not permit your dollar notes or
other required documents to reach the
exchange agent by the expiration date; or
. the procedure for book-entry transfer cannot
be completed on time;
you may tender your dollar notes by completing a
notice of guaranteed delivery and complying with
the guaranteed delivery procedures. Guaranteed
delivery procedures are not available for euro
notes.
Consequences of Failure to
Exchange.................. Outstanding notes that are not tendered or that
are tendered but not accepted will continue to be
subject to the restrictions on transfer that are
described in the legend on those notes. In
general, you may offer or sell your outstanding
notes only if they are registered under, or
offered or sold under an exemption from, the
Securities Act and applicable state securities
laws. We, however, will have no further
obligation to register the outstanding notes. If
you do not participate in the exchange offer, the
liquidity of your notes could be adversely
affected.
Consequences of Exchanging
Your Notes................ Based on interpretations of the staff of the SEC,
we believe that you may offer for resale, resell
or otherwise transfer the exchange notes that we
issue in the exchange offer without complying
with the registration and prospectus delivery
requirements of the Securities Act if you:
. acquire the exchange notes issued in the
exchange offer in the ordinary course of
your business;
. are not participating, do not intend to
participate, and have no arrangement or
understanding with anyone to participate, in
the distribution of the exchange notes
issued to you in the exchange offer; and
6
. are not an "affiliate" of Xerox as defined
in Rule 405 of the Securities Act.
. If any of these conditions are not satisfied
and you transfer any exchange notes issued
to you in the exchange offer without
delivering a proper prospectus or without
qualifying for a registration exemption, you
may incur liability under the Securities
Act. We will not be responsible for or
indemnify you against any liability you may
incur.
. Any broker-dealer that acquires exchange
notes in the exchange offer for its own
account in exchange for outstanding notes,
which it acquired through market-making or
other trading activities, must acknowledge
that it will deliver a prospectus when it
resells or transfers any exchange notes. See
"Plan of Distribution" for a description of
the prospectus delivery obligations of
broker-dealers in the exchange offer.
7
The Exchange Notes
The terms of the exchange notes and those of the outstanding notes are
identical in all material respects, except:
(1) the exchange notes will be registered under the Securities Act;
(2) the exchange notes will not contain transfer restrictions and
registration rights that relate to the outstanding notes; and
(3) the exchange notes will not contain provisions relating to the
payment of additional interest to be made to the holders of the outstanding
notes under circumstances related to the timing of the exchange offer.
The exchange notes represent the same debt as the outstanding notes. Both
the outstanding notes and the exchange notes are governed by the same
indentures. We use the term "notes" in this prospectus to collectively refer to
the outstanding notes and the exchange notes. A brief description of the terms
of the exchange notes follows:
Issuer...................... Xerox Corporation
Securities Offered.......... $600,000,000 aggregate principal amount of 9 3/4%
senior notes due 2009. (Euro)225,000,000
aggregate principal amount of 9 3/4% senior notes
due 2009.
Maturity.................... January 15, 2009.
Interest Payment Dates...... January 15 and July 15, beginning on July 15,
2002. Interest will accrue from the issue date of
the notes.
Ranking..................... The notes are our unsecured senior obligations
and rank senior to our existing and future
subordinated debt. The notes are effectively
subordinated to all our secured debt and
structurally subordinated to the debt of our
subsidiaries. At December 31, 2001, Xerox
Corporation (excluding our subsidiaries) had
secured debt outstanding of $1,149 million that
would be reflected on its balance sheet. In the
future, subject to certain limitations, we can
refinance our unsecured debt (including a portion
of our revolving credit agreement maturing in
October 2002) with secured debt. As of December
31, 2001, after giving effect to offering of the
outstanding notes on a pro forma basis, we would
have had approximately $17,022 million of debt
(including approximately $8,386 million of our
subsidiaries' debt) and $1,687 million of
mandatorily redeemable and/or puttable preferred
stock outstanding, and cash and cash equivalents
of $4,737 million. In addition, as of the same
date, we had approximately $129 million of swap
obligations (including $116 million of swap
obligations of our subsidiaries) reflected on our
balance sheet.
Optional Redemption......... We cannot redeem the notes unless we pay a
make-whole redemption premium to noteholders. See
"Description of the Notes--Optional Redemption."
Change of Control Offer..... If we undergo a change in control, we must give
holders of the notes the opportunity to sell us
their notes at 101% of their face amount, plus
accrued interest.
8
We might not be able to pay you the required
price for notes you present to us at the time of
a change of control, because:
. we might not have enough funds at that time;
or
. the terms of our debt instruments may prevent
us from paying.
Certain Indenture Provisions The indentures governing the notes contain
covenants limiting our (and most or all of our
subsidiaries') ability to:
. incur additional debt;
. make restricted payments (including paying
dividends on our capital stock or redeeming
or repurchasing our capital stock or
subordinated obligations);
. make investments;
. make asset sales;
. enter into agreements that restrict, among
other things, dividends from restricted
subsidiaries;
. grant liens on our assets;
. engage in transactions with affiliates; and
. merge or consolidate or transfer
substantially all of our assets.
These covenants are subject to a number of
important and significant limitations and
exceptions. In addition, most of these covenants
will be suspended during any time that the notes
have investment grade ratings by both Moody's and
S&P. However, such covenants will apply and such
suspension period will no longer be in effect if
and when the notes cease to have investment grade
ratings by both Moody's and S&P.
Exchange Offer; Registration
Rights.................... We have agreed to use our reasonable best efforts
to complete the offer to exchange the outstanding
notes for the exchange notes no later than
February 13, 2003. In addition, we have agreed,
in certain circumstances, to file a "shelf
registration statement" that would allow some or
all of the notes to be offered to the public.
If we fail to fulfill our obligations with
respect to the registration of the notes, a
registration default will have been deemed to
occur and, the annual interest rate on the notes
will increase by 0.25%. The annual interest rate
on the notes will increase by an additional 0.25%
for the subsequent 90 day period during which the
registration default continues, up to a maximum
additional annual interest rate of 0.50% over the
interest rate applicable to the notes. If we
correct the registration default, upon
effectiveness of the registration, the interest
rate on the notes will revert to the original
level.
If we must pay additional interest, we will pay
it to you in cash on the same dates that we make
other interest payments on the notes, until we
correct the registration default.
9
Upon consummation of the exchange offer, holders
of outstanding notes will no longer have any
rights under the registration rights agreements,
except to the extent that we have continuing
obligations to file a shelf-registration
statement.
Absence of a Public Market
for the Exchange Notes.... The exchange notes generally will be freely
transferable, but they will also be new
securities for which there will be no established
market. Accordingly, we cannot assure you as to
the development or liquidity of any market for
the exchange notes. We have agreed to use our
reasonable best efforts to have the notes listed
on the Luxembourg Stock Exchange. Certain of the
initial purchasers, including the joint
book-running managers, have advised us that they
intend to make a market in the exchange notes.
However, they are not obligated to do so, and
they may discontinue any market making in the
notes at any time without notice.
Use of Proceeds............. We will not receive any proceeds from the
exchange offer. We will use the net proceeds from
the sale of the old notes for general corporate
purposes, including payment of indebtedness or
other obligations.
Risk Factors................ Investing in the notes involves substantial
risks. See "Risk Factors" for a description of
certain of the risks you should consider before
investing in the notes.
Original Issue Discount..... The outstanding notes have been issued at an
original issue discount ("OID") for U.S. federal
income tax purposes. In each tax year during
which a note is held, a U.S. Holder (regardless
of its accounting method) must generally include
in gross income the portion of the OID that
accrued during such period, determined by using a
constant yield to maturity method that reflects
compounding of interest. See "Certain United
States Federal Income Tax Considerations--U.S.
Federal Income Taxation of U.S. Holders--Original
Issue Discount." There will be foreign exchange
gain or loss implications with respect to the
euro notes. See "Certain United States Federal
Income Tax Considerations--U.S. Federal Income
Taxation of U.S. Holders--Payment of Interest on
Euro Notes."
You should carefully consider the information under the caption "Risk
Factors" and all other information in this prospectus before making a decision
on whether to participate in the exchange offer.
10
RISK FACTORS
You should carefully consider the risks described below and other
information contained in this prospectus before making an investment decision.
Additional risks and uncertainties not presently known to us, or that we
currently deem immaterial, may also impair our business operations. We cannot
assure you that any of the events discussed in the risk factors below will not
occur. If they do, our business, results of operations or financial condition
could be materially adversely affected. In such an instance, the trading price
of our securities could decline, and you might lose all or part of your
investment.
This prospectus contains forward-looking statements made as of the date of
this prospectus regarding our expected performance that involve certain risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including the risks faced by us described below and elsewhere in this
prospectus.
On April 11, 2002, we concluded a settlement agreement with the Division of
Enforcement of the SEC pursuant to which we have agreed to restate our
financial information for each of the years ended December 31, 1997, 1998, 1999
and 2000 and have agreed to adjust our previously announced results for 2001.
As part of this agreement the SEC has granted us a 90-day extension until June
30, 2002 to complete such restatement and file our annual report on Form 10-K
for 2001 and our quarterly report on Form 10-Q for the quarter ended March 31,
2002. There can be no assurance that we will be able to complete such
restatement and file our 2001 Form 10-K and the Form 10-Q with the SEC by June
30, 2002.
On April 11, 2002, the Company concluded its settlement with the Securities
and Exchange Commission (the "SEC"). The settlement agreement concerns the
settlement of proposed allegations on matters that have been under
investigation since June 2000. Pursuant to the settlement agreement, on April
11, 2002 the SEC filed a complaint and a consent order in federal district
court for injunctive relief and a civil penalty of $10 million. We
simultaneously settled this complaint. We neither admitted nor denied the
allegations of the complaint, which included claims of civil violations of the
antifraud, reporting and other provisions of the securities laws.
This settlement agreement calls for a restatement of our financials for the
years 1997 through 2000 as well as an adjustment of previously announced 2001
results. The restatement will primarily reflect adjustments in the timing and
allocation of lease revenue recognition and could involve a reallocation of
equipment sales revenue in excess of $2 billion from 1997 through 2000. Those
revenues will be reallocated among equipment, service and finance revenue
streams as appropriate applying a methodology different than the one we had
used during those years. The resulting timing and allocation adjustments cannot
be estimated until the restatement process has been completed. In any event,
there will be no impact on the cash that has been received or is contractually
due to be received from these leases. Furthermore, the monetary value of the
leases does not change. The restatement will also include adjustments that
could be in excess of $300 million due to the establishment and release of
certain reserves prior to 2001 and other miscellaneous items.
We sell most of our products and services under bundled contracts that
contain multiple deliverable elements. The contracts typically include
equipment, service, supplies, and financing components for which the customer
pays a single monthly-negotiated price as well as a variable service component
for page volumes in excess of stated minimums. The SEC claims that our
revenue-allocation methodology for these contracts did not comply with the
Statement of Financial Accounting Standards No. 13.
As part of the settlement agreement with the SEC and to allow for the
additional time required to prepare the restatement and adjustment, on April
11, 2002 the SEC issued an Order pursuant to Section 36 of the Securities
Exchange Act of 1934, as amended, permitting us to file the 2001 10-K, as well
as our quarterly report on Form 10-Q for the quarter ended March 31, 2002, with
the SEC on or before June 30, 2002. This exemptive order provides that such
filings made on or before June 30, 2002 will be deemed to have been filed on
the prescribed due date.
11
There can be no assurance that we will be able to complete the restatement
of our financial statements in the manner contemplated with our settlement
agreement with the SEC and file the 2001 10-K and our Form 10-Q by June 30,
2002. In such event, we will request the SEC for a further extension of time to
make such filings; however, there can be no assurance that the SEC will grant
our request.
Risks Related To Our Business
We face significant challenges as we implement our turnaround program and our
failure to meet those challenges can harm both our performance and the value of
our notes
In October 2000, we announced a turnaround program which includes a
wide-ranging plan to generate cash, return to profitability and pay down debt.
The success of the turnaround program is dependent upon successful and timely
sales of assets, restructuring the cost base, placement of greater operational
focus on the core business and the transfer of the financing of customer
equipment purchases to third parties. Cost base restructuring is dependent upon
effective and timely reduction of our workforce, closing and consolidation of
facilities, outsourcing of certain manufacturing operations, reductions in
operational expenses and the successful implementation of process and systems
changes.
The principal terms and conditions for refinancing a portion of our $7
billion revolving credit agreement and extend its maturity beyond its current
stated maturity of October 2002 has been distributed to the 57 lenders under
the revolver. Commitments to the refinancing are being sought from the 57 banks
in our revolving credit agreement. Consummation of the refinancing is subject
to agreement of all the lender banks, completion of due diligence and
negotiation of definitive agreements. However, there is no assurance that the
such refinancing will be consummated on terms acceptable to us. Failure to
successfully refinance and extend the maturity of the agreement could have a
serious adverse impact on our liquidity.
In addition, our liquidity is dependent on the timely implementation and
execution of the various turnaround program initiatives, as well as our ability
to generate positive cash flow from operations, possible asset sales and
various financing strategies (including securitizations). If we are not able to
successfully complete the turnaround program or generate cash on a timely or
satisfactory basis or refinance our revolving credit agreement or other
obligations when due, then we will need to obtain additional sources of funds
through other operating improvements, financing from third parties, additional
asset sales or a combination thereof. There can be no assurance that we can
obtain these additional sources of funds.
Our ability to attain a consistent trend of revenues over the intermediate
to longer term is largely dependent upon stabilization and subsequent expansion
of our equipment sales worldwide and usage growth (i.e., an increase in the
number of images produced by our customers). The ability to achieve equipment
sales growth is subject to the successful implementation of our initiatives,
including our vendor financing programs, to ensure the stability and increasing
tenure of our direct sales force while continuing to expand indirect sales
channels in the face of global competition and pricing pressures. The ability
to grow usage may be adversely impacted by the movement towards distributed
printing and electronic substitutes. Our inability to attain a consistent trend
of revenue growth could materially affect the trend of our actual results.
We need to successfully develop and market new product lines in order to
maintain our market share
At present, black and white light-lens copiers represent approximately 20%
of our revenues. This segment of the market is mature, with anticipated
declining industry revenues as the market transitions to digital technology.
Some of our new digital products replace or compete with our current light-lens
equipment. Changes in the mix of products from light-lens to digital, and the
pace of that change as well as competitive developments could cause actual
results to vary from those expected.
Color printing and copying represents an important and growing segment of
the market. Printing from computers has both facilitated and increased the
demand for color. A significant part of our strategy and ultimate
12
success in this changing market is our ability to develop and market machines
that produce color prints and copies quickly and at reduced cost. Our
continuing success in this strategy depends on our ability to make the
investments and commit the necessary resources in this highly competitive
market. If we are unable to develop and market alternative offerings in digital
and color technologies, we may lose market share which could have a material
adverse effect on our operating results.
We face significant competition
We operate in an environment of significant competition, driven by rapid
technological advances and the demands of customers to become more efficient.
There are a number of companies worldwide with significant financial resources
which compete with us to provide document processing products and services in
each of the markets that we serve, some of which operate on a global basis. Our
success in our future performance is largely dependent upon our ability to
compete successfully in our currently-served markets and to expand into
additional market segments. If we are unable to compete successfully it could
adversely affect our results of operations and financial condition.
Our profitability is dependent upon our ability to obtain adequate pricing for
our products and to maintain an efficient operation
Our ability to succeed is dependent upon our ability to obtain adequate
pricing for our products and services which provide a reasonable return to
shareholders. Depending on competitive market factors, future prices we can
obtain for our products and services may vary from historical levels. In
addition, pricing actions to offset currency devaluations may not prove
sufficient to offset further devaluations or may not hold in the face of
customer resistance and/or competition.
By that same token, our ability to sustain and improve our profit margins is
largely dependent on our ability to maintain an efficient, cost-effective
operation. Productivity improvements through process reengineering, design
efficiency and supplier cost improvements are required to offset labor cost
inflation, potential materials cost changes and competitive price pressures,
all of which could materially adversely affect our business. Among other
things, our productivity in the market for office equipment will be
significantly affected by the successful conclusion, implementation and
operation of our previously announced manufacturing agreement with Flextronics.
Our current credit ratings and the pending restatement of our financial
statements pursuant to our settlement agreement with the SEC allow us only
limited access to capital markets, which may impact our ability to fund our
customer financing activities and repay maturing debt and other obligations
On average, we have historically arranged our own financing for 75 to 80
percent of our equipment sales. To fund these arrangements, we must access the
credit markets and the long-term viability and profitability of our customer
financing activities is dependent on our ability to borrow from, and the cost
of borrowing in, these markets. This ability and cost, in turn, is dependent on
our credit ratings. Currently, our credit ratings allow only limited access to
capital markets and we are currently funding our customer financing activity
from available sources of liquidity, including cash on hand. We are currently
in active negotiations with the agent banks under our $7 billion revolving
credit agreement in order to refinance a portion of our outstanding
indebtedness thereunder and extend its maturity beyond its current stated
maturity of October 2002. The principal terms and conditions for refinancing a
portion of our revolving credit facility, including the extension of its
maturity beyond October 2002, have been circulated to the 57 banks in our
revolving credit facility. Commitments to the refinancing are being sought from
the 57 banks in our revolving credit facility. Consummation of the refinancing
is subject to agreement of all the lender banks, completion of due diligence
and negotiation of definitive agreements. However, there is no assurance that
the Revolver refinancing will be consummated on terms acceptable to us.
Our ability to access the public debt markets is also dependent upon the
completion of the restatement of our financial statements pursuant to our
settlement agreement with the SEC and the filing of our annual report on
13
Form 10-K for the year ended December 31, 2001 with the SEC by June 30, 2002
described under "Xerox Corporation--Recent Developments--SEC Settlement
Agreement."
There is no assurance that we will be able to continue to fund our customer
financing activity at present levels. We are actively seeking third parties to
provide financing to our customers and recently announced framework agreements
(i) for GE Capital's Vendor Financial Services to become the primary source of
equipment financing for our customers in the United States, (ii) for the
Canadian division of GE Capital's Vendor Financial Services to become the
primary source of equipment financing for our customers in Canada and (iii) for
GE Capital's European Equipment Finance to become the primary equipment
financing provider for our customers in France and Germany. We also are in
various stages of negotiations with vendors to offer third party financing to
our customers in all of the major countries in Europe in which we do business.
In December 2001, we announced that we will be forming a joint venture with De
Lage Landen International BV (DLL) to manage equipment financing, billing and
collections for our customers' financed equipment orders in the Netherlands.
This joint venture was formed and began funding in the first quarter of 2002.
In March 2002, we signed a binding memorandum of understanding ("MOU") with
Banco Itau in Brazil and a similar MOU with CIT in Mexico, under which they
will become our primary equipment financing provider in those respective
countries, commencing April 1, 2002. There is no assurance if or when we will
be able to successfully complete these negotiations. In the near-term, our
ability to continue to offer customer financing and be successful in the
placement of our equipment with customers is largely dependent upon obtaining
such third party financing.
Our business, results of operations and financial condition may be negatively
impacted by economic conditions abroad, including fluctuating foreign
currencies and shifting regulatory schemes
We derive approximately 40 percent of our revenue from operations outside of
the United States. In addition, we manufacture or acquire many of our products
and/or their components outside the United States. Our future revenue, cost and
profit results could be affected by a number of factors, including changes in
foreign currency exchange rates, changes in economic conditions from country to
country, changes in a country's political conditions, trade protection
measures, licensing requirements and local tax issues. Our ability to enter
into new foreign exchange contracts to manage foreign exchange risk is
currently severely limited and, therefore, we anticipate increased volatility
in our results of operations due to changes in foreign exchange rates.
Our business depends on the successful development of new technologies
The process of developing new high technology products and solutions is
inherently complex and uncertain. It requires accurate anticipation of
customers' changing needs and emerging technological trends. We must often make
long-term investments and commit significant resources before knowing whether
these investments will eventually result in products that achieve customer
acceptance and generate the revenues required to provide anticipated returns
from these investments.
Risks Relating To The Notes
Your outstanding notes will not be accepted for exchange if you fail to follow
the exchange offer procedures
We will not accept your outstanding notes for exchange if you do not follow
the exchange offer procedures. We will issue exchange notes as part of this
exchange offer only after a timely receipt of your outstanding notes, a
properly completed and duly executed letter of transmittal and all other
required documents. Therefore, if you
14
want to tender your outstanding notes, please allow sufficient time to ensure
timely delivery. If we do not receive your outstanding notes, letter of
transmittal and other required documents by the expiration date of the exchange
offer or you do not otherwise comply with the guaranteed delivery procedures
for tendering your dollar notes, we will not accept your outstanding notes for
exchange. We are under no duty to give notification of defects or
irregularities with respect to the tenders of outstanding notes for exchange.
If there are defects or irregularities with respect to your tender of
outstanding notes, we will not accept your outstanding notes for exchange
unless we decide in our sole discretion to waive such defects or irregularities.
If you do not exchange your outstanding notes, they will continue to be subject
to the existing transfer restrictions and you may not be able to sell them
We did not register the outstanding notes, nor do we intend to do so
following the exchange offer. Outstanding notes that are not tendered will
therefore continue to be subject to the existing transfer restrictions and may
be transferred only in limited circumstances under the securities laws. As a
result, if you hold outstanding notes after the exchange offer, you may not be
able to sell them, To the extent any outstanding notes are tendered and
accepted in the exchange offer, the trading market, if any, for the outstanding
notes that remain outstanding after the exchange offer may be adversely
affected due to a reduction in market liquidity.
Our substantial debt could adversely affect our financial health and prevent us
from making payments on the notes
We have a substantial amount of debt. As of December 31, 2001, after giving
effect to the offering of the outstanding notes on a pro forma basis, we would
have had approximately $17,022 million of debt (including approximately $8,386
million of our subsidiaries' debt) and $1,687 million of mandatorily redeemable
and/or puttable preferred stock outstanding, and cash and cash equivalents of
$4,737 million. In addition, as of the same date, we had approximately $129
million of swap obligations (including $116 million of swap obligations of our
subsidiaries) reflected on our balance sheet. We describe under "Certain Other
Indebtedness and Preferred Stock," our other indebtedness and preferred stock,
including maturities (and puts and redemptions) over the next three years.
Our substantial debt and other obligations could have important consequences
to you. For example, it could:
. make it more difficult for us to satisfy our obligations with respect to
the notes;
. increase our vulnerability to general adverse economic and industry
conditions;
. limit our ability to obtain additional financing for future working
capital, capital expenditures, acquisition and other general corporate
requirements;
. increase our vulnerability to interest rate fluctuations because the
interest rate under all of the debt under our revolving credit facility
currently is, and some or all of our debt thereunder if refinanced is
expected to be, at variable rates;
. require us to dedicate a substantial portion of our cash flow from
operations to payments on our debt and other obligations thereby reducing
the availability of our cash flow from operations for other purposes;
. limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate; and
. place us at a competitive disadvantage compared to our competitors that
have less debt.
If new debt is added to our current debt levels, these related risks could
increase. In addition to the foregoing, we have other obligations, including
those that relate to asset dispositions and sales of receivables, and we have
litigation exposure.
15
Our ability to make scheduled payments or to refinance our obligations with
respect to our debt and other obligations will depend on our financial and
operating performance, which, in turn, is subject to prevailing economic
conditions and to certain financial, business and other factors beyond our
control. If our cash flow and capital resources are insufficient to fund our
debt service and other obligations, we may be forced to reduce or delay
scheduled expansion and capital expenditures, sell material assets or
operations, obtain additional capital or restructure our debt. We cannot assure
you that our operating performance, cash flow and capital resources will be
sufficient for payment of our debt in the future. In the event that we are
required to dispose of material assets or operations or restructure our debt or
other obligations, we cannot assure you as to the terms of any such transaction
or how soon any such transaction could be completed. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Capital Resources and Liquidity."
The indentures governing the notes contain, and our revolving credit facility,
if refinanced, and certain of our future financing agreements are expected to
contain, various covenants which limit the discretion of our management in
operating our business and could prevent us from engaging in some beneficial
activities
The indentures governing the notes contain, and our revolving credit
facility, if refinanced, and certain of our future financing agreements are
expected to contain, various restrictive covenants that limit our management's
discretion in operating our business. In particular, these agreements will
limit our ability to, among other things:
. incur additional debt;
. make restricted payments (including paying dividends on our capital stock
or redeeming or repurchasing our capital stock or subordinated
obligations);
. make investments or acquisitions;
. grant liens on assets;
. sell our assets;
. engage in transactions with affiliates; and
. merge, consolidate or transfer substantially all of our assets.
If we fail to comply with the restrictions of the indentures governing the
notes, our revolving credit facility or any other subsequent financing
agreements, a default may allow the creditors, if the agreements so provide, to
accelerate the related debt as well as any other debt to which a
cross-acceleration or cross-default provision applies. In addition, the lenders
may be able to terminate any commitments they had made to supply us with
further funds.
Although the terms of the indentures governing the notes restrict our
ability to incur additional debt to fund significant acquisitions and
restricted payments (other than permitted investments), the indentures permit
us and certain of our subsidiaries to incur debt in the ordinary course. The
indentures prohibit us from refinancing the 7 1/2% Convertible Trust Preferred
Securities that we issued in the Trust Preferred Offering if these securities
are put to us in 2004 other than with equity or junior subordinated debentures
of Xerox. However, the indentures permit us to purchase $593 million of our
convertible subordinated debentures due 2018 if put to us in 2003, including
with the proceeds of any debt refinancing.
The notes are unsecured and are effectively subordinated to our secured
indebtedness
The notes will not be secured. If we become insolvent or are liquidated, or
if payment under any of our secured debt obligations is accelerated, our
secured lenders would be entitled to exercise the remedies available to a
secured lender under applicable law and will have a claim on those assets
before the holders of the unsecured notes. As a result, the notes are
effectively subordinated to our secured indebtedness to the extent of the value
of
16
the assets securing that indebtedness. Therefore, the holders of the notes may
recover ratably less than the lenders of our secured debt in the event of our
bankruptcy or liquidation. At December 31, 2001, Xerox Corporation (excluding
our subsidiaries) had secured debt outstanding of $1,149 million that would be
reflected on its balance sheet. However, in the future, we can refinance our
unsecured debt with secured debt.
The notes are structurally subordinated to the claims of our subsidiaries'
creditors
The notes are not guaranteed by our subsidiaries. In the event of an
insolvency, liquidation, dissolution, reorganization or similar proceeding of
any of our subsidiaries, any creditors and preferred shareholders of each of
our subsidiaries would be entitled to payment in full from that subsidiary's
assets and earnings before such assets or earnings may be distributed to us to
service payments on the notes. Since the notes are not the obligations of our
subsidiaries, our rights to the assets of any of our subsidiaries upon
liquidation or reorganization (and consequently the right of the holders of the
notes to participate in the distribution of proceeds from those assets) will be
effectively subordinated to the claims of that subsidiary's creditors,
including trade creditors and any preferred shareholders. As of December 31,
2001, our subsidiaries had approximately $8,386 million of debt outstanding
reflected on the consolidated balance sheet. In addition, as of the same date,
our subsidiaries had $116 million of swap obligations. Certain of our
subsidiaries are not prohibited from guaranteeing our debt or other obligations
in the future.
We may not be able to purchase your notes upon a change of control
Upon the occurrence of specified "change of control" events, we will be
required to offer to purchase each holder's notes at a price equal to 101% of
their principal amount plus accrued and unpaid interest. We may not have
sufficient financial resources to purchase all of the notes that holders tender
to us upon a change of control offer. The occurrence of a change of control
could also constitute an event of default under any of our future debt
agreements. See "Description of Notes--Change of Control."
An active trading market may not develop for the notes
The notes are new securities for which there currently is no established
market. The notes are expected to be made eligible for trading in the Portal
market, a subsidiary of The Nasdaq Stock Market, Inc. Although the initial
purchasers have informed us that they currently intend to make a market in the
notes and, if issued, the exchange notes, they are not obligated to do so and
any market making may be discontinued at any time without notice. In addition,
market making activity may be limited during the pendency of the exchange offer
or the effectiveness of the exchange offer registration statement. Accordingly,
we cannot assure you as to the development or liquidity of any market for any
of the notes. See "Plan of Distribution."
The liquidity of, and trading market for, the notes may also be adversely
affected by general declines in the market for similar securities. A general
market decline may adversely affect the liquidity of, and trading market for,
the notes, independent of our prospects or financial performance.
Original issue discount; Limitations on holder's claims
If a bankruptcy case is commenced by or against us under the United States
Bankruptcy Code of 1978, as amended, the claim of a holder of notes with
respect to the principal amount thereof may be limited to an amount equal to
the sum of (i) the issue price of the notes as set forth on the cover page
hereof and (ii) that portion of the original issue discount (as determined on
the basis of such issue price) which is not deemed to constitute "unmatured
interest" for purposes of the U.S. Bankruptcy Code. Any original issue discount
that was not amortized as of any such bankruptcy filing could constitute
"unmatured interest."
17
XEROX CORPORATION
Overview
Xerox is The Document Company and a leader in the global document market,
selling equipment and providing document solutions including hardware, services
and software that enhance productivity and knowledge sharing. Xerox and its
affiliates operate in over 130 countries world-wide. Fuji Xerox Co., Limited,
an unconsolidated entity in which Xerox Limited owns 25% and in which Fuji
Photo Film Company Limited owns 75%, develops, manufactures and distributes
document processing products in Japan and other areas of the Pacific Rim,
Australia and New Zealand. Our activities encompass developing, manufacturing,
marketing, servicing and financing a complete range of document processing
products, solutions and services designed to make organizations around the
world more productive.
We believe that the document is a tool for productivity, and that
documents--both electronic and paper--are at the heart of most business
processes. Documents are the means for storing, managing and sharing business
knowledge. Document technology is key to improving productivity through
information sharing and knowledge management.
Core Strategy
Our goal is to develop document technologies, products and services that
improve our customers' work processes and business results. Our strategy rests
on three different, yet synergistic value propositions.
First, we create advanced document devices that seamlessly link into the
enterprise electronic workflow, enabling enhanced productivity and business
performance. We focus on the most profitable and highest growth segments of the
document markets, and have been an industry leader in developing and
introducing new technologies to our customers. Xerox created the
print-on-demand industry with our 1990 introduction of the DocuTech Production
Publisher and was the first to introduce digital copiers and networked
multi-function devices for the office with the 1997 launch of our Document
Centre family. As our customers increasingly move towards color documents, we
have responded with our DocuColor 2000 series of digital color presses and the
ongoing development of DocuColor iGen 3, the next generation of color
technology, designed to expand the digital color print-on-demand market. The
DocuColor iGen 3 can create output with the traditional look and feel of offset
prints, while offering unprecedented speed, personalization capabilities and
cost advantages. Initial customer engagement began at the end of 2001 and
product launch is scheduled in the second half of 2002. Our January 2000
acquisition of the Color Printing and Imaging Division of Tektronix, or "CPID,"
and its line of Phaser solid ink and laser color printers, has moved Xerox to a
strong number two market share position in the fast growing networked office
color printing market.
Second, we work with our customers to build tailor-made solutions that
harness our technology and products to their critical business needs. These
solutions include printing books, pamphlets, parts catalogues and other
mission-critical documents "just-in-time." We customize document production to
enable "one-to-one" marketing by providing variable print solutions that enable
the printing of personalized documents.
Third, we offer consulting, implementation and ongoing management services
that apply advances in imaging technology, document, content and knowledge
management to improve enterprise work practices. These offerings include the
re-design of document intensive work processes to the management of in-house
document technology centers on our customer sites.
We continue to be a leader in providing worldclass document technology to
our customers. But we are also taking significant steps to satisfy our
customers' increasing demand for more advanced services and solutions. Our
products, technology, services and solutions are geared to match the needs of
rapidly growing markets such as high-end, Internet driven distributed digital
printing and custom publishing, graphic arts and on-demand
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printing and publishing. Our success is derived from our ability to understand
our customers' needs and to provide true document management services and
outsourcing capabilities. As we increasingly make use of our direct sales force
to serve customers seeking more advanced capabilities and solutions, we will
simultaneously expand our use of more cost-effective distribution channels such
as dealers, agents and concessionaires.
Market Overview
The document industry is undergoing a fundamental transformation, with the
continued transition from analog and offset to digital technology, the
management of publishing and printing jobs over the Internet, the use of
variable data to create customized documents, an increasing reliance on
outsourcing and the transition to color. Documents are increasingly created and
stored in digital electronic form while the Internet is increasing the amount
of information that can be accessed in the form of electronic documents. We
believe that all of these trends play to the strengths of our products,
technology and services, and that such trends represent opportunities for
Xerox's future growth.
We estimate the global document market that we serve, excluding Japan and
the Pacific Rim countries served by Fuji Xerox, was approximately $103 billion
in 2000 and will grow to about $134 billion in 2004 reflecting a compound
annual growth rate of approximately 7 percent.
Office
Office systems and services encompass monochrome devices at speeds up to 90
pages per minute, including our family of Document Centre digital
multi-function products; color laser, solid ink and monochrome laser desktop
printers, digital copies, light-lens copiers and facsimile products. The office
market comprises the largest single segment and is expected to decline modestly
from approximately $53 billion in 2000 to approximately $52 billion in 2004.
Page volume in the office market is expected to be unchanged as high growth in
color pages (from a very small base) is offset by modest black and white page
volume declines. We are targeting the growing segments of the office
market--driving the market to color printing and copying by making it as easy,
fast and affordable as black and white and driving the migration from single
function (copiers and printers) to multi-function devices that copy, print,
scan and fax by ensuring that multi-function is more cost-effective, while
offering both. We offer a full line of networked office color printers that use
either color laser or solid ink printing technology. In 1999, we introduced the
Document Centre Color Series 50, the first color-enabled Document Centre that
produces 12.5 full-color pages and 50 black and white pages per minutes and
includes a Xerox network controller built into every machine. This product
combines the advantages of a relatively low equipment price, the production of
color pages at operating costs significantly lower than other color
copier/printers in this class, and unlike other color products, the operating
cost of producing black and white prints is similar to that of monochrome
digital products. Our Document Centre family of modular black and white digital
multi-function products deliver speeds ranging from 20 to 90 pages per minute
and offer copy, print, scan and fax capabilities in one device.
Production
Production products include DocuTech, high speed printers, color products
for the production and graphic arts markets and light-lens copies over 90 pages
per minute. The production market was approximately $36 billion in 2000 and is
expected to grow to $41 billion in 2004, reflecting a compound annual growth
rate of 3 percent. Our strategy is to drive the "new business of printing" by
introducing innovative production systems and solutions focused on the higher
growth segments, particularly color. The new business of printing is
characterized by fast turnaround times, precise quantities, personalization and
customization and is built on the solid foundation of the digital production
print on demand market, which we created in 1990 with the introduction of our
DocuTech Production Publisher. We provide content creation and management,
production and fulfillment solutions and services. As an example, utilizing our
digital technology to personalize marketing communications, response rates can
rise from 2 to 30 percent. Inventory and warehousing costs can be eliminated by
printing on demand. We believe our DocuColor iGen 3, the next generation of
color technology, will expand the digital color print-on-demand market due to
its speed, image quality and personalization and cost advantages.
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Services
The services market is the fastest growing market which we serve. We offer
consulting, implementation and ongoing management solutions and services that
apply advances in imaging technology, document content and knowledge management
to improve enterprise work practices. We currently have a demonstrated managed
services capability of integrating people, process, and technology in document
outsourcing. We are also bringing together professional consulting resources
across the company in order to move up the services continuum to deliver higher
value content, knowledge and document management services to our customers.
Competitive Advantages
Research and Development
We believe investment in research and development, "R&D," is critical to
drive future growth, and to this end Xerox R&D is directed toward the
development of superior new products, solutions and services capabilities in
support of our strategy. The goal of Xerox R&D is to continue to create
innovative technologies that will expand current and future markets. Our
research scientists are deeply involved in the formulation of corporate
strategy and key business decisions. They regularly meet with customers and
have dialogues with our business units to ensure they understand customer
requirements and are focused on products and solutions that can be
commercialized.
In 2001, R&D Expense was $1,010 million, compared with $1,044 million in
2000 and $992 million in 1999. We expect to spend approximately 3 percent of
revenues on R&D in 2002. We continue to invest in technological development to
maintain our premier position in the rapidly changing document processing
market, with a heightened focus on increasing our R&D investment in rapid
market growth areas such as color and high-end services and solutions, as well
as time to market. Xerox R&D is strategically coordinated with Fuji Xerox,
which invested $548 million in R&D in 2001 for a combined total of $1.6
billion; an amount we believe to be adequate to remain technologically
competitive.
Marketing and Distribution
Xerox document processing products are principally sold directly to
customers by our worldwide sales force totaling approximately 11,000 employees,
and through a network of independent agents, dealers, value-added resellers and
systems integrators. We are expanding our use of cost-effective indirect
distribution channels for simple commodities, and utilizing our direct sales
force for our customers' more advanced technology, solutions and services
requirements.
We market our Phaser line of color and monochrome laser-class and solid ink
printers through office information technology industry resellers, who access
our products through distributors such as Ingram Micro, Tech Data, CHS and
Computer 2000. These distributors supply our products to a broad range of
IT/IS-oriented Resellers such as Dealers, Direct Marketers, VARs, Systems
Integrators, Government resellers, Corporate Resellers, and E-Commerce
Business-Oriented Resellers, such as CDW. This family of resellers in turn
market, sell, install, and in some cases help support our products to end-user
customers. We also sell directly to some of these resellers, rather than
through a distributor. As a result of the acquisition of the Tektronix Color
Printing and Imaging Division, completed in January 2000, we have significantly
increased the number of active resellers and nearly doubled the channel
activity on Xerox-branded network printers. In addition, new initiatives are
being undertaken for the printer line to add channel capacity through
direct-to-customer e-commerce and direct-to-customer selling using Xerox's
direct sales force in select large accounts.
Service
We have a worldwide service force of approximately 19,000 employees and a
network of independent service agents. We are expanding our use of
cost-effective third-party service providers and utilizing remote
20
service technology for simple commodity service, while continuing to focus
Xerox's own direct-service force on production products and serving customers
in need of more advanced value-added services. In our opinion, this service
force represents a significant competitive advantage: the service force is
continually trained on our new products and its diagnostic equipment is
state-of-the-art. Twenty-four-hour-a-day, seven-day-a-week service is available
in major metropolitan areas around the world. As a result, we are able to
guarantee a consistent and superior level of service nationwide and worldwide.
Recent Developments
Turnaround Program
During 2000, the significant business challenges that we began to experience
in the second half of 1999 continued to adversely affect our financial
performance. In May 2000, Anne Mulcahy became President and COO. After a
thorough review, a Turnaround Program was announced in October 2000. The
Turnaround Program was designed to ensure liquidity, re-establish
profitability, and build a solid foundation for future growth. The Turnaround
Program encompassed four major components: planned asset sales totaling $2-$4
billion; accelerated cost reductions designed to reduce costs by at least $1
billion annually; transitioning our equipment financing to third party vendors;
and a focus on our core business of providing document processing solutions and
services to our customers. By the end of 2001, we had made significant progress
executing this program and achieving these goals.
By the end of 2001, we had completed asset sales of $2.3 billion, comprised
of the December 2000 sale of our China Operations to Fuji Xerox for $550
million, the March 2001 sale of half our ownership interest in Fuji Xerox to
Fuji Photo Film Co., Ltd. (Fujifilm) for $1.283 billion, the April 2001 sale of
our Nordic leasing businesses to Resonia AB for approximately $370 million, and
in the fourth quarter 2001 we received $118 million in the first in a series of
asset sales to transfer Xerox's office product manufacturing operations to
Flextronics, and in 2002 we received net cash proceeds of approximately $21
million related to sales of facilities under that agreement. We believe the
asset sale component of our Turnaround Program has been largely completed.
We also intensified cost reductions to improve our competitiveness. During
2001, we implemented actions that will generate approximately $1.1 billion in
annualized savings by resizing our work force and reducing spending in many
parts of our business. These savings resulted from reducing layers of
management, consolidating operations where prudent, reducing administrative and
general spending, capturing service productivity savings from our digital
products and tightly managing discretionary spending. We are reducing costs in
our office segment by moving to lower cost indirect sales and service channels
and by outsourcing our office products manufacturing. Our worldwide employment
declined by approximately 13,600 to 78,900 at December 31, 2001. In our ongoing
efforts to reduce our cost base, we will continue to implement restructuring
actions in 2002 and expect to incur substantial restructuring charges although
less than the amounts recorded in 2001.
Our transition to third party financing will transform our balance sheet
while ensuring equipment financing is still provided seamlessly to our
customers. In 2001, we entered into framework agreements with GE Capital for
them to manage our administrative functions and become the primary equipment
financing provider for Xerox customers in the U.S., Canada, France and Germany.
In the U.S. and Canada we are completing the negotiation of definitive
agreements with GE Capital for the implementation of joint ventures to manage
our customer administration, which includes due diligence on their part as well
as the fulfillment of various regulatory requirements. In Europe, we are
completing due diligence, fulfilling regulatory requirements and consulting
with local works councils. Also in Europe, we have fully transitioned our
leasing businesses in the Nordic countries and the Netherlands. Our Nordic
leasing business was sold to Resonia AB in April 2001, and in the first quarter
2002, we formed a joint venture with De Lage Landen International BV (DLL) in
which they
21
provide funding and manage equipment financing for Xerox customers in the
Netherlands. We have made significant progress in the Developing Markets
Organization ("DMO"), with agreements in place with Banco Itau in Brazil and
CIT Group, Inc. in Mexico in which they become the primary equipment financing
providers for their respective countries starting in the second quarter 2002.
In addition to the vendor financing agreements, in 2001 and the first
quarter of 2002, we borrowed approximately $2.6 billion in the U.S., Canada and
U.K. from GE Capital through the securitization of certain existing finance
receivables. By the end of 2002, we expect that approximately two-thirds of all
new lease originations will be financed through third parties.
In line with our strategy to focus on our core business, we announced the
disengagement from our worldwide Small Office/Home Office (SOHO) business in
June 2001. By the fourth quarter 2001, we had sold the remaining equipment
inventory and achieved profitability in this business through the sale of
supplies to our current base of SOHO customers. We expect this profitable
supplies revenue stream will decline over time as the equipment is eventually
replaced.
Convertible Trust Preferred Securities Offering
On November 27, 2001, our subsidiary Xerox Capital Trust II, a Delaware
statutory business trust, completed the Trust Preferred Offering of
$1,035,000,000 aggregate liquidation amount of its 7 1/2% Convertible Trust
Preferred Securities (liquidation amount of $50 per trust preferred security)
at an issue price of $50 per trust preferred security. Each trust preferred
security represents an undivided beneficial ownership interest in the assets of
Xerox Capital Trust II represented by that security. The assets of Xerox
Capital Trust II consist principally of 7 1/2% convertible junior subordinated
debentures due 2021, issued by our subsidiary Xerox Funding LLC II, a Delaware
limited liability company. The assets of Xerox Funding LLC II consist
principally of our 7 1/2% convertible junior subordinated debentures due 2021.
We own all of the undivided beneficial ownership interests represented by the
common securities of Xerox Capital Trust II and all of the common securities of
Xerox Funding LLC II. We have effectively guaranteed, fully and unconditionally
on a subordinated basis, the payment and delivery by Xerox Funding LLC II of
all amounts due on the Xerox Funding LLC II debentures and the payment and
delivery by Xerox Capital Trust II of all amounts due on the trust preferred
securities. These securities are convertible into our common stock at a
conversion price of $9.125 per share, subject to adjustment. The holders of
these securities have the right to cause us to repurchase them (at a price
equal to their liquidation preference plus accrued and unpaid dividends) on
December 4, 2004, and on November 27, 2006, 2008, 2011 and 2016. We can pay for
such put in cash or registered shares of our common stock or a combination
thereof.
Possible Lowering of Corporate Credit Rating by Moody's
We and our financially supported subsidiaries currently have senior
unsecured long-term debt ratings of Ba1 by Moody's. On January 3, 2002, Moody's
announced that it had placed our ratings under review for possible downgrade.
Moody's announced that the timing of such review is not focused on quarterly
results but rather the prospects for improvement in core profitability and debt
protection measures in 2002 and beyond. In the event that Moody's downgrades
our ratings to below Ba1, we would seek to renegotiate the terms of our $290
million accounts receivable securitization facility.
SEC Settlement Agreement
On April 11, 2002, the Company concluded its settlement with the Securities
and Exchange Commission (the "SEC"). The settlement agreement concerns the
settlement of proposed allegations on matters that have been under
investigation since June 2000. Pursuant to the settlement agreement, on April
11, 2002 the SEC filed a complaint and a consent order in federal district
court for injunctive relief and a civil penalty of $10 million. We
simultaneously settled this complaint. We neither admited nor denied the
allegations of the complaint, which included claims of civil violations of the
antifraud, reporting and other provisions of the securities laws.
22
This settlement agreement calls for a restatement of our financials for the
years 1997 through 2000 as well as an adjustment of previously announced 2001
results. The restatement will primarily reflect adjustments in the timing and
allocation of lease revenue recognition and could involve a reallocation of
equipment sales revenue in excess of $2 billion from 1997 through 2000. Those
revenues will be reallocated among equipment, service and finance revenue
streams as appropriate applying a methodology different than the one we had
used during those years. The resulting timing and allocation adjustments cannot
be estimated until the restatement process has been completed. In any event,
there will be no impact on the cash that has been received or is contractually
due to be received from these leases. Furthermore, the monetary value of the
leases does not change. The restatement will also include adjustments that
could be in excess of $300 million due to the establishment and release of
certain reserves prior to 2001 and other miscellaneous items.
We sell most of our products and services under bundled contracts that
contain multiple deliverable elements. The contracts typically include
equipment, service, supplies, and financing components for which the customer
pays a single monthly-negotiated price as well as a variable service component
for page volumes in excess of stated minimums. The SEC claims that our
revenue-allocation methodology for these contracts did not comply with the
Statement of Financial Accounting Standards No. 13.
As part of the settlement agreement with the SEC and to allow for the
additional time required to prepare the restatement and adjustment, on April
11, 2002 the SEC issued an Order pursuant to Section 36 of the Securities
Exchange Act of 1934, as amended, permitting us to file the 2001 10-K, as well
as our quarterly report on Form 10-Q for the quarter ended March 31, 2002, with
the SEC on or before June 30, 2002. This exemptive order provides that such
filings made on or before June 30, 2002 will be deemed to have been filed on
the prescribed due date.
Change of Auditors
On October 5, 2001, Xerox announced that PricewaterhouseCoopers LLP has been
named its independent auditors for the fiscal year ending December 31, 2001,
replacing KPMG LLP. The Board of Directors and its Audit Committee believed it
was appropriate at that time to bring in new auditors.
Management Changes
The Board of Directors of Xerox Corporation appointed Anne M. Mulcahy as
president and chief executive officer effective August 1, 2001 and as Chairman
effective January 1, 2002. Mulcahy, formerly president and chief operating
officer, succeeds Paul A. Allaire who retired on December 31, 2001.
On December 31, 2001, Barry D. Romeril, Xerox vice chairman and chief
financial officer, retired. An external search for a new chief financial
officer is ongoing.
Properties
We own a total of ten principal manufacturing and engineering facilities and
lease two additional facilities. The domestic facilities are located in
California, New York, Oklahoma, and Oregon and the international facilities are
located in Brazil, Canada, UK, Ireland, The Netherlands, and India. We also
have four principal research facilities; three are owned facilities in New
York, UK and Canada, and one is a leased facility in California.
In 2001, we sold and released certain manufacturing locations to Flextronics
in Mexico, Malaysia and Canada related to our manufacturing outsourcing
initiatives. Also, due to our Turnaround Program, several properties have
become surplus and appropriate reserves have been established. The majority of
the surplus properties are leases that we are obligated to maintain through
required contract periods. We have disposed or subleased certain of these
properties and are aggressively pursuing the successful disposition and
subleasing of all remaining surplus properties.
23
In addition, we have numerous facilities, which encompass general offices,
sales offices, service locations and distribution centers. The principal owned
facilities are located in the United States, UK, Ireland, and Mexico. The
principal leased facilities are located in the United States, Brazil, Canada,
UK, Mexico, France, Germany and Italy.
Our Connecticut based corporate headquarters facility is leased; however, we
own the related land. We also lease a portion of a training facility, located
in Virginia, which we previously owned.
In the opinion of Xerox management, our properties have been well
maintained, are in sound operating condition and contain all the necessary
equipment and facilities to perform our functions.
Litigation
Accuscan, Inc. v. Xerox Corporation: On April 11, 1996, an action was
commenced by Accuscan, Inc. (Accuscan), in the United States District Court for
the Southern District of New York, against the Company seeking unspecified
damages for infringement of a patent of Accuscan which expired in 1993. The
suit, as amended, was directed to facsimile and certain other products
containing scanning functions and sought damages for sales between 1990 and
1993. On April 1, 1998, the jury entered a verdict in favor of Accuscan for $40
million. However, on September 14, 1998, the court granted our motion for a new
trial on damages. The trial ended on October 25, 1999 with a jury verdict of
$10 million. Our motion to set aside the verdict or, in the alternative, to
grant a new trial was denied by the court. We appealed to the Court of Appeals
for the Federal Circuit which found the patent not infringed, thereby
terminating the lawsuit subject to an appeal which has been filed by Accuscan
to the U.S. Supreme Court. We have filed our opposition to the appeal.
Christine Abarca, et al. v. City of Pomona, et al. (Pomona Water Cases): On
June 24, 1999, the Company was served with a summons and complaint filed in the
Superior Court of the State of California for the County of Los Angeles. The
complaint was filed on behalf of 681 individual plaintiffs claiming damages as
a result of our alleged disposal and/or release of hazardous substances into
the soil, air and groundwater. On July 22, 1999, April 12, 2000, November 30,
2000, March 31, 2001 and May 24, 2001, respectively, five additional complaints
were filed in the same court on behalf of an additional 79, 141, 76, 51, and 29
plaintiffs, respectively, with the same claims for damages as the June 1999
action. Four of the five additional cases have been served on the Company. In
addition, we have been informed that a similar action will be filed in the near
future on behalf of another six plaintiffs.
Plaintiffs in all six cases further allege that they have been exposed to
such hazardous substances by inhalation, ingestion and dermal contact,
including but not limited to hazardous substances contained within the
municipal drinking water supplied by the City of Pomona and the Southern
California Water Company. Plaintiffs' claims against the Company include
personal injury, wrongful death, property damage, negligence, trespass,
nuisance, fraudulent concealment, absolute liability for ultra-hazardous
activities, civil conspiracy, battery and violation of the California Unfair
Trade Practices Act. Damages are unspecified.
We deny any liability for the plaintiffs' alleged damages and intend to
vigorously defend these actions. We have not answered or appeared in any of the
cases because of an agreement among the parties and the court to stay these
cases pending resolution of several similar cases before the California Supreme
Court. In February 2002, the California Supreme Court issued its decision
permitting the lawsuits to proceed against all defendants. The trial court is
expected to lift the stay within the next 30 to 90 days for both the six Xerox
cases and the unrelated Southern California ground water case with which they
are coordinated.
In re Xerox Corporation Securities Litigation: A consolidated securities
law action (consisting of 17 cases) is pending in the United States District
Court for the District of Connecticut. Defendants are the Company, Barry
Romeril, Paul Allaire and G. Richard Thoman. The consolidated action purports
to be a class action on behalf of the named plaintiffs and all other purchasers
of common stock of the Company during the
24
period between October 22, 1998 through October 7, 1999 (Class Period). The
amended consolidated complaint in the action alleges that in violation of
Section 10(b) and/or 20(a) of the Securities Exchange Act of 1934, as amended
(34 Act), and Securities and Exchange Commission Rule 10b-5 thereunder, each of
the defendants is liable as a participant in a fraudulent scheme and course of
business that operated as a fraud or deceit on purchasers of the Company's
common stock during the Class Period by disseminating materially false and
misleading statements and/or concealing material facts. The amended complaint
further alleges that the alleged scheme: (i) deceived the investing public
regarding the economic capabilities, sales proficiencies, growth, operations
and the intrinsic value of the Company's common stock; (ii) allowed several
corporate insiders, such as the named individual defendants, to sell shares of
privately held common stock of the Company while in possession of materially
adverse, non-public information; and (iii) caused the individual plaintiffs and
the other members of the purported class to purchase common stock of the
Company at inflated prices. The amended consolidated complaint seeks
unspecified compensatory damages in favor of the plaintiffs and the other
members of the purported class against all defendants, jointly and severally,
for all damages sustained as a result of defendants' alleged wrongdoing,
including interest thereon, together with reasonable costs and expenses
incurred in the action, including counsel fees and expert fees. On September
28, 2001, the court denied the defendants' motion for dismissal of the
complaint. On November 5, 2001, the defendants answered the complaint. The
parties are engaged in discovery. The named individual defendants and we deny
any wrongdoing and intend to vigorously defend the action.
In re Xerox Derivative Actions: A consolidated putative shareholder
derivative action is pending in the Supreme Court of the State of New York,
County of New York against several current and former members of the Board of
Directors including William F. Buehler, B.R. Inman, Antonia Ax:son Johnson,
Vernon E. Jordon, Jr., Yotaro Kobayashi, Hilmar Kopper, Ralph Larsen, George J.
Mitchell, N.J. Nicolas, Jr., John E. Pepper, Patricia Russo, Martha Seger,
Thomas C. Theobald, Paul Allaire, G. Richard Thoman, Anne Mulcahy and Barry
Romeril, as well as the Company, as a nominal defendant. Previously, two
separate derivative actions had been filed in that court and another had been
pending in the United States District Court for the District of Connecticut.
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. On or about October 15, 2001, the
plaintiffs in the two prior New York actions and the federal action in
Connecticut, along with one additional plaintiff, filed an amended consolidated
complaint. The amended complaint alleges that each of the individual defendants
breached their fiduciary duties to the Company and its shareholders by, among
other things, ignoring indications of a lack of oversight at the Company and
the existence of flawed business and accounting practices within the Company's
Mexican and other operations which allegedly caused serious harm to the
Company; failing to have in place sufficient controls and procedures to monitor
the Company's accounting practices; knowingly and recklessly disseminating and
permitting to be disseminated, misleading information to shareholders and the
investing public; and permitting the Company to engage in improper accounting
practices. The amended complaint further alleges that each of the individual
defendants breached their duties of due care and diligence in the management
and administration of the Company's affairs and grossly mismanaged or aided and
abetted the gross mismanagement of the Company and its assets. Further, the
plaintiffs allege that the defendant members of the Audit Committee failed to
adequately inform themselves about the Company's accounting practices and
breached their fiduciary duties. On behalf of the Company, the plaintiffs seek
a judgment that the individual defendants violated and/or aided and abetted the
breach of their fiduciary duties to the Company and its shareholders,
unspecified compensatory damages against the individual defendants, punitive
damages, costs, and reasonable attorneys' and experts' fees. The individual
defendants deny the wrongdoing alleged and intend to vigorously defend the
litigation.
Carlson v. Xerox Corporation, et al.: A consolidated securities law action
(consisting of 21 cases) is pending in the United States District Court for the
District of Connecticut against the Company, KPMG LLP (KPMG), and Paul A.
Allaire, G. Richard Thoman, Anne M. Mulcahy, Barry D. Romeril, Gregory Tayler
and
25
Philip Fishbach. The consolidated action purports to be a class action on
behalf of the named plaintiffs and all purchasers of securities of, and bonds
issued by, the Company during the period between February 17, 1998 through
February 6, 2001 (Class). Among other things, the second consolidated amended
complaint, filed on February 11, 2002, generally alleges that each of the
Company, KPMG, and the individual defendants violated Section 10(b) of the 34
Act and Securities and Exchange Commission Rule 10b-5 thereunder. The
individual defendants are also allegedly liable as "controlling persons" of the
Company pursuant to Section 20(a) of the 34 Act. Plaintiffs claim that the
defendants participated in a fraudulent scheme that operated as a fraud and
deceit on purchasers of the Company's common stock by disseminating materially
false and misleading statements and/or concealing material adverse facts
relating to the Company's Mexican operations and other matters relating to the
Company's accounting practices and financial condition. The plaintiffs further
allege that this scheme deceived the investing public regarding the true state
of the Company's financial condition and caused the plaintiffs and other
members of the alleged Class to purchase the Company's common stock and bonds
at artificially inflated prices. The second consolidated amended complaint
seeks unspecified compensatory damages in favor of the plaintiffs and the other
members of the alleged Class against the Company, KPMG and the individual
defendants, jointly and severally, including interest thereon, together with
reasonable costs and expenses, including counsel fees and expert fees. The
individual defendants and we deny any wrongdoing and intend to vigorously
defend the action.
Bingham v. Xerox Corporation, et al.: A lawsuit filed by James F. Bingham,
a former employee of the Company, is pending in the Superior Court of
Connecticut, Judicial District of Waterbury (Complex Litigation Docket) against
the Company, Barry D. Romeril, Eunice M. Filter and Paul Allaire. The complaint
alleges that the plaintiff was wrongfully terminated in violation of public
policy because he attempted to disclose to senior management and to remedy
alleged accounting fraud and reporting irregularities. The plaintiff further
claims that the Company and the individual defendants violated the Company's
policies/commitments to refrain from retaliating against employees who report
ethics issues. The plaintiff also asserts claims of defamation and tortious
interference with a contract. He seeks: (i) unspecified compensatory damages in
excess of $15 thousand, (ii) punitive damages, and (iii) the cost of bringing
the action and other relief as deemed appropriate by the court. The individuals
and we deny any wrongdoing and intend to vigorously defend the action. On
October 18, 2001, the Chief Administrative Judge of the Connecticut Superior
Court issued an order that purported to stay, for a period of six months from
October 3, 2001, all actions pending in the State of Connecticut in which an
insured party of Reliance Insurance Company is a defendant. Pursuant to that
order, on December 17, 2001, the court in this action issued an order staying
all proceedings in the case until April 3, 2002. The court subsequently vacated
the stay. Discovery in the case commenced on the vacation of the stay.
Berger, et al. v. RIGP: A class was certified in an action originally filed
in the United States District Court for the Southern District of Illinois on
July 25, 2000 against the Company's Retirement Income Guarantee Plan (RIGP).
The RIGP represents the primary U.S. pension plan for salaried employees.
Plaintiffs bring this action on behalf of themselves and an alleged class of
over 25,000 persons who received lump sum distributions from RIGP after January
1, 1990. Plaintiffs assert violations of the Employee Retirement Income
Security Act (ERISA), claiming that the lump sum distributions were improperly
calculated. On July 3, 2001 the court granted the Plaintiffs' motion for
summary judgment, finding the lump sum calculations violated ERISA. RIGP denies
any wrongdoing and intends to appeal the District Court's ruling. Although the
damages sought were not specified in the complaint, the Plaintiffs recently
submitted papers claiming $284 million in damages.
Pitney Bowes, Inc. v. Xerox Corporation and Fuji Xerox Co., Ltd.: On June
19, 2001, an action was commenced by Pitney Bowes in the United States District
Court for the District of Connecticut against the Company seeking unspecified
damages for infringement of a patent of Pitney Bowes which expired on May 31,
2000. Plaintiff claims that two printers containing image enhancement functions
infringe the patent and seeks damages in the unspecified amount for sales
between June 1995 and May 2000. We filed our answer and counterclaims on
October 1, 2001. In December, 2001, a companion case against Lexmark and others
on the patent in suit was transferred out of Connecticut to Kentucky and the
Federal Court in Connecticut has decided that our case should be transferred to
Kentucky as well. We deny any wrongdoing and intend to vigorously defend the
action.
26
Florida State Board of Administration, et al. v. Xerox Corporation, et
al.: On January 4, 2002, the Florida State Board of Administration, the
Teachers' Retirement System of Louisiana and Franklin Mutual Advisers filed an
action in the United States District Court for the Northern District of Florida
(Tallahassee Division) against the Company, Paul Allaire, G. Richard Thoman,
Barry Romeril, Anne Mulcahy, Philip Fishbach, Gregory Tayler, Eunice M. Filter
and KPMG LLP (KPMG). The plaintiffs allege that each of the Company, the
individual defendants and KPMG violated Sections 10(b) and 18 of the Securities
Exchange Act of 1934, as amended (the "34 Act"), Securities and Exchange
Commission Rule 10b-5 thereunder, the Florida Securities Investors Protection
Act, Fl. Stat. (S)517.301, and the Louisiana Securities Act, R.S. 51:712(A).
The plaintiffs further claim that the individual defendants are each liable as
"controlling persons" of the Company pursuant to Section 20 of the 34 Act and
that each of the defendants is liable for common law fraud and negligent
misrepresentation. The complaint generally alleges that the defendants
participated in a scheme and course of conduct that deceived the investing
public by disseminating materially false and misleading statements and/or
concealing material adverse facts relating to the Company's Mexican operations
and other matters relating to the Company's financial condition and accounting
practices. The plaintiffs contend that in relying on false and misleading
statements allegedly made by the defendants during the period between February
15, 1998 and February 6, 2001, they bought shares of the Company's common stock
at artificially inflated prices. As a result, they allegedly suffered
aggregated cash losses of almost $100 million. The plaintiffs seek, among other
things, unspecified compensatory damages against the Company, the individual
defendants and KPMG, jointly and severally, including prejudgment interest
thereon, together with the costs and disbursements of the action, including
their actual attorneys' and experts' fees. On March 8, 2002, the individual
defendants and we filed a motion before the Judicial Panel on Multidistrict
Litigation seeking to transfer this action and any related tagalong actions to
the United States District Court for the District of Connecticut for
consolidation or coordination with the 21 consolidated actions currently
pending there under the caption, Carlson v. Xerox et al. The individual
defendants and we deny any wrongdoing alleged in the complaint and intend to
vigorously defend the action.
Xerox Corporation v. 3Com Corporation, et al.: On April 28, 1997, we
commenced an action against Palm for infringement of the Xerox "Unistrokes"
handwriting recognition Patent by the Palm Pilot using "Graffiti." On January
14, 1999, the U.S. Patent and Trademark Office (PTO) granted the first of two
3Com/Palm requests for reexamination of the Unistrokes patent challenging its
validity. The PTO concluded its reexaminations and confirmed the validity of
all 16 claims of the original Unistrokes patent. On June 6, 2000, the judge
narrowly interpreted the scope of the Unistrokes patent claims and, based on
that narrow determination, found the Palm Pilot with Graffiti did not infringe
the Unistrokes patent claims. On October 5, 2000, the Court of Appeals for the
Federal Circuit (CAFC) reversed the finding of no infringement and sent the
case back to the lower court to continue toward trial on the infringement
claims. On December 20, 2001, the District Court granted our motions on
infringement and for a finding of validity thus establishing liability. On
December 21, 2001, Palm appealed to the CAFC. We moved for a trial on damages
and an injunction or bond in lieu of injunction. The District Court denied our
motion for a temporary injunction, but ordered a $50 million bond to be posted
to protect us against future damages until the trial. We have appealed the
denial of the temporary injunction.
27
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer.The net proceeds
received by us from the sale of the outstanding notes, after deducting the
underwriting discounts and commissions and estimated offering expenses were
approximately $746 million. We intend to use such net proceeds for general
corporate purposes, including payment of indebtedness or other obligations.
CAPITALIZATION
The following table sets forth our unaudited consolidated cash and cash
equivalents and capitalization at December 31, 2001, and as adjusted to give
effect to (i) the Trust Preferred Offering and the application of the net
proceeds from such offering and (ii) the offering of the outstanding notes and
the application of the proceeds from the sale of the outstanding notes as
described in "Use of Proceeds."
You should read this table in conjunction with the unaudited selected
historical financial data included in this prospectus. See "Selected
Consolidated Financial Data" and "Use of Proceeds."
As of December 31, 2001
----------------------
Actual As Adjusted
-------- -----------
(Dollars in Millions)
Cash and cash equivalents.......................................................... $ 3,991 $ 4,737
Restricted investments(1).......................................................... 229 229
-------- -------
Total cash, cash equivalents and restricted investments......................... $ 4,220 $ 4,966
-------- -------
Debt maturing within one year(2)................................................... $ 9,737 $ 9,737
Long-term debt..................................................................... 6,484 6,484
Senior Notes due 2009(3)........................................................... -- 801
-------- -------
Total debt...................................................................... $16,221 $17,022
-------- -------
Deferred ESOP benefits............................................................. (135) (135)
Minorities' interests in equity of subsidiaries.................................... 84 84
Company-obligated, mandatorily redeemable preferred securities of subsidiary trusts
holding solely subordinated debentures of the Company(4)......................... 682 682
Company-obligated, convertible preferred securities of Xerox Capital Trust II(5)(6) 1,005 1,005
Common shareholders' equity and preferred stock:
Preferred stock................................................................. 605 605
Common stock, par value $1.00 per share, 1.05 billion shares authorized;
717,518,204 shares issued and outstanding..................................... 724 724
Additional paid-in-capital...................................................... 1,892 1,892
Retained earnings............................................................... 3,102 3,102
Accumulated other comprehensive loss............................................ (2,570) (2,570)
-------- -------
Total common shareholders' equity and preferred stock........................... 3,753 3,753
-------- -------
Total capitalization............................................................ $21,610 $22,411
======== =======
--------
(1) Amount pledged, through the interest payment date occurring on November 27,
2004, as security for the obligations of Xerox Funding under the Xerox
Funding debentures in connection with the Trust Preferred Offering.
(2) Includes $7.0 billion Revolving Credit Facility, which matures in October
2002.
28
(3) Converted using the exchange rate for euros into U.S. dollars as of the
close of business on January 11, 2002, which was 0.8934. The actual rate
may differ.
(4) Includes $639 million for Xerox Capital Trust I and $43 million for
Canadian Deferred Preferred Stock.
(5) We paid approximately $31 million in initial purchasers' commission and
expenses in connection with the Trust Preferred Offering. We will accrete
the initial recorded value to liquidation value over a three-year period.
(6) 7 1/2% Convertible Trust Preferred Securities are due in 2021 with an
aggregate liquidation preference of $1,035 million. These securities are
convertible into our common stock at a conversion price of $9.125 per
share, subject to adjustment. The holders of these securities have the
right to cause us to repurchase them (at a price equal to their liquidation
preference plus accrued and unpaid dividends) on December 4, 2004, and on
November 27, 2006, 2008, 2011 and 2016. We can pay for such put in cash or
registered shares of our common stock or a combination thereof.
29
MANAGEMENT
Members of our current board of directors and executive officers are listed
below. The members of the board of directors are appointed by the shareholders
and hold office until their successors are duly appointed and qualified. All
officers serve at the pleasure of our board of directors.
Board of Directors And Executive Officers of Xerox
The following is a list of the directors and executive officers of Xerox,
their current ages and their present positions.
Each officer is elected to hold office until the meeting of the Board of
Directors held on the day of the next annual meeting of shareholders, subject
to the provisions of the By-Laws.
List of Directors
Director
Name Age Positions with Xerox Since
---- --- -------------------- --------
Antonia Ax:son Johnson....... 58 Director 1996
Vernon E. Jordan, Jr......... 66 Director 1974
Yotaro Kobayashi............. 68 Director; Chairman of the Board, 1987
Fuji Xerox Co., Ltd.
Hilmar Kopper................ 67 Director 1991
Ralph S. Larsen.............. 63 Director 1990
George J. Mitchell........... 68 Director 1996
Anne M. Mulcahy.............. 49 Chairman, Chief Executive Officer 2000
and Director
N. J. Nicholas, Jr........... 62 Director 1987
John E. Pepper............... 63 Director 1990
Martha R. Seager............. 70 Director 1991
Thomas C. Theobald........... 64 Director 1983
List of Executive Officers
Year
Appointed
to
Present Officer
Name Age Present Position Position Since
---- --- ---------------- -------- -------
Anne M. Mulcahy*............... 49 Chairman of the Board and 2002 1992
Chief Executive Officer
Carlos Pascual................. 56 Executive Vice President 2000 1994
President, Developing Markets
Operations
Ursula M. Burns................ 43 Senior Vice President 2001 1997
President Document Systems
and Solutions Group
Thomas J. Dolan................ 57 Senior Vice President 2001 1997
President, Xerox Global Services
James A. Firestone............. 47 Senior Vice President 2001 1998
President, Corporate Operations Group
Herve J. Gallaire.............. 57 Senior Vice President 2001 1997
President, Xerox Innovation Group and
Chief Technology Officer
30
Year
Appointed
to Present Officer
Name Age Present Position Position Since
---- --- ---------------- ---------- -------
Gilbert J. Hatch............... 52 Senior Vice President 1999 1997
President, Office Systems Group
Michael C. MacDonald........... 47 Senior Vice President 2000 1997
President, North American Solutions
Group
Hector J. Motroni.............. 58 Senior Vice President and 1999 1994
Chief Staff Officer
Christina E. Clayton........... 54 Vice President and 2000 2000
General Counsel
Jean-Noel Machon............... 49 Vice President 2000 2000
President, European Solutions Group
James J. Miller................ 50 Vice President 2001 2000
President, Office Printing Business
Gregory B. Tayler.............. 44 Vice President and Treasurer 2001 2000
Leslie F. Varon................ 45 Vice President and Secretary 2001 2001
Gary R. Kabureck............... 48 Assistant Controller and 2001 2000
Chief Accounting Officer
--------
* Member of Xerox Board of Directors.
Each officer named above, with the exception of James A. Firestone, has been
an officer or an executive of Xerox or its subsidiaries for at least the past
five years.
Director Biographies
Antonia Ax:son Johnson has been the Chairman of the Axel Johnson Group since
1982. In addition to serving as a member of the Xerox Corporation board of
directors, Ms. Johnson also serves as a director of on the boards of Axel
Johnson AB; Axel Johnson Inc.; Axel Johnson International; AhlensAB; Axfood AB;
Nordstjernan AB; NCC AB; and Axel and Margaret Ax:son Johnson Foundation. Ms.
Johnson is a member of the Xerox Corporation Audit and Executive Compensation
and Benefits Committees.
Vernon E. Jordan, Jr is the Senior Managing Director of Lazard Freres & Co.
LLC, which he joined in January, 2000. Prior to joining Lazard Freres, Mr.
Jordan was a partner of Akin, Gump, Strauss, Hauer & Feld, LLP, to which he is
currently Of Counsel and which he joined as partner in 1982. In addition to
serving as a member of the Xerox Corporation board of directors, Mr. Jordan
also serves as director on the boards of America Online Latin America, Inc.;
American Express Company; Callaway Golf Company; Clear Channel Communications,
Inc.; Dow Jones & Co., Inc.; Howard University; J.C. Penney Company, Inc.;
Revlon Group; Sara Lee Corporation; Shinsei Bank, Ltd (Senior Advisor) and the
LBJ Foundation. Mr. Jordan serves as chairman of the Nominating Committee and
member of the Xerox Corporation Executive and Finance Committees.
Yotaro Kobayashi has been Chairman of the Board of Fuji Xerox Co., Ltd since
1999, prior to which he served as Chairman and Chief Executive Officer of Fuji
Photo Film Co., Ltd., beginning in 1992. In addition to serving as a member of
the Xerox Corporation board of directors, Mr. Kobayashi also serves as director
on the boards of Fuji Xerox Co., Ltd.; Callaway Golf Company; Nippon Telegraph
and Telephone Corporation; and American Productivity & Quality Center. Mr.
Kobayashi serves as Chairman, Keizai Doyukai (Japan Association of Corporate
Executives), Pacific Asia Chairman of the Trilateral Commission and Chairman of
the Aspen Institute Japan.
31
Hilmar Kopper has served as Chairman of the Supervisory Board of Deutsche
BankAG since 1997. In addition to serving as a member of the Xerox Corporation
board of directors, Mr. Kopper also serves as director on the boards of Akzo
Nobel NV; Bayer AG; DaimlerChrysler AG; Solvay SA; and Unilever NV. Mr. Kopper
is a member of the Xerox Corporation Audit and Nominating Committees.
Ralph S. Larsen has served as the Chairman and Chief Executive Officer of
Johnson & Johnson since 1989. In addition to serving as a member of the Xerox
Corporation board of directors, Mr. Larsen also serves as director on the
boards of Johnson & Johnson and AT&T Wireless. Mr. Larsen is Chairman of the
Executive Compensation and Benefits Committee and member of the Xerox
Corporation Executive and Nominating Committees.
George J. Mitchell has been a member of the law firm of Verner, Liipfert,
Bernhard, McPherson and Hand since 1995, prior to which he served as U.S.
Senator from the State of Maine. In addition to serving on the Xerox
Corporation Board of Directors, Mr. Mitchell also serves on the boards of
Federal Express Corporation; Starwood Hotels & Resorts; UNUM; Provident
Corporation; The Walt Disney Company; Casella Waste Systems, Inc.; Staples,
Inc. and Unilever.
Anne M. Mulcahy is the Chairman and Chief Executive Officer of Xerox
Corporation. In addition to serving as a member of the Xerox Corporation board
of directors, Ms. Mulcahy also serves as director on the boards of Target
Corporation; Axel Johnson Inc.; Catalyst; Fannie Mae; and Fuji Xerox Company,
Ltd. Ms. Mulcahy was named Senior Vice President of Xerox Corporation in 1998
and Executive Vice President in 1999. She was elected as President and Chief
Operating Officer in May 2000, as Chief Executive Officer in August 2001 and
assumed the additional role of Chairman on January 1, 2002. Ms. Mulcahy is the
Chairman of the Xerox Corporation Executive Committee.
N. J. Nicholas, Jr. has been a private investor since 1992, prior to which
he served as President and Co-Chief Executive Officer of Time-Warner, Inc. In
addition to serving as a member of the Xerox Corporation board of directors,
Mr. Nicholas also serves as director on the boards of Boston Scientific
Corporation; priceline.com, Incorporated; and DB CapitalPartners. Mr. Nicholas
is Chairman of the Finance Committee and a member of the Xerox Corporation
Audit Committee.
John E. Pepper has served as Chairman of the Board and Chairman of the
Executive Committee of The Procter & Gamble Company since 1995. In addition to
serving as a member of the Xerox Corporation board of directors, Mr. Pepper
also serves as director on the boards of Motorola, Inc. and The Procter &
Gamble Company. Mr. Pepper is a member of the Xerox Corporation Audit and
Executive Compensation and Benefits Committees.
Martha R. Seger was Governor of Federal Reserve System from 1984 to 1991,
since which time she has been a Financial Economist. In addition to serving on
the Xerox Corporation Board of Directors, Ms. Seger also serves on the boards
of Fluor Corporation; Michigan Mutual and the Amerisure Companies; The Kroger
Co.; Tucson Electric Power Co. and its holding company, Unisouce Energy; and
Massey Energy.
Thomas C. Theobald has served as Managing Director of William Blair Capital
Partners, LLC since 1994. In addition to serving as a member of the Xerox
Corporation board of directors, Mr. Theobald also serves as director on the
boards of Anixter International; Jones, Lang, LaSalle Inc.; The MONY Group; and
Liberty Funds, and serves as Director of The MacArthur Foundation and the
Associates of Harvard Business School. Mr. Theobald is Chairman of the Xerox
Corporation Audit Committee and a member of the Xerox Corporation Executive
Compensation and Benefits Committee.
Executive Officer Biographies
Anne M. Mulcahy has served as President and Chief Operating Officer of Xerox
Corporation since May 2000. She has also served as Chief Executive Officer
since August 2001, and assumed the additional role of
32
Chairman on January 1, 2002. Prior to her election as President and Chief
Operating Officer, Ms. Mulcahy served as Senior Vice President from 1998 to
1999; and Executive Vice President from 1999 to 2000.
Carlos Pascual is an Executive Vice President of Xerox Corporation and
President of Xerox Developing Markets Operations. He was appointed to this
position January 2000 and has been an Executive Vice President since January
1999. His organization is focused on growth opportunities in emerging markets
and countries around the world, including Latin America, the Middle East,
Africa, the Eurasian countries, India and Russia. Prior to his current
assignment, Mr. Pascual was Deputy Executive Officer within the Industry
Solutions Operations business organization, and served as President, United
States Customer Operations, from 1995 to 1998.
Ursula M. Burns is President of the Document Systems and Solutions Group at
Xerox Corporation. She was named to this position in October 2001. She has also
served as Senior Vice President, Corporate Strategic Services since May, 2000.
The Document Systems and Solutions Group manages all product development,
manufacturing and marketing capabilities for the high-end production printing
market, including software and color and monochrome systems. It also
manufactures and markets Xerox supplies. From 1992 to 2000, Ms. Burns led
several business teams, including the office color and fax business, office
network copying business and the departmental business unit.
Thomas J. Dolan is President of the Xerox Global Services group at Xerox
Corporation. He was named to this position in October 2001. He is also a
Corporate Senior Vice President, appointed January 1999. Xerox Global Services'
mission is to be a global leader in the growing document, content and knowledge
management markets. Previously, Mr. Dolan served as president of the Global
Solutions Group, where he was responsible for production printing, publishing
and color product development, as well as the development and marketing of
industry-specific solutions. In 1999, Mr. Dolan served as President of North
American Solutions Group. Before that, he served two years as President of
Xerox Business Services, the company's document outsourcing business.
James A. Firestone is President, Corporate Operations Group at Xerox
Corporation. He was appointed to this position October 2001. He is also a
Senior Vice President, appointed October 1998. Mr. Firestone is responsible for
the strategy and operational support functions that are managed as centralized
corporate initiatives. This includes strategy, alliances, marketing and
communications, e-Business and TeleWeb, information management, Xerox
International Partners and Fuji Xerox relations.
Herve J. Gallaire became President of the Xerox Innovation Group for Xerox
Corporation in October 2001. He was named a Corporate Senior Vice President in
December 1999. Mr. Gallaire, who is Xerox's Chief Technology Officer, is
responsible for maximizing the company's billion-dollar annual investment in
research and development. He is in charge of worldwide research and technology
organizations, intellectual property management and licensing, and several
technology companies in the Xerox portfolio. Prior to 1999, Mr. Gallaire
managed the Xerox Research Centre Europe in Grenoble, France, from 1993 to
1998, during which period he became Chief Architect of the corporation and Vice
President of the Xerox Architecture Center. Most recently, he served as Senior
Vice President for Xerox Research and Technology.
Gilbert J. Hatch is President of the Office Systems Group at Xerox
Corporation. He was named to this position in September 1999. Mr. Hatch is also
a Corporate Senior Vice President, appointed October 1999. Mr. Hatch is
responsible for the design and marketing of Xerox's Document Centre and
WorkCentre Pro digital multifunction systems, and for managing Omnifax, a sales
and service company.
Michael C. MacDonald is President of the North American Solutions Group for
Xerox Corporation. He was named to the position June 2000. He was appointed a
Corporate Senior Vice President for Xerox Corporation in July 2000. Mr. Mac
Donald's organization is responsible for all products, services and solutions
sold by the Xerox direct sales force in the United States and Canada. Prior to
his appointment in 2000, he was Senior Vice President, Marketing, and Chief of
Staff for NASG, where he was responsible for the enterprise-wide marketing
organization.
33
Hector J. Motroni is Senior Vice President and Chief Staff Officer at Xerox
Corporation. He was named to this position and became a Corporate Senior Vice
President in January 1999. Mr. Motroni is responsible for human resources,
office of the general counsel, external affairs, quality, and business
excellence, facilities, real estate and general services. Prior to his present
appointment, he was the corporation's Vice President, Human Resources and
Quality.
Christina E. Clayton has been Vice President and General Counsel of Xerox
Corporation since July 2000. She also became a corporate officer on that date.
Ms. Clayton is responsible for managing the Office of General Counsel and for
the legal affairs of the company, including legal counseling, litigation and
patent acquisition. Prior to her appointment as Vice President and General
Counsel, she served as Deputy General Counsel of Xerox Corporation.
Jean-Noel Machon is the President of the European Solutions Group (ESG) for
Xerox Corporation. He was appointed to this position in September 2000. He has
been a corporate officer since July 2000. Mr. Machon is responsible for
managing the company's multi-billion-dollar European operations, driving
business activity in more than 20 countries. ESG, headquartered in Ballycoolin
(Dublin) and Uxbridge, markets Xerox's products, solutions and services
throughout Europe and has manufacturing operations in Ireland, the United
Kingdom and Holland and advanced research and development center in Grenoble,
France. Prior to 2000, Mr. Machon was President of Xerox's General Market
Operations Europe and North American General Markets Group and was previously
Deputy Managing Director of GMO in Europe. GMO focuses on on-site support of
Xerox office and printing products and manages the European concessionaire
channel.
James J. Miller is President, Office Printing Business for Xerox
Corporation. He was appointed to this position October 2001. He was elected a
Corporate Vice President in July 2000. Mr. Miller is responsible for the Office
Printing Business worldwide, the North American Agent Operations, and the North
American Dealer Channel.
Gregory B. Tayler is Corporate Treasurer at Xerox Corporation. He was named
to this position in November 2001. Mr. Tayler is also a Corporate Vice
President, appointed March 2000. As Treasurer, Mr. Tayler maintains the capital
structure of the corporation, including developing worldwide funding strategies
and overseeing customer equipment financing initiatives. He is also the
corporation's primary interface to the capital markets, including credit rating
agencies. Most recently, he served as Corporate Controller, overseeing
financial planning and analysis, accounting, financial systems and operations.
From 1997-1999, he served as Director, Accounting Policy and control. He was
subsequently named Xerox Corporation's Assistant Treasurer, Global Capital
Markets.
Leslie F. Varon is Vice President and Secretary for Xerox Corporation. She
was named to this position October 2001. She was elected a Corporate Vice
President in August 2001. Ms. Varon is responsible for corporate governance,
for the communication and interpretation of the company's results and business
strategies to shareholders and the investment community, and for shareholder
services. From June, 1997 to August, 2001 she served as director, investor
relations.
Gary R. Kabureck has served as the Assistant Corporate Controller and Chief
Accounting Officer of Xerox Corporation since January, 2000. Mr. Kabureck is
responsible for our worldwide books of account and finance systems; internal
control and audit coordination activities; finance training; management of our
non-standard agreements process; and maintaining, developing and interpreting
our accounting policies. He attends Audit Committee meetings as a management
invitee. Beginning in January 1997 and through January 2000, he served as our
Vice President for Financial Services.
34
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. 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 year 2001 presented the Company with many unique challenges. Foremost
among these challenges was the need to retain the senior leadership team in
order to successfully design and begin the implementation of the Company's
turnaround program. The principal retention and variable pay programs used by
the Committee in 2001 to achieve the Company's leadership retention objectives
and alignment with the Company's turnaround efforts are briefly described below:
2001 Cash Retention Awards: At its February 5, 2001 meeting, the Committee
approved cash retention awards totaling approximately $2.8 million to be
payable to 31 corporate officers, including James A. Firestone (awards totaling
$157,900), Ursula M. Burns (awards totaling $211,000) and Michael C. MacDonald
(awards totaling $152,500), assuming they remained employed by the Company
through the designated payment dates.
Annual Performance Incentive Plan (APIP): Under APIP, executive officers of
the Company may be eligible to receive performance-related cash payments.
Payments are, in general, only made if Committee-established annual performance
objectives are met.
35
The Committee approved an annual incentive target and maximum opportunity,
expressed as a percentage of 2001 base salary, for each participating officer.
At its meeting held on February 5, 2001, the Committee established overall
threshold, target and maximum measures of performance and associated payment
schedules.
The performance measures and weightings for 2001 were cash management (40%),
performance profit (40%), and revenue (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 2001, the performance against the measures established at the February
5, 2001 meeting was as follows: cash management was above targeted levels,
revenue growth was negative, and performance profit was below threshold level.
In view of significant concerns with respect to executive retention and the
need to continue progress on the Company's turnaround program, at its April 2,
2001 meeting, the Committee approved the payment of amounts equal to annual
APIP target awards to participating executives, including all executive
officers. As approved by the Committee, annual target award amounts were paid
over four quarterly payments. Based on performance against business metrics, no
additional APIP payouts were made for 2001 in relation to overall business
performance. However, four officers, including Michael C. Mac Donald, received
an additional payment under APIP reflecting their organizational performance.
Base Salary Adjustments: At its meeting on February 5, 2001, following a
review of competitive information, the Committee approved base salary
adjustments for select officers. The approved adjustments averaged 2.3% on an
annualized basis.
Certain executive officers received an additional adjustment to their base
salary level during 2001 as a result of new responsibilities, to reflect
competitive market levels, and/or to address unique retention concerns.
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 such excess
would not be deductible in certain circumstances.
Under EPIP the Committee established a pool of 2% of the Company's Document
Processing profit before tax (PBT) for the 2001 one-year performance period.
For the three-year period commencing in 1999, 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 2001, Paul A. Allaire, Anne M. Mulcahy and other executive
officers participated in EPIP.
For 2001, the PBT pool amounted to zero because of the Company's failure to
achieve positive PBT for the year.
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
36
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 2001, 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 program 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 program 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. The
second annual grant was made on January 1, 2002. 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 were 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, were eligible to participate in the CEO
Challenge Bonus. The CEO Challenge bonus provided 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 were met. For 2001, the CEO
Challenge Bonus was based on quarterly EPS targets. The EPS targets for two
quarters were achieved and bonus amounts were paid accordingly. For the
remaining quarters of 2001, EPS targets were not achieved and bonus
opportunities were forfeited. The CEO Challenge Bonus Program was terminated on
December 31, 2001.
Chief Executive Officer Compensation
The compensation paid to Paul A. Allaire, Chairman and Chief Executive
Officer from January 1, 2001 until July 31, 2001, and Chairman from August 1,
2001 through December 31, 2001 when he retired, was established by the
Committee at its December 4, 2000, February 5, 2001 and April 2, 2001 meetings.
The Committee's actions are described below as they relate to Mr. Allaire's
compensation as reported in the charts and tables that accompany this report.
Base Salary: Mr. Allaire's annualized base salary remained at $1,200,000.
2001 Bonus: Mr. Allaire's annual target bonus remained at 100% of base
salary and quarterly CEO Challenge bonus target remained at 13% of base salary.
Target bonus payments were made pursuant to the Committee's action on April 2,
2001. The CEO Challenge bonus was paid for two quarters of 2001.
37
Long-Term Incentive: As previously disclosed, 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 vested on January 1,
2002, and a restricted stock award of 350,000 shares that vested on January 1,
2002. In addition, effective January 1, 2001, Mr. Allaire was awarded
participation in a cash long-term incentive program that would have paid 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. Because the Company's performance
was below threshold on the measures established under the cash long-term
incentive program, no payments were made to Mr. Allaire under this program.
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 program, focus Mr. Allaire on the development of his successor and
provide compensation competitive with the Chairmen and Chief Executive Officers
of other companies. Mr. Allaire received no additional separation benefits in
connection with his retirement.
Effective August 1, 2001, Anne M. Mulcahy was elected Chief Executive
Officer of the Company. Effective January 1, 2002, she was elected to the
additional role of Chairman, upon the retirement of Mr. Allaire.
During the year, the Committee took the following actions with respect to
the compensation paid to Mrs. Mulcahy.
Base Salary: Mrs. Mulcahy's annualized base salary remained at $1,000,000.
2001 Bonus: Mrs. Mulcahy's annual target bonus remained at 100% of base
salary and her quarterly CEO Challenge Bonus target remained at 13% of base
salary. Target bonus payments were made pursuant to the Committee's action on
April 2, 2001. The CEO Challenge Bonus was paid for two quarters of 2001.
Long-Term Incentive: Mrs. Mulcahy received an award under the New LEEP
program as described earlier in the section summarizing executive officer
compensation. On January 1, 2001, Mrs. Mulcahy received a stock option grant
for 934,600 shares that will vest one-third each January 1st following the
grant effective date, and a restricted stock award for 250,000 shares that
vested on January 1, 2002. At its meeting on August 28, 2001, following Mrs.
Mulcahy's election as Chief Executive Officer, the Committee awarded Mrs.
Mulcahy a stock option grant for 1,000,000 shares that will vest five years
from the grant effective date.
Pursuant to New LEEP, effective on January 1, 2002, Mrs. Mulcahy received a
stock option grant for 934,600 shares that will vest one-third each January 1st
following the grant effective date, and a restricted stock award for 250,000
shares that will vest on January 1, 2003.
Retirement arrangement: At its meeting on August 28, 2001, following Mrs.
Mulcahy's election as Chief Executive Officer, the Committee approved an
enhanced retirement benefit for Mrs. Mulcahy that will pay a benefit beginning
at age 55.
The Committee made these awards to provide the incentives necessary to
retain Mrs. Mulcahy and to motivate her to take the actions necessary to
implement the turnaround program and to restore shareholder value.
Detailed information concerning Mrs. Mulcahy's compensation as well as that
of other highly compensated executives is displayed on the accompanying charts
and tables.
Ralph S. Larsen, Chairman
Antonia Ax:son Johnson
John E. Pepper
Thomas C. Theobald
February 4, 2002
38
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, 2001, and for Paul A. Allaire who served as Chief Executive
Officer through July 31, 2001, for services rendered in all capacities during
the fiscal years ended December 31, 2001, 2000, and 1999. 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
Compensation
Awards
----------------
Other Annual Underlying All Other
Name and Cash Bonus Compensation Restricted Stock Options/ Compensation
Principal Position Year Salary($) ($)(A) ($)(B) ($)(C) Sars (#)(D) ($)(E)
------------------ ---- --------- ---------- ------------ ---------------- ----------- ------------
Anne M. Mulcahy............ 2001 1,000,000 1,250,000 45,616 1,156,250 1,934,600 42,063
Chief Executive Officer 2000 721,667 45,063 115,023 2,681,250 310,000 34,642
1999 425,000 0 88,647 0 15,328 13,578
Paul A. Allaire............ 2001 1,200,000 1,500,000 50,954 1,618,750 350,000 16,849
Chairman and Chief 2000 1,125,000 121,875 162,881 2,681,250 450,000 17,055
Executive Officer (F) 1999 975,000 0 118,644 0 54,764 16,290
Barry D. Romeril........... 2001 675,000 1,175,000 49,089 963,125 467,300 27,708
Vice Chairman 2000 641,667 57,500 132,515 804,375 150,000 27,729
1999 575,000 0 175,351 0 24,415 27,141
Allan E. Dugan............. 2001 500,000 437,500 34,876 346,875 280,400 29,657
Executive Vice President 2000 462,500 37,188 99,471 0 50,000 29,702
1999 425,000 0 112,044 0 16,066 29,085
James A. Firestone......... 2001 400,750 463,975 22,179 115,625 93,500 17,853
Senior Vice President 2000 386,000 28,950 39,577 268,125 50,000 18,409
1999 384,167 0 31,283 274,024 10,857 18,436
Ursula M. Burns............ 2001 386,500 507,475 25,892 370,000 149,600 17,250
Senior Vice President 2000 326,667 15,000 53,863 268,125 40,000 17,650
1999 240,000 0 172,200 0 6,255 12,274
Michael C. MacDonald....... 2001 355,500 495,775 41,489 115,625 93,500 18,537
Senior Vice President 2000 321,939 18,750 53,319 0 30,000 19,133
1999 265,000 0 73,080 0 7,466 10,501
--------
(A) This column reflects annual cash bonuses earned during the years indicated
under EPIP and for the years 2001 and 2000 includes the CEO Challenge
Bonus. For 2001, the amount also includes payment of the annual target
bonus to all covered officers and the payment of cash retention awards as
discussed in the "Report of the Executive Compensation and Benefits
Committee of the Board of Directors" as follows: Anne M. Mulcahy--$0, Paul
A. Allaire--$0, Allan E. Dugan--$0, James A. Firestone--$157,900, Ursula M.
Burns--$211,000, and Michael C. MacDonald--$152,500. Included in the 2001
amount for Barry D. Romeril is a special bonus payment of $500,000 as
described under the section, "Termination Agreements".
(B) Other Annual Compensation includes executive expense allowance, dividend
equivalents paid on outstanding incentive stock rights and restricted stock
awards, perquisite compensation, tax-related reimbursements arising from
relocation and/or international assignments and above-market interest.
(C) As discussed in the report of the Executive Compensation and Benefits
Committee, for 2001 this column reflects restricted stock awarded under New
Leep which is a three-year performance cycle that began on January 1, 2001.
Restricted stock awarded vests one year from the date of the grant and
provides the payment of dividend equivalents at the same time and in the
same amount declared on one share of the Company's common stock. For 2000
and 1999, this column reflects incentive stock units 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
39
the same time and in the same amount declared on one share of the Company's
common stock. The number of restricted shares and units held by the Named
Officers and their value as of December 31, 2001 (based upon the closing
market price on that date of $10.42) was as follows: Anne M.
Mulcahy--353,440 ($3,682,845), Paul A. Allaire--400,000 ($4,168,000), Barry
D. Romeril--244,650 ($2,549,253), Allan E. Dugan--75,000 ($781,500), James
A. Firestone--38,580 ($402,004), Ursula M. Burns--123,800 ($1,289,996), and
Michael C. MacDonald--65,188 ($679,259). Excludes the second installment of
grants of restricted stock made on January 1, 2002 under New LEEP as
follows: Anne M. Mulcahy--250,000 ($2,591,250), Paul A. Allaire--0 ($0),
Barry D. Romeril--0 ($0), Allan E. Dugan--75,000 ($777,375), James A.
Firestone--32,500 ($336,863), Ursula M. Burns--80,000 ($829,200), and
Michael C. MacDonald --25,000 ($259,125).
(D) All stock options were awarded under the 1991 Plan. Stock options were
awarded under New LEEP on January 1, 2001. Excludes the second installment
of grants of stock options made on January 1, 2002 under New LEEP as
follows: Anne M. Mulcahy--934,600, Paul A. Allaire--0, Barry D. Romeril--0,
Allan E. Dugan--280,400, James A. Firestone--121,500, Ursula M.
Burns--149,600, and Michael C. MacDonald --93,500.
(E) The amount shown in this column consists of 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.
(F) Retired effective January 1, 2002.
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, 2001. 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 $7.7372 and $12.3203 for the
options with the $4.75 exercise price and $15.0673 and $23.9921 for the options
with the $9.25 exercise price. The amounts shown as potential realizable values
for all shareholders represent the corresponding increases in the market value
of 722,314,289 shares outstanding held by all shareholders as of December 31,
2001. Any gains to the Named Officers and the shareholders will depend upon
future performance of the common stock of the Company as well as overall market
conditions.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants (1)(2)
--------------------------- Potential Realizable Value
Number of At Assumed Annual Rates
Securities % of Total Exercise Of Stock Price Appreciation
Underlying Options Granted or Base For Option Term
Options to Employees In Price Expiration ------------------------------
Name Granted(#) Fiscal Year ($ /SH) Date 5%($) 10%($)
---- ---------- --------------- -------- ---------- -------------- ---------------
Anne M. Mulcahy..... 934,600(3) 12.72% $4.75 12/31/10 $ 2,791,883 $ 7,075,181
1,000,000(4) 9.25 12/31/11 5,817,275 14,742,118
Paul A. Allaire..... 350,000(5) 2.30% 4.75 12/31/10 1,045,537 2,649,597
Barry D. Romeril.... 467,300(3) 3.07% 4.75 12/31/10 1,395,942 3,537,590
Allan E. Dugan...... 280,400(3) 1.84% 4.75 12/31/10 837,625 2,122,706
James A. Firestone.. 93,500(3) 0.61% 4.75 12/31/10 279,308 707,821
Ursula M. Burns..... 149,600(3) 0.98% 4.75 12/31/10 446,893 1,132,513
Michael C. MacDonald 93,500(3) 0.61% 4.75 12/31/10 279,308 707,821
All Shareholders.... N/A N/A N/A N/A $4,708,400,497 $11,766,819,891
--------
1. Exercise price is based upon fair market value on the effective date of the
award. Excludes the second installment of grants of stock options made on
January 1, 2002 under New LEEP as follows: Anne M.
40
Mulcahy--934,600, Paul A. Allaire--0, Barry D. Romeril--0, Allan E.
Dugan--280,400, James A. Firestone--121,500, Ursula M. Burns--149,600, and
Michael C. MacDonald--93,500.
2. Options may be accelerated as a result of a change in control as described
under "Option Surrender Rights".
3. Exercisable 33% on each of the following dates: January 1, 2002; January 1,
2003; and January 1, 2004.
4. Exercisable 100% on August 28, 2006.
5. Exercisable 100% on January 1, 2002.
Option Exercises/Year-End Values
The following table sets forth for each of the Named Officers the number of
shares underlying options and SARs exercised during the fiscal year ended
December 31, 2001, the value realized upon exercise, the number of options/SARs
unexercised at year-end and the value of unexercised in-the-money options/SARs
at year-end.
AGGREGATE OPTION/SAR EXERCISES
IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUE
Value of Shares Number of
Underlying Shares Value of
Options/Sars Value Underlying Unexercised in-
Name Exercised(#) Realized($) Unexercised the-money
---- --------------- ----------- Options/Sars Options/Sars
Exercisable Unexercisable Exercisable at FY-end(#) at FY End($)(A) Unexercisable(B)
----------- --------------- ----------- ------------ --------------- ----------------
Anne M. Mulcahy...... 0 $0 309,401 2,134,007 $0 $6,362,779
Paul A. Allaire...... 0 $0 2,171,910 523,724 $0 $1,965,250
Barry D. Romeril..... 0 $0 404,281 589,814 $0 $2,623,890
Allan E. Dugan....... 0 $0 350,273 345,053 $0 $1,574,446
James A. Firestone... 0 $0 362,000 154,357 $0 $ 525,003
Ursula M. Burns...... 0 $0 51,360 195,435 $0 $ 840,004
Michael C. Mac Donald 0 $0 54,009 130,177 $0 $ 525,003
--------
(A) Excludes the second installment of grants of stock options made on January
1, 2002 under New LEEP as follows: Anne M. Mulcahy--934,600, Paul A.
Allaire--0, Barry D. Romeril--0, Allan E. Dugan--280,400, James A.
Firestone--121,500, Ursula M. Burns--149,600, and Michael C.
MacDonald--93,500.
(B) The value of unexercised options/SARs is based upon the difference between
the exercise price and the average of the high and low prices on December
31, 2001 of $10.365. Option/SARs may be accelerated as a result of a change
in control as described under "Option Surrender Rights".
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 that would accrue
for the number of years of credited service at the respective average annual
compensation levels. The earliest retirement age for benefit commencement
generally 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 and Allan E. Dugan. An accelerated benefit accrual also applies to
Officers who were designated as Grandfathered Officers with twice the 1 2/3%
accrual for 15 years and these participants are permitted to retire as early as
age 55 (this group includes both Paul A. Allaire and Anne M. Mulcahy). 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, 20 years for those
accruing benefits at the rate of 2 1/2% per year and 15 years for the
Grandfathered Officers.
41
Average Annual Compensation
For Five Highest Years Annual Age 65 Benefits For Years of Credited Service Indicated
---------------------- --------------------------------------------------------------
15 Years 20 Years 25 Years 30 Years
-------- --------- --------- ---------
300,000........... 70,000 93,000 117,000 140,000
400,000........... 95,000 127,000 158,000 190,000
600,000........... 145,000 193,000 242,000 290,000
800,000........... 195,000 260,000 325,000 390,000
1,000,000......... 245,000 327,000 408,000 490,000
1,200,000......... 295,000 393,000 492,000 590,000
1,400,000......... 345,000 460,000 575,000 690,000
1,600,000......... 395,000 527,000 658,000 790,000
1,800,000......... 445,000 593,000 742,000 890,000
2,000,000......... 495,000 660,000 825,000 990,000
2,200,000......... 545,000 727,000 908,000 1,090,000
2,400,000......... 595,000 793,000 992,000 1,190,000
2,600,000......... 645,000 860,000 1,075,000 1,290,000
2,800,000......... 695,000 927,000 1,158,000 1,390,000
3,000,000......... 745,000 993,000 1,242,000 1,490,000
3,200,000......... 795,000 1,060,000 1,325,000 1,590,000
3,400,000......... 845,000 1,127,000 1,408,000 1,690,000
3,600,000......... 895,000 1,193,000 1,492,000 1,790,000
3,800,000......... 945,000 1,260,000 1,575,000 1,890,000
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................... 30
Barry D. Romeril.................. 13
Allan E. Dugan.................... 18
James A. Firestone................ 4
Ursula M. Burns................... 21
Michael C. MacDonald.............. 25
--------
(A) Thirty years is the maximum permitted credited service under the plans.
Credited service shown reflects the accelerated accrual for mid-career hire
executives and Grandfathered Officers. The years of credited service
reflected can be applied to the annual benefit table above to determine the
annual benefit.
(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.
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: Paul A. Allaire
$2,480,485; Anne M. Mulcahy $868,862; Barry D. Romeril $967,567; Allan E. Dugan
$722,243; James A. Firestone $574,781; Ursula M. Burns $381,861; and Michael C.
MacDonald $402,235.
42
CERTAIN RELATIONSHIPS AND RELATED 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, and
Barry D. Romeril, 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.
43
The Company has also entered into agreements with 40 other officers or other
key executives, including Ursula M. Burns, Allan E. Dugan, James A. Firestone
and Michael C. MacDonald, 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
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.
In connection with his retirement from the Company, a revised compensation
continuance agreement dated October 3, 2001, with Barry D. Romeril was entered
into by the Company which had been approved by the Committee at its meeting on
September 26, 2001. Among other things, the revised agreement with Barry D.
Romeril provided for:
. Compensation continuance at the rate of $101,250 per month for 24
months, commencing in January 2002;
. Award of 50,000 Incentive Stock Rights, effective on September 26, 2001,
that will vest on January 1, 2004,
. Payment of target bonus in two quarterly installments of $135,000, and
. Payment of an additional bonus amount of $500,000.
The additional compensation was provided to secure Barry D. Romeril's
consulting services of up to 100 days during the period of compensation
continuance in connection with financial transactions of strategic importance
to the Company and to ensure a smooth transition to a new chief financial
officer of the Company.
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 $23,546 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.
44
Ten_Year Performance Comparison
The chart 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).
BASE
PERIOD DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC
COMPANY NAME/INDEX DEC 91 92 93 94 95 96 97 98 99 00 01
------------------ ------ ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
XEROX CORP............. $100 $120.48 $141.13 $161.05 $228.50 $269.43 $385.01 $623.77 $244.87 $ 51.67 $117.38
S&P 500 INDEX.......... 100 107.62 118.46 120.03 165.13 203.05 270.79 348.18 421.44 383.07 337.54
BUSINESS WEEK
COMPUTERS & PERIPHERALS 100 83.26 94.22 121.15 165.16 238.28 332.15 598.73 903.60 627.54 495.68
The Peer Group consists of the following companies as of December 31, 2001:
Apple Computer, Compaq Computer, Dell Computer, EMC, Gateway, Hewlett_Packard,
International Business Machines, Lexmark International, Maxtor, Palm, Quantum
DLT and Storage Systems, Silicon Graphics, Storage Technology, Sun
Microsystems, Unisys and Western Digital.
This chart assumes the investment of $100 on December 31, 1991 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.
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 restricted stock and incentive
stock 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 LLP, of which Vernon E.
Jordan, Jr. is of counsel, was retained by and rendered services to the Company
in 2001.
45
CERTAIN OTHER INDEBTEDNESS AND PREFERRED STOCK
Revolving Credit Facilities
We have a $7 billion revolving credit agreement with a group of banks, that
matures in October 2002. Currently, the balance outstanding under this
revolving credit agreement is $7 billion. We are currently in active
negotiations with our bank group to refinance a portion of our revolving credit
agreement and to extend its maturity beyond 2002. The principal terms and
conditions for refinancing a portion of our revolving credit agreement,
including extending its maturity beyond 2002, have been circulated to the 57
banks in our revolving credit agreement. Commitments to the refinancing are
being sought from the 57 banks in our revolving credit agreement. Consummation
of the refinancing is subject to agreement of all the lender banks, completion
of due diligence and negotiation of definitive agreements. This agreement
requires us to maintain a minimum consolidated tangible net worth ("CTNW").
Additionally, this agreement also contains certain covenants, the most
restrictive of which require that we limit the amounts of outstanding secured
borrowings, as defined in the agreement. We are in compliance with these
covenants. As of December 31, 2001, after giving effect to the Trust Preferred
Offering and the application of the net proceeds of such offering, our CTNW
would have been $1,300 million over the minimum amount required under the
covenant. Operating losses, restructuring costs, adverse currency translation
adjustments and adverse litigation outcomes and settlements would reduce our
CTNW. Amounts borrowed under this facility are at rates based, at the
borrower's option, on spreads above certain reference rates such as LIBOR. It
is likely that any renegotiated credit agreement will have more restrictive
covenants than those contained in the existing credit agreement. In addition,
our foreign subsidiaries had unused committed long-term lines of credit used to
back short-term indebtedness in various currencies at prevailing interest rates.
Convertible Debt
In 1998, we issued convertible subordinated debentures for net proceeds of
$575 million. The amount due upon maturity in April 2018 is approximately $913
million, resulting in an effective interest rate of 3.625% per annum, including
1.003% payable in cash semiannually beginning in October 1998. These debentures
are convertible at any time at the option of the holder into 7.808 shares of
our stock per $1,000 principal amount at maturity of debentures. This debt
contains a put option which requires us to purchase any debenture, at the
option of the holder, on April 21, 2003, for a price of $649 per $1,000
principal amount (or $593 million in the aggregate). We may elect to settle the
obligation in cash, shares of common stock, or any combination thereof.
Long-Term Debt
A summary of our long-term debt, including our revolving credit facilities
and convertible debt, is as follows:
Weighted Principal Principal Principal Principal
Average Amount Amount Amount Amount
Interest Rates Outstanding payable payable payable
at 12/31/2001 as of 12/31/2001 in 2002 in 2003 in 2004
- -------------- ---------------- --------- --------- ---------
Xerox Corporation.................... 5.4% $ 3,961 $ 831 $1,961 $ 754
Xerox Credit Corporation............. 3.5% 2,507 740 489 --
------- ------ ------ ------
Subtotal US Operations............ 6,468 1,571 2,450 754
Xerox Capital (Europe) plc........... 5.0% 1,912 651 -- 1,159
Other International Operations....... 6.7% 788 462 248 47
------- ------ ------ ------
Subtotal International Operations. 2,700 1,113 248 1,206
Credit Agreement..................... 2.7% 7,000 7,000 -- --
------- ------ ------ ------
Total Debt........................... 16,168 $9,684 $2,698 $1,960
====== ====== ======
Less: current maturities............. (9,684)
-------
Long-Term Debt.................... $ 6,484
=======
46
Certain of our debt agreements allow us to redeem outstanding debt prior to
scheduled maturity. Outstanding debt issues with call features are classified
in the preceding table in accordance with management's current expectations.
The actual decision as to early redemption will be made at the time the
early-redemption option becomes exercisable and will be based on liquidity,
prevailing economic and business conditions, and the relative costs of new
borrowing. Certain of our debt agreements contain features allowing the holders
to put these securities to us at certain dates. Outstanding debt issues with
put features are classified as if put at the earliest put date.
Preferred Stock
We have four series of outstanding preferred stock:
. Series B Convertible Preferred Stock (ESOP Shares) with an aggregate
liquidation preference of $605 million as of December 31, 2001; as
employees with vested ESOP Shares leave the Company, these shares are
redeemable by us. We have the option to settle such redemptions with
either shares of common stock or cash;
. Canadian Deferred Preferred Stock with an aggregate liquidation
preference of Cdn.$90 million. These shares are mandatorily redeemable
on February 28, 2006;
. 8% Trust Preferred Securities with an aggregate liquidation preference
of $650 million. These shares are mandatorily redeemable on February 2,
2027. These securities accrue and pay cash distributions semiannually at
a rate of 8 percent per annum of the stated liquidation amount of $1,000
per security. We have guaranteed, on a subordinated basis, distributions
and other payments due on these securities; and
. 7 1/2% Convertible Trust Preferred Securities, that are due in 2021,
with an aggregate liquidation preference of $1,035 million. These
securities are convertible into our common stock at a conversion price
of $9.125 per share, subject to adjustment. The holders of these
securities have the right to cause us to repurchase them (at a price
equal to their liquidation preference plus accrued and unpaid dividends)
on December 4, 2004, and on November 27, 2006, 2008, 2011 and 2016. We
can pay for such put in cash or registered shares of our common stock or
a combination thereof.
Other
In addition to the foregoing, we have other obligations, including those
that relate to asset dispositions and sales of receivables, and we have
litigation exposure.
47
THE EXCHANGE OFFER
Reasons for the Exchange Offer
Xerox and the initial purchasers entered into registration rights agreements
in connection with the issuance of the outstanding notes. The registration
rights agreements provide that we will take the following actions at our
expense, for the benefit of the holders of the notes:
. we will file the exchange offer registration statement, of which this
prospectus is a part. The exchange notes will have terms substantially
identical in all material respects to the outstanding notes except that
the exchange notes will not contain transfer restrictions;
. we will cause the exchange offer registration statement to be declared
effective under the Securities Act by January 14, 2003; and
. we will keep the exchange offer open for at least 20 business days, or
longer if required by applicable law, after the date on which notice of
the exchange offer is mailed to the holders.
The holder of each outstanding note surrendered in the exchange offer will
receive an exchange note having a principal amount equal to that of the
surrendered note. Interest on each exchange note will accrue from the later of
(1) the last interest payment date on which interest was paid on the
outstanding note surrendered or (2) if no interest has been paid on the
outstanding note, from January 14, 2002.
If:
. because of any change in law or in currently prevailing interpretations
of the staff of the SEC, we are not permitted to effect an exchange
offer;
. the exchange offer is not consummated by February 13, 2003; or
. in certain circumstances, certain holders of unregistered exchange notes
so request; or
. in the case of any holder that participates in the exchange offer, such
holder does not receive exchange notes on the date of the exchange that
may be sold without restriction under state and federal securities laws
(other than due solely to the status of such Holder as an affiliate of
ours or within the meaning of the Securities Act);
then in each case, we will (x) promptly deliver to the holders and the
trustees written notice thereof and (y) at our sole expense, (a) within 90 days
of such notice, file a shelf registration statement covering resales of the
notes (the "Shelf Registration Statement"), and (b) use our reasonable best
efforts to keep effective the Shelf Registration Statement until the earlier of
two years after the date that the outstanding notes were issued or such time as
all of the applicable notes have been sold thereunder.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept any and all outstanding notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the expiration date of the exchange offer. We will issue (a) $1,000 principal
amount of exchange notes in exchange for each $1,000 principal amount of
outstanding notes accepted in the exchange offer and (b) (Euro)1,000 principal
amount of exchange notes in exchange for each (Euro)1,000 principal amount of
outstanding notes accepted in the exchange offer. Any holder may tender some or
all of its outstanding notes pursuant to the exchange offer. However,
outstanding notes may be tendered only in integral multiples of $1,000 or
(Euro)1,000, as the case may be.
The form and terms of the exchange notes will be the same as the form and
terms of the outstanding notes except that:
(1) the exchange notes will have been registered under the Securities Act
and will not bear legends restricting their transfer; and
48
(2) the holders of the exchange notes will not be entitled to certain
rights under the registration rights agreements, including the provisions
providing for an increase in the interest rate on the outstanding notes in
certain circumstances relating to the timing of the exchange offer, all of
which rights will terminate when the exchange offer is terminated.
The exchange notes will evidence the same debt as the outstanding notes and
will be entitled to the benefits of the indentures. The exchange offer is not
conditioned on any minimum aggregate principal amount of outstanding notes
being tendered for exchange.
As of the date of this prospectus, $600 million and (Euro)225 million,
respectively, aggregate principal amount of the notes were outstanding. We have
fixed the close of business on , 2002 as the record date for the
exchange offer for purposes of determining the persons to whom this prospectus
and the letter of transmittal will be mailed initially.
Holders of outstanding notes do not have any appraisal or dissenters' rights
in connection with the exchange offer. We intend to conduct the exchange offer
in accordance with the applicable requirements of the Exchange Act and the
rules and regulations of the SEC.
We will be deemed to have accepted validly tendered outstanding notes when,
as and if we have given oral or written notice of our acceptance to the
exchange agent. The exchange agent will act as agent for the tendering holders
for the purpose of receiving the exchange notes from us.
If any tendered outstanding notes are not accepted for exchange because of
an invalid tender, the occurrence of specified other events set forth in this
prospectus or otherwise, the certificates for such unaccepted outstanding notes
will be returned, without expense, to the tendering holder as promptly as
practicable after the expiration date of the exchange offer.
Holders who tender outstanding notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the letter of transmittal, transfer taxes with respect to the exchange of
outstanding notes pursuant to the exchange offer. We will pay all charges and
expenses, other than transfer taxes in certain circumstances, in connection
with the exchange offer. See "--Fees and Expenses" and "--Transfer Taxes."
Expiration Date; Extensions; Amendments
The term "expiration date" will mean 5:00 p.m., New York City time, on
, 2002, unless we, in our sole discretion, extend the exchange offer, in
which case the term will mean the latest date and time to which the exchange
offer is extended.
In order to extend the exchange offer, we will notify the exchange agent
orally, confirmed in writing, or in writing, of any extension. We will notify
the registered holders of outstanding notes by public announcement of the
extension no later than 9:00 a.m., New York City time, on the business day
after the previously scheduled expiration of the exchange offer.
Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment
of the exchange offer, we will have no obligation to publish, advertise, or
otherwise communicate any public announcement, other than by making a timely
release to a financial news service.
Procedures for Tendering
We have forwarded to you, along with this prospectus, a letter of
transmittal relating to the exchange offer. Because all the outstanding notes
are held in book-entry accounts at DTC, Euroclear or Clearstream, a holder
49
need not submit a letter of transmittal if the holder tenders outstanding notes
in accordance with the procedures mandated by DTC's Automated Tender Offer
Program (ATOP) or by Euroclear or Clearstream, as the case may be. To tender
outstanding notes without submitting a letter of transmittal, the electronic
instructions sent to DTC, Euroclear or Clearstream and transmitted to the
exchange agent must contain your acknowledgment of receipt of and your
agreement to be bound by and to make all of the representations contained in
the letter of transmittal. In all other cases, a letter of transmittal must be
manually executed and delivered as described in this prospectus.
Only a holder of record may tender outstanding notes in the exchange offer.
To tender in the exchange offer, a holder must comply with the procedures of
DTC or Euroclear or Clearstream, as applicable, and either:
. complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal; have the signature on the letter of transmittal
guaranteed if the letter of transmittal so requires; and deliver the
letter of transmittal or facsimile to the exchange agent prior to the
expiration date; or
. in lieu of delivering a letter of transmittal, instruct DTC or Euroclear
or Clearstream, as the case may be, to transmit on behalf of the holder
a computer-generated message to the exchange agent in which the holder
of the outstanding notes acknowledges and agrees to be bound by the
terms of the letter of transmittal, which computer-generated message
must be received by the exchange agent prior to 5:00 p.m., New York City
time, on the expiration date.
In addition, either:
. the exchange agent must receive the outstanding notes along with the
letter of transmittal; or
. with respect to the outstanding dollar notes, the exchange agent must
receive, before expiration of the exchange offer, timely confirmation of
book-entry transfer of the outstanding dollar notes into the exchange
agent's account at DTC, according to the procedure for book-entry
transfer described below; or
. with respect to the outstanding euro notes, the exchange agent must
receive, before the expiration date, timely confirmation from Euroclear
or Clearstream that the securities account to which the outstanding euro
notes are credited has been blocked from and including the day on which
the confirmation is delivered to the exchange agent and that no
transfers will be effected in relation to such outstanding euro notes at
any time after such date; or
. the holder of dollar notes must comply with the guaranteed delivery
procedures described below.
To be tendered effectively, the exchange agent must receive physical
delivery of the letter of transmittal and other required documents at the
address set forth below under the caption "Exchange Agent" before expiration of
the exchange offer. To receive confirmation of valid tender of outstanding
notes, a holder should contact the exchange agent at the telephone number
listed under the caption "Exchange Agent."
The tender by a holder that is not withdrawn before expiration of the
exchange offer will constitute an agreement between that holder and us in
accordance with the terms and subject to the conditions set forth in this
prospectus and in the letter of transmittal. If a holder completing a letter of
transmittal tenders less than all of its outstanding notes, the tendering
holder should fill in the applicable box of the letter of transmittal. The
amount of outstanding notes delivered to the exchange agent will be deemed to
have been tendered unless otherwise indicated.
If the outstanding notes, the letter of transmittal or any other required
documents are physically delivered to the exchange agent, the method of
delivery is at the holder's election and risk. Rather than mail these items, we
recommend that holders use an overnight or hand delivery service. In all cases,
holders should allow sufficient time to assure delivery to the exchange agent
before expiration of the exchange offer. Holders should not send the letter of
transmittal or outstanding notes to us. Holders may request their respective
brokers, dealers, commercial banks, trust companies or other nominees to effect
the above transactions for them.
50
Any beneficial owner whose outstanding notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct it to
tender on the owner's behalf. If the beneficial owner wishes to tender on its
own behalf, it must, prior to completing and executing the letter of
transmittal and delivering its outstanding notes, either:
. make appropriate arrangements to register ownership of the outstanding
notes in the owner's name; or
. obtain a properly completed bond power from the registered holder of
outstanding notes.
The transfer of registered ownership may take considerable time and may not
be completed prior to the expiration date.
If the applicable letter of transmittal is signed by the record holder(s) of
the outstanding notes tendered, the signature must correspond with the name(s)
written on the face of the outstanding notes without alteration, enlargement or
any change whatsoever. If the applicable letter of transmittal is signed by a
participant in DTC or Euroclear or Clearstream, as applicable, the signature
must correspond with the name as it appears on the security position listing as
the holder of the outstanding notes.
A signature on a letter of transmittal or a notice of withdrawal must be
guaranteed by an "eligible institution." Eligible institutions include banks,
brokers, dealers, municipal securities dealers, municipal securities brokers,
government securities dealers, government securities brokers, credit unions,
national securities exchanges, registered securities associations, clearing
agencies and savings associations. The signature need not be guaranteed by an
eligible institution if the outstanding notes are tendered:
. by a registered holder who has not completed the box entitled "Special
Registration Instructions" or "Special Delivery Instructions" on the
letter of transmittal; or
. for the account of an eligible institution.
If the letter of transmittal is signed by a person other than the registered
holder of any outstanding notes, the outstanding notes must be endorsed or
accompanied by a properly completed bond power. The bond power must be signed
by the registered holder as the registered holder's name appears on the
outstanding notes and an eligible institution must guarantee the signature on
the bond power.
If the letter of transmittal or any outstanding notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, these persons should so indicate when signing. Unless we waive this
requirement, they should also submit evidence satisfactory to us of their
authority to delivery the letter of transmittal.
We will determine in our sole discretion all questions as to the validity,
form, eligibility, including time of receipt, acceptance and withdrawal of
tendered outstanding notes. Our determination will be final and binding. We
reserve the absolute right to reject any outstanding notes not properly
tendered or any outstanding notes the acceptance of which would, in the opinion
of our counsel, be unlawful. We also reserve the right to waive any defects,
irregularities or conditions of tender as to particular outstanding notes. Our
interpretation of the terms and conditions of the exchange offer, including the
instructions in the letter of transmittal, will be final and binding on all
parties.
Unless waived, any defects or irregularities in connection with tenders of
outstanding notes must be cured within the time that we determine. Although we
intend to notify holders of defects or irregularities with respect to tenders
of outstanding notes, neither we, the exchange agent nor any other person will
incur any liability for failure to give notification. Tenders of outstanding
notes will not be deemed made until those defects or irregularities have been
cured or waived. Any outstanding notes received by the exchange agent that are
not properly tendered and as to which the defects or irregularities have not
been cured or waived will be returned to the exchange agent without cost to the
tendering holder, unless otherwise provided in the letter of transmittal, as
soon as practicable following the expiration date.
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In all cases, we will issue dollar exchange notes for outstanding dollar
notes that we have accepted for exchange under the exchange offer only after
the exchange agent timely receives:
. outstanding dollar notes or a timely book-entry confirmation that
outstanding dollar notes have been transferred in the exchange agent's
account at DTC; and
. a properly completed and duly executed letter of transmittal and all
other required documents or a properly transmitted agent's message.
In all cases, we will issue euro exchange notes for outstanding euro notes
that we have accepted for exchange under the exchange offer only after the
exchange agent timely receives:
. a timely confirmation from Euroclear or Clearstream that the securities
account to which the outstanding euro notes are credited has been
blocked; and
. a properly completed and duly executed letter of transmittal and all
other required documents or a properly transmitted agent's message.
Holders should receive copies of the applicable letter of transmittal with
the prospectus. A holder may obtain additional copies of the applicable letter
of transmittal for the outstanding notes from the exchange agent at its offices
listed under the caption "Exchange Agent." By signing the letter of
transmittal, or causing DTC, Euroclear or Clearstream, as applicable, to
transmit an agent's message to the exchange agent, each tendering holder of
outstanding notes will represent to us that, among other things:
. any exchange notes that the holder receives will be acquired in the
ordinary course of its business;
. the holder has no arrangement or understanding with any person or entity
to participate in the distribution of the exchange notes;
. if the holder is not a broker-dealer, that it is not engaged in and does
not intend to engage in the distribution of the exchange notes;
. if the holder is a broker-dealer that will receive exchange notes for
its own account in exchange for outstanding notes that were acquired as
a result of market-making activities or other trading activities, that
it will deliver a prospectus, as required by law, in connection with any
resale of those exchange notes (see the caption "Plan of Distribution");
and
. the holder is not an "affiliate," as defined in Rule 405 of the
Securities Act, of us or, if the holder is an affiliate, it will comply
with any applicable registration and prospectus delivery requirements of
the Securities Act.
DTC Book-entry Transfer
The exchange agent has established an account with respect to the
outstanding dollar notes at DTC for purposes of the exchange offer.
With respect to the outstanding dollar notes, any participant in DTC may
make book-entry delivery of outstanding dollar notes by causing DTC to transfer
the outstanding dollar notes into the exchange agent's account in accordance
with DTC's ATOP procedures for transfer.
However, the exchange for the outstanding dollar notes so tendered will only
be made after a book-entry confirmation of such book-entry transfer of the
outstanding dollar notes into the exchange agent's account, and timely receipt
by the exchange agent of an agent's message and any other documents required by
the letter of transmittal. For this purpose, "agent's message" means a message,
transmitted by DTC and received by the exchange agent and forming part of a
book-entry confirmation, which states that DTC has received an express
acknowledgment from a participant tendering outstanding dollar notes that are
the subject of the book-entry
52
confirmation that the participant has received and agrees to be bound by the
terms of the letter of transmittal, and that we may enforce that agreement
against the participant.
Euroclear and Clearstream Procedures for Blocking Instructions
The registered holder of the outstanding euro notes on the records of
Euroclear or Clearstream must instruct Euroclear or Clearstream to block the
securities in the account in Euroclear or Clearstream to which such outstanding
euro notes are credited. In order for the exchange offer to be accepted, the
exchange agent must have received, prior to the expiration date, a confirmation
from Euroclear or Clearstream that the securities account of outstanding euro
notes tendered has been blocked from and including the day on which the
confirmation is delivered to the exchange agent and that no transfers will be
effected in relation to the outstanding euro notes at any time after such date.
The exchange of the outstanding euro notes so tendered will only be made after
a timely receipt by the exchange agent of an agent's message and any other
documents required by the letter of transmittal. For this purpose, "agent's
message" means a message, transmitted by Euroclear or Clearstream and received
by the exchange agent which states that Euroclear or Clearstream has received
an express acknowledgement from a participant tendering outstanding euro notes
that the participant has received and agrees to be bound by the terms of the
letter of transmittal, and that we may enforce that agreement against the
participant.
Guaranteed Delivery Procedures for Dollar Notes
These guaranteed delivery procedures only apply to the outstanding dollar
notes and do not apply to the outstanding euro notes. Holders wishing to tender
their outstanding dollar notes but whose notes are not immediately available or
who cannot deliver their notes, the letter of transmittal or any other required
documents to the exchange agent or cannot comply with the applicable procedures
described above before expiration of the exchange offer may tender if:
. the tender is made through an eligible institution;
. before expiration of the exchange offer, the exchange agent receives
from the eligible institution either a properly completed and duly
executed notice of guaranteed delivery, by facsimile transmission, mail
or hand delivery, or a properly transmitted agent's message and notice
of guaranteed delivery:
. setting forth the name and address of the holder and the registered
number(s) and the principal amount of outstanding dollar notes tendered:
. stating that the tender is being made by guaranteed delivery;
. guaranteeing that, within three New York Stock Exchange trading days
after expiration of the exchange offer, the letter of transmittal, or
facsimile thereof, together with the outstanding dollar notes or a
book-entry transfer confirmation, and any other documents required by
the letter of transmittal will be deposited by the eligible
institution with the exchange agent; and
. the exchange agent receives the properly completed and executed
letter of transmittal, or facsimile thereof, as well as all tendered
outstanding dollar notes in proper form for transfer or a book-entry
transfer confirmation, and all other documents required by the letter
of transmittal, within three New York Stock Exchange trading days
after expiration of the exchange offer.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their outstanding dollar notes according to
the guaranteed delivery procedures set forth above.
Withdrawal of Tenders
Except as otherwise provided in this prospectus, holders of outstanding
notes may withdraw their tenders at any time before expiration of the exchange
offer.
53
For a withdrawal to be effective, the exchange agent must receive a
computer-generated notice of withdrawal transmitted by DTC, Euroclear or
Clearstream on behalf of the holder in accordance with the standard operating
procedures of DTC or Euroclear or Clearstream or a written notice of
withdrawal, which may be by telegram, telex, facsimile transmission or letter,
at one of the addresses set forth below under the caption "-- Exchange Agent."
Any notice of withdrawal must:
. specify the name of the person who tendered the outstanding notes to be
withdrawn;
. identify the outstanding notes to be withdrawn, including the principal
amount of the outstanding notes to be withdrawn; and
. where certificates for outstanding notes have been transmitted, specify
the name in which the outstanding notes were registered, if different
from that of the withdrawing holder.
If certificates for outstanding notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of those
certificates, the withdrawing holder must also submit:
. the serial numbers of the particular certificates to be withdrawn; and
. a signed notice of withdrawal with signatures guaranteed by an eligible
institution, unless the withdrawing holder is an eligible institution.
If outstanding notes have been tendered pursuant to the procedure for
book-entry transfer or the blocking procedures described above, any notice of
withdrawal must specify the name and number of the account at DTC or Euroclear
or Clearstream, as applicable, to be credited with the withdrawn outstanding
notes and otherwise comply with the procedures of the applicable facility.
We will determine all questions as to the validity, form and eligibility,
including time of receipt, of notices of withdrawal, and our determination
shall be final and binding on all parties. We will deem any outstanding notes
so withdrawn not to have been validly tendered for exchange for purposes of the
exchange offer. We will return any outstanding notes that have been tendered
for exchange but that are not exchanged for any reason to their holder without
cost to the holder. In the case of outstanding dollar notes tendered by
book-entry transfer into the exchange agent's account at DTC, according to the
procedures described above, those outstanding dollar notes will be credited to
an account maintained with DTC, for outstanding dollar notes, as soon as
practicable after withdrawal, rejection of tender or termination of the
exchange offer. In the case of outstanding euro notes tendered in accordance
with the blocking procedures of Euroclear or Clearstream, the outstanding euro
notes will be returned to their holder by cancellation of the blocking
instruction in accordance with the standard operating procedures of Euroclear
or Clearstream. You may retender properly withdrawn outstanding notes by
following one of the procedures described under the caption "--Procedures for
Tendering" above at any time on or before expiration of the exchange offer.
A holder may obtain a form of the notice of withdrawal from the exchange
agent at its offices listed under the caption "Exchange Agent."
Conditions
Notwithstanding any other term of the exchange offer, we will not be
required to accept for exchange, or exchange notes for, any outstanding notes,
and may terminate or amend the exchange offer as provided in this prospectus
before the acceptance of the outstanding notes, if:
(1) in our judgment, the exchange notes to be received will not be
tradable by the holder without restriction under the Securities Act and the
Exchange Act and without restrictions under the blue sky or securities laws
of substantially all of the states of the United States; or
54
(2) any action of proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the exchange offer
which, in our sole judgment, might impair our ability to proceed with the
exchange offer or any material adverse development has occurred in any
existing action or proceeding with respect to us or any of our subsidiaries;
or
(3) any law, statute, rule, regulation or interpretation by the staff of
the SEC is proposed, adopted or enacted, which, in our sole judgment, might
impair our ability to proceed with the exchange offer or impair the
contemplated benefits of the exchange offer to us;
(4) any governmental approval has not been obtained, which approval we,
in our sole discretion, deem necessary for the consummation of the exchange
offer as contemplated by this prospectus; or
(5) any stop order shall be threatened or in effect with respect to the
registration statement of which this prospectus constitutes a part or the
qualification of the indenture under the Trust Indenture Act of 1939, as
amended;
(6) there shall occur a change in the current interpretation by the staff
of the SEC which permits the exchange notes issued in the exchange offer in
exchange for the outstanding notes to be offered for resale, resold and
otherwise transferred by such holders, other than broker-dealers and any
such holder which is an "affiliate" of our company within the meaning of
Rule 405 under the Securities Act, without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such
exchange notes acquired in the exchange offer are acquired in the ordinary
course of such holder's business and such holder has no arrangement or
understanding with any person to participate in the distribution of such
exchange notes;
(7) there has occurred any general suspension of or general limitation on
prices for, or trading in, securities on any national exchange or in the
over-the-counter market;
(8) any governmental agency creates limits that adversely affect our
ability to complete the exchange offer;
(9) there shall occur any declaration of war, armed hostilities or other
similar international calamity directly or indirectly involving the United
States, or the worsening of any such condition that existed at the time that
we commence the exchange offer;
(10) there shall have occurred a change (or a development involving a
prospective change) in our and our subsidiaries' businesses, properties,
assets, liabilities, financial condition, operations, results of operations
taken as a whole, that is or may be adverse to us; or
(11) we shall have become aware of facts that, in our reasonable
judgment, have or may have adverse significance with respect to the value of
the outstanding notes or the exchange notes.
The preceding conditions are for our sole benefit and we may assert them
regardless of the circumstances giving rise to any such condition. If we
determine in our sole discretion that any of the conditions are not satisfied,
we may (1) refuse to accept any outstanding notes and return all tendered
outstanding notes to the tendering holders, (2) extend the exchange offer and
retain all outstanding notes tendered prior to the expiration of the exchange
offer, subject, however, to the rights of holders to withdraw the outstanding
notes (see "--Withdrawal of Tenders") or (3) waive the unsatisfied conditions
in whole or in part at any time and from time to time in our sole discretion
with respect to the exchange offer and accept all properly tendered outstanding
notes which have not been withdrawn. If we waive the conditions, the exchange
offer will remain open for at least three (3) business days following any
waiver of the preceding conditions. Our failure at any time to exercise the
foregoing rights shall not be deemed a waiver of any such right and each such
right shall be deemed an ongoing right which we may assert at any time and from
time to time.
55
Exchange Agent
Wells Fargo Bank Minnesota, N.A. has been appointed as exchange agent for
the exchange offer. Questions and requests for assistance, requests for
additional copies of this prospectus or of the letter of transmittal and
requests for Notice of Guaranteed Delivery should be directed to the exchange
agent addressed as follows:
Wells Fargo Bank Minnesota, N.A.
Sixth Street and Marquette Avenue
MAC N9303-120
Minneapolis, Minnesota 55479
Telephone: (612) 667-234
Fax: (612) 667-9825
Attention: Corporate Trust Service
Reference: Xerox Corporation
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SHOWN
ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT
CONSTITUTE A VALID DELIVERY OF THE LETTER OF TRANSMITTAL.
Transfer Taxes
We will pay all transfer taxes, if any, applicable to the exchange of
outstanding notes under the exchange offer. The tendering holder, however, will
be required to pay any transfer taxes, whether imposed on the registered holder
or any other person, if:
. certificates representing outstanding notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of
outstanding notes tendered;
. exchange notes are to be delivered to, or issued in the name of, any
person other than the registered holder of the outstanding notes;
. tendered outstanding notes are registered in the name of any person
other than the person signing the letter of transmittal; or
. a transfer tax is imposed for any reason other than the exchange of
outstanding notes under the exchange offer.
If satisfactory evidence of payment of transfer taxes is not submitted with
the letter of transmittal, the amount of any transfer taxes will be billed
directly to the tendering holder.
Fees and Expenses
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses incurred in connection with these services.
We will pay the cash expenses to be incurred in connection with the exchange
offer. Such expenses include fees and expenses of the exchange agent and
trustee, accounting and legal fees and printing costs, among others.
Consequences of Failure to Exchange Outstanding Notes
Outstanding notes that are not tendered or are tendered but not accepted
will, following the consummation of the exchange offer, continue to be subject
to the provisions in the indenture regarding the transfer and exchange of the
outstanding notes and the existing restrictions on transfer set forth in the
legend on the
56
outstanding notes and in the offering memorandum, dated January 14, 2002,
relating to the outstanding notes. Except in limited circumstances with respect
to specific types of holders of outstanding notes, we will have no further
obligation to provide for the registration under the Securities Act of such
outstanding notes. In general, outstanding notes, unless registered under the
Securities Act, may not be offered or sold except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. We do not currently anticipate that we will take any
action to register the untendered outstanding notes under the Securities Act or
under any state securities laws.
Upon completion of the exchange offer, holders of the outstanding notes will
not be entitled to any further registration rights under the exchange and
registration rights agreement, except under limited circumstances.
Holders of the exchange notes and any outstanding notes which remain
outstanding after consummation of the exchange offer will vote together as a
single class for purposes of determining whether holders of the requisite
percentage of the class have taken certain actions or exercised certain rights
under the indentures.
Accounting Treatment
The exchange notes will be recorded at the same carrying value as the
outstanding notes, as reflected in our accounting records on the date of the
exchange. Accordingly, we will not recognize any gain or loss for accounting
purposes as a result of the exchange offer. Expenses incurred in connection
with the exchange offer will be expensed as incurred.
Resale of the Exchange Notes
Based on existing interpretations of the Securities Act by the staff of the
SEC contained in several no-action letters to third parties, we believe that
the exchange notes will be freely transferable by holders of the notes, except
as set forth below, without further registration under the Securities Act. See
Shearman & Sterling (available July 2, 1993); Morgan Stanley & Co. Incorporated
(available June 5, 1991); and Exxon Capital Holdings Corporation (available May
13, 1989). Holders of outstanding notes, however, who are our affiliates, who
intend to participate in the exchange offer for purposes of distributing the
exchange securities, or who are broker-dealers who purchased the outstanding
notes from us for resale, will not be able to freely offer, sell or transfer
the exchange notes pursuant to this prospectus, and will need to comply with
separate (resale) registration and prospectus delivery requirements of the
Securities Act in connection with any offer, sale or transfer of notes.
Each holder who is eligible to and wishes to exchange its outstanding notes
for exchange notes will be required to make the following representations:
. any exchange notes to be received by the holder will be acquired in the
ordinary course of its business;
. the holder has no arrangement or understanding with any person to
participate in the distribution of the exchange notes;
. the holder is not an affiliate as defined in Rule 405 promulgated under
the Securities Act, or if it is an affiliate, it will comply with the
registration and prospectus delivery requirements of the Securities Act;
. if the holder is not a broker-dealer, it is not engaged in, and does not
intend to engage in, the distribution of exchange notes;
. if the holder is a broker-dealer that will receive exchange notes for
its own account in exchange for outstanding notes that were acquired as
a result of market-making activities or other trading activities (we
refer to these broker-dealers as participating broker-dealers), the
holder will deliver a prospectus in connection with any resale of the
exchange notes; and
. the holder is not acting on behalf of any person or entity that could
not truthfully make these representations.
57
DESCRIPTION OF THE NOTES
On January 17, 2002, the Company issued $600,000,000 aggregate principal
amount of Senior Notes due 2009 (the "Dollar Notes") under an indenture (the
"Dollar Indenture"), between itself and Wells Fargo Bank Minnesota, National
Association, as Trustee (the "Dollar Trustee"). On January 17, 2002, the
Company issued (Euro)225,000,000 aggregate principal amount of Senior Notes due
2009 (the "Euro Notes" and, together with the Dollar Notes, the "Notes") under
an indenture (the "Euro Indenture" and, together with the Dollar Indenture, the
"Indentures"), between itself and Wells Fargo Bank Minnesota, National
Association, as Trustee (the "Euro Trustee" and, together with the Dollar
Trustee, the "Trustees"). The following is a summary of the material provisions
of the Indentures. It does not include all of the provisions of the Indentures.
Although, for convenience, the Dollar Notes and the Euro Notes are referred to
as the "Notes," the Dollar Notes and the Euro Notes will each be issued as a
separate series and will not together have any class voting or other rights. We
urge you to read the Indentures because they define your rights. The terms of
the Notes include those stated in the Indentures and those made part of the
Indentures by reference to the Trust Indenture Act of 1939, as amended (the
"TIA"). A copy of the Indentures may be obtained from the Company or the
Initial Purchasers. You can find definitions of certain capitalized terms used
in this description under "--Certain Definitions." For purposes of this
section, references to the "Company" include only Xerox Corporation and not its
subsidiaries.
The Notes are senior unsecured obligations of the Company, ranking pari
passu in right of payment with all other senior unsecured obligations of the
Company. The Notes are effectively subordinated to all secured debt of the
Company and structurally subordinated to the debt of Subsidiaries.
The Company has issued the Notes in fully registered form in denominations
of $1,000 and (Euro)1,000, as applicable, and integral multiples thereof. The
Trustees will initially act as Paying Agent and Registrar for the Notes. The
Company has appointed a Paying Agent for the Euro Notes in London, England (the
"London Paying Agent"). The Notes may be presented for registration of transfer
and exchange at the offices of the Registrar. The Company may change any Paying
Agent and Registrar without notice to holders of the Notes (the "Holders"). It
is expected that the Company will pay principal (and premium, if any) on (i)
the Dollar Notes at the Trustees' corporate office in New York, New York and
(ii) the Euro Notes at the Trustee's corporate office in New York, New York and
the London Paying Agent's corporate office in London, England. It is expected
that at the Company's option, interest may be paid at the Trustees' corporate
trust office or the London Paying Agent's corporate office, as applicable, or
by check mailed to the registered address of Holders. Any Dollar Notes that
remain outstanding after the completion of the Exchange Offer, together with
the Exchange Dollar Notes issued in connection with the Exchange Offer, will be
treated as a single class of securities under the Dollar Indenture. Any Euro
Notes that remain outstanding after the completion of the Exchange Offer,
together with the Exchange Euro Notes issued in connection with the Exchange
Offer, will be treated as a single class of securities under the Euro Indenture.
The Company has agreed to use its reasonable best efforts to have the Notes
listed on the Luxembourg Stock Exchange. So long as the Notes are listed on the
Luxembourg Stock Exchange and if required by the rules of such stock exchange,
a paying agent will be maintained in Luxembourg at all times that payments are
required to be made in respect of the Notes.
Principal, Maturity and Interest
The Notes will mature on January 15, 2009. After the Issue Date, Additional
Notes of each series ("Additional Notes") may be issued from time to time,
subject to the limitations set forth under "--Certain Covenants Not Applicable
During Suspension Period--Limitation on Incurrence of Additional Indebtedness."
The Notes and the Additional Notes of the same series that are actually issued
will be treated as a single class for all purposes under the Indentures,
including, without limitation, as to waivers, amendments, redemptions and
offers to purchase.
Interest on the Dollar Notes will accrue at the rate of 9 3/4% per annum and
will be payable semiannually in cash on each January 15 and July 15, commencing
on July 15, 2002, to the persons who are registered Holders at the close of
business on the January 1 and July 1 immediately preceding the applicable
interest payment date.
58
Interest on the Dollar Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from and including the
date of issuance to but excluding the actual interest payment date.
Interest on the Euro Notes will accrue at the rate of 9 3/4% per annum and
will be payable semiannually in cash on each January 15 and July 15, commencing
on July 15, 2002, to the persons who are registered Holders at the close of
business on the January 1 and July 1 immediately preceding the applicable
interest payment date. Interest on the Euro Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from and including the date of issuance to but excluding the actual interest
payment date.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
The Notes are not be entitled to the benefit of any mandatory sinking fund.
Optional Redemption
Except as described below, the Notes are not redeemable.
The Company may, at any time and from time to time, at its option, redeem
each series of the outstanding Notes (in whole or in part) at a redemption
price equal to 95.167% of the principal amount thereof, plus original issue
discount on such Notes accrued pursuant to Section 1272 of the Internal Revenue
Code of 1986, as amended, to the applicable redemption date, plus accrued and
unpaid interest, if any, on the Notes to the applicable redemption date, plus
the applicable Make-Whole Premium (a "Specified Redemption"); provided that in
the case of any such redemption in part, at least 50% of the original principal
amount of the applicable series of Notes remains outstanding after giving
effect to such redemption. The Company shall give not less than 30 nor more
than 60 days notice of such redemption.
In the event that the Company chooses to redeem less than all of the Notes,
selection of the Notes for redemption will be made by the applicable Trustee
either:
(1) in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes are listed; or,
(2) if the Notes are not so listed, on a pro rata basis, by lot or by
such method as the Trustee shall deem fair and appropriate.
Change of Control
Upon the occurrence of a Change of Control, each Holder will have the right
to require that the Company purchase all or a portion (equal to $1,000 or
(Euro)1,000, as the case may be, and integral multiples thereof) of such
Holder's Notes pursuant to the offer described below (the "Change of Control
Offer"), at a purchase price equal to 101% of the principal amount of the Notes
repurchased plus accrued and unpaid interest to the date of purchase.
Within 30 days following the date upon which the Change of Control occurred,
the Company must send, or cause the Trustees to send, by first class mail, a
notice to each Holder, with a copy to the Trustees, which notice shall govern
the terms of the Change of Control Offer. Such notice shall state, among other
things, the purchase date, which must be no earlier than 30 days nor later than
45 days from the date such notice is mailed, other than as may be required by
law (the "Change of Control Payment Date"). Holders electing to have a Note
purchased pursuant to a Change of Control Offer will be required to surrender
the Note, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Note completed, to the Paying Agent at the address specified in
the notice prior to the close of business on the third business day prior to
the Change of Control Payment Date.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders
59
seeking to accept the Change of Control Offer. In the event the Company is
required to purchase outstanding Notes pursuant to a Change of Control Offer,
the Company expects that it would seek third-party financing to the extent it
does not have available funds to meet its purchase obligations. However, there
can be no assurance that the Company would be able to obtain such financing. In
addition, there can be no assurance that the Company will be able to obtain the
consents necessary to consummate a Change of Control Offer from the lenders
under agreements governing outstanding Indebtedness which may in the future
prohibit the offer.
Neither the Board of Directors of the Company nor the Trustees may waive the
covenant relating to a Holder's right to redemption upon a Change of Control.
Restrictions in the Indentures described herein on the ability of the Company
and its Restricted Subsidiaries to incur additional Indebtedness, to grant
Liens on its property, to make Restricted Payments and to make Asset Sales may
also make more difficult or discourage a takeover of the Company, whether
favored or opposed by the management of the Company. There can be no assurance
that the Company or the acquiring party will have sufficient financial
resources to effect a Change of Control Offer. Such restrictions and the
restrictions on transactions with Affiliates may, in certain circumstances,
make more difficult or discourage any leveraged buyout of the Company or any of
its Subsidiaries by the management of the Company. While such restrictions
cover a wide variety of arrangements which have traditionally been used to
effect highly leveraged transactions, the Indentures may not afford the Holders
protection in all circumstances from the adverse aspects of a highly leveraged
transaction, reorganization, restructuring, merger or similar transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indentures, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indentures by virtue thereof.
The "Change of Control" provisions described above will apply during any
Suspension Period.
Suspension Period
During each Suspension Period, the provisions of the applicable Indenture
described under "Certain Covenants That Will Cease To Apply During Suspension
Period" will not apply. The provisions of the applicable Indenture described
under "Certain Covenants Applicable At All Times" will apply at all times
during any Suspension Period so long as any Notes remain outstanding thereunder.
"Suspension Period" means any period (a) beginning on the date that:
(1) the applicable series of Notes has Investment Grade Status, provided
that prior to the assignment of the ratings contemplated by the
definition of Investment Grade Status, the Company has advised Moody's
and S&P that the covenants under "Certain Covenants That Will Cease To
Apply During Suspension Period" will not apply during such Suspension
Period;
(2) no Default or Event of Default has occurred and is continuing; and
(3) the Company has delivered an Officers' Certificate to the applicable
Trustee certifying that the conditions set forth in clauses (1) and (2)
above are satisfied;
and (b) ending on the date (the "Reversion Date") that the applicable series of
Notes cease to have the applicable ratings from both Moody's and S&P specified
in the definition of Investment Grade Status; provided that solely for the
purpose of determining the Reversion Date, the applicable series of Notes shall
be deemed to have Investment Grade Status if clauses (i) or (ii) of the
definition of Investment Grade Status are otherwise satisfied, notwithstanding
that either Moody's and/or S&P announces a negative outlook with respect to
such Notes.
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On each Reversion Date, all Indebtedness incurred during the Suspension
Period prior to such Reversion Date will be deemed to have been outstanding on
the Issue Date and classified as permitted under clause (4) of the definition
of Permitted Indebtedness.
For purposes of calculating the amount available to be made as Restricted
Payments under clause (iii) of the first paragraph of the "--Limitation on
Restricted Payments" covenant, calculations under that clause will be made with
reference to December 31, 2001 as set forth in that clause. Accordingly, (x)
Restricted Payments made during the Suspension Period not otherwise permitted
pursuant to any of clauses (1) through (13) under the second paragraph under
the "Limitation on Restricted Payments" covenant will reduce the amount
available to be made as Restricted Payments under clause (iii) of such
covenant, provided, that the amount available to be made as Restricted Payments
on the Reversion Date shall not be reduced to below zero solely as a result of
such Restricted Payments, but may be reduced to below zero as a result of
cumulative Consolidated Net Income for the purpose of sub-clause (v) of clause
(iii) of such covenant being a loss, and (y) the items specified in subclause
(v) through (z) of clause (iii) of such covenant that occur during the
Suspension Period will increase the amount available to be made as Restricted
Payments under clause (iii) of such covenant. Any Restricted Payments made
during the Suspension Period that (i) are of the type described in clause (4)
under the "Limitation on Restricted Payments" covenant or (ii) that would have
been made pursuant to clause (13) of the second paragraph under such covenant
if such covenant were then applicable, shall reduce the amounts permitted to be
incurred under such clause (4) or (13), as the case may be, on the Reversion
Date.
For purposes of the "--Limitation on Asset Sales" covenant, on the Reversion
Date, the unutilized Net Proceeds Offer Amount will be reset to zero.
Certain Covenants That Will Cease To Apply During Suspension Period
Set forth below are summaries of certain covenants contained in the
Indentures that will apply at all times except during any Suspension Period.
Limitation on Incurrence of Additional Indebtedness. (a) The Company will
not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness); provided, however, that the Company may incur Indebtedness
(including, without limitation, Acquired Indebtedness), if on the date of the
incurrence of such Indebtedness, after giving effect to the incurrence thereof,
the Consolidated Fixed Charge Coverage Ratio of the Company is (i) greater than
2.0 to 1.0 if such Indebtedness is incurred on or before January 15, 2004 or
(ii) greater than 2.25 to 1.0 if such Indebtedness is incurred after January
15, 2004.
(b) The Company will not, directly or indirectly, incur any Indebtedness
which by its terms (or by the terms of any agreement governing such
Indebtedness) is subordinated in right of payment to any other Indebtedness of
the Company, unless such Indebtedness is also by its terms (or by the terms of
any agreement governing such Indebtedness) made expressly subordinate to the
Notes to the same extent and in the same manner as such Indebtedness is
subordinated to other Indebtedness of the Company.
(c) Notwithstanding clause (a) of this covenant, the Company will not permit
any Domestic Insignificant Subsidiary, directly or indirectly, to incur any
Indebtedness other than Indebtedness permitted to be incurred by such Domestic
Insignificant Subsidiary under clauses (2), (4), (7), (9), (10), (16) and (18)
(provided that in the case of clause (18), the Indebtedness being refinanced is
the Indebtedness of any Domestic Insignificant Subsidiary) of the definition of
Permitted Indebtedness.
Limitation on Restricted Payments. The Company will not, and will not cause
or permit any of its Restricted Subsidiaries to, directly or indirectly:
61
(1) declare or pay any dividend or make any distribution (other than
dividends or distributions payable in Qualified Capital Stock of the
Company) on or in respect of shares of the Company's or any Restricted
Subsidiary's Capital Stock to holders of such Capital Stock in their
capacity as such, other than dividends, payments or distributions payable to
the Company or any Restricted Subsidiary of the Company (and, if such
Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary, dividends
or distributions payable to the other equity holders of such Restricted
Subsidiary on a pro rata basis);
(2) purchase, redeem or otherwise acquire or retire for value any Capital
Stock of the Company or any Restricted Subsidiary (other than (x) in
exchange for Qualified Capital Stock of the Company, (y) the redemption of
Preferred Stock of the Company or any Restricted Subsidiary outstanding on
the Issue Date (other than the Convertible Trust Preferred Securities) at
any scheduled final mandatory redemption date thereof as in effect on the
Issue Date or (z) Capital Stock of a Restricted Subsidiary held by the
Company or another Restricted Subsidiary) or any warrants, rights or options
to purchase or acquire shares of any class of such Capital Stock or make any
payments with respect to Synthetic Purchase Agreements;
(3) make any principal payment on, purchase, defease, redeem, prepay,
decrease or otherwise acquire or retire for value, prior to any scheduled
final maturity, scheduled repayment or scheduled sinking fund payment, any
Subordinated Indebtedness (other than the purchase, repurchase or other
acquisition of Subordinated Indebtedness purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final
maturity, in each case due within one year of the date of such purchase,
repurchase or other acquisition); or
(4) make any Investment (other than Permitted Investments)
(each of the foregoing actions set forth in clauses (1), (2), (3) and (4) being
referred to as a "Restricted Payment"), if at the time of such Restricted
Payment or immediately after giving effect thereto,
(i) a Default or an Event of Default shall have occurred and be
continuing; or
(ii) the Company is not able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
"Limitation on Incurrence of Additional Indebtedness" covenant; or
(iii) the aggregate amount of Restricted Payments (including such
proposed Restricted Payment) made subsequent to December 31, 2001 (the
amount expended for such purposes, if other than in cash, being the fair
market value of such property as determined in good faith by the Company)
shall exceed the sum, without duplication (the "Restricted Payments
Basket"), of:
(v) 50% of the cumulative Consolidated Net Income (or if cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss) of the
Company earned subsequent to December 31, 2001 and on or prior to the
date the Restricted Payment occurs (the "Reference Date") (treating such
period as a single accounting period); plus
(w) 100% of the aggregate net cash proceeds received by the Company
from any Person (other than a Subsidiary of the Company) from the
issuance and sale subsequent to December 31, 2001 and on or prior to the
Reference Date of Qualified Capital Stock of the Company or warrants,
options or other rights to acquire Qualified Capital Stock of the
Company (but excluding any debt security that is convertible into, or
exchangeable for, Qualified Capital Stock); plus
(x) 100% of the aggregate net cash proceeds of any equity
contribution received by the Company from a holder of the Company's
Capital Stock; plus
(y) the amount by which Indebtedness of the Company (other than the
Convertible Subordinated Debentures) is reduced on the Company's balance
sheet upon the conversion or exchange (other than by a Subsidiary of the
Company) subsequent to December 31, 2001 of such Indebtedness for
Qualified Capital Stock of the Company (less the amount of any cash, or
the fair value of any other property, distributed by the Company upon
such conversion or exchange); plus
62
(z) without duplication, the sum of:
(1) the aggregate amount returned in cash on or with respect to
Investments (other than Permitted Investments) made subsequent to
December 31, 2001 whether through interest payments, principal
payments, dividends or other distributions or payments;
(2) the net cash proceeds received by the Company or any of its
Restricted Subsidiaries from the disposition of all or any portion of
such Investments (other than to a Subsidiary of the Company); and
(3) upon redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary, the fair market value of such Subsidiary;
provided, however, that the sum of clauses (1), (2) and (3) above shall
not exceed the aggregate amount of all such Investments made subsequent
to December 31, 2001.
Notwithstanding the foregoing, the provisions set forth in the preceding
paragraphs do not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration of such dividend if the dividend would have been permitted on
the date of declaration;
(2) the acquisition of any shares of Capital Stock of the Company or any
warrants, rights or options to purchase or acquire shares of any class of
such Capital Stock, either (i) solely in exchange for shares of Qualified
Capital Stock of the Company or any warrants, rights or options to purchase
or acquire shares of any class of Qualified Capital Stock of the Company or
(ii) through the application of net proceeds of a substantially concurrent
sale for cash (other than to a Subsidiary of the Company) of shares of
Qualified Capital Stock of the Company;
(3) the repurchase, redemption or other repayment of any Subordinated
Indebtedness or Subsidiary Preferred Stock permitted to be issued pursuant
to clause (2) of the definition of Permitted Indebtedness either (i) solely
in exchange for shares of Qualified Capital Stock of the Company or any
warrants, rights or options to purchase or acquire shares of any class of
Qualified Capital Stock of the Company or other Subordinated Indebtedness of
the Company that is Refinancing Indebtedness, or (ii) through the
application of net proceeds of a substantially concurrent sale for cash
(other than to a Subsidiary of the Company) of (a) shares of Qualified
Capital Stock of the Company or (b) other Subordinated Indebtedness of the
Company that is Refinancing Indebtedness;
(4) (x) the repurchase or other acquisition of shares of Qualified
Capital Stock of the Company or any warrants, rights or options to purchase
or acquire shares of any such Qualified Capital Stock, from employees,
former employees, directors or former directors of the Company or any of its
Subsidiaries (or permitted transferees of such employees, former employees,
directors or former directors), pursuant to the terms of the agreements
(including employment agreements) or plans (or amendments thereto) approved
by the Board of Directors under which such individuals purchase or sell, or
are granted the option to purchase or sell, shares of such Qualified Capital
Stock or (y) the redemption or repayment of any outstanding de minimis
Subordinated Indebtedness; provided that the aggregate amount paid under
clauses (x) and (y) combined does not exceed $25.0 million since the Issue
Date;
(5) regularly scheduled or cumulative dividends or distributions on the
Convertible Trust Preferred Securities or on any other trust preferred
securities issued by a Restricted Subsidiary of the Company that is a
special purpose finance vehicle of the Company to the extent otherwise
permitted to be issued under the Indentures and such dividends or
distributions are included in Consolidated Fixed Charges;
(6) any repurchase of the Convertible Trust Preferred Securities upon the
exercise by the holders thereof of any right to require such Restricted
Subsidiary to purchase such securities through the application of the net
proceeds of a substantially concurrent sale for cash (other than to a
Subsidiary of the Company) of an issuance of, or solely in exchange for,
either (x) junior subordinated debentures of the Company that are
63
subordinated to the Notes pursuant to a written agreement that is, taken as
a whole, no less restrictive to the holders of such junior subordinated
debentures than the subordination terms of the junior subordinated
debentures into which such Convertible Trust Preferred Securities are
exchangeable and have a maturity (including pursuant to any sinking fund
obligation, mandatory redemption or right of repurchase at the option of the
holder or otherwise) no earlier that the final maturity of the Notes and
that have the benefit of covenants that are, taken as a whole, no more
restrictive than the covenants in the Indentures or (y) Qualified Capital
Stock of the Company or any warrants, rights or options to purchase or
acquire shares of any class of Qualified Capital Stock of the Company;
(7) regularly scheduled or cumulative dividends on the Company's Series B
Convertible Preferred Stock to the extent such dividends are or were
included in Consolidated Fixed Charges;
(8) upon the occurrence of a Change of Control and after the completion
of the offer to repurchase of the Notes as described under "Change of
Control" above (including the purchase of all Notes tendered), any purchase,
defeasance, retirement, redemption or other acquisition of Subordinated
Indebtedness required under the terms of such Subordinated Indebtedness as a
result of such Change of Control;
(9) payments to holders of Capital Stock (or to the holders of
Indebtedness or Disqualified Capital Stock that is convertible into or
exchangeable for Capital Stock upon such conversion or exchange) in lieu of
the issuance of fractional shares;
(10) the payment of consideration by a Person other than the Company or a
Subsidiary to equity holders of the Company;
(11) any repurchase of the Convertible Subordinated Debentures upon
exercise of the right of the holders to require the Company to purchase such
securities on April 21, 2003;
(12) the transactions with any Person (including any Affiliate of the
Company) described in clause (1) of the third paragraph of the "Transaction
with Affiliates" covenant and the funding of any obligations in connection
therewith; and
(13) other Restricted Payments in an aggregate amount which, when taken
together with all other Restricted Payments pursuant to this clause (13),
does not exceed $35.0 million.
In determining the aggregate amount of Restricted Payments made subsequent
to January 1, 2002 in accordance with clause (iii) of the second preceding
paragraph, amounts expended pursuant to clauses (1) and (4) of the immediately
preceding paragraph shall be included in such calculation. No issuance and sale
of Qualified Capital Stock pursuant to clause (2) or (3) of the immediately
preceding paragraph shall increase the Restricted Payments Basket, except to
the extent the proceeds thereof exceed the amounts used to effect the
transactions described therein.
Limitation on Asset Sales. The Company will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless:
(1) the Company or the applicable Restricted Subsidiary, as the case may
be, receives consideration at the time of such Asset Sale at least equal to
the fair market value of the assets sold or otherwise disposed of (as
determined in good faith by the Company or such Restricted Subsidiary);
(2) at least 75% of the consideration received by the Company or the
Restricted Subsidiary, as the case may be, from such Asset Sale shall be in
the form of cash or Cash Equivalents (provided that the amount of any Pari
Passu Indebtedness of the Company or any Indebtedness of a Restricted
Subsidiary that is assumed by the transferee of any such assets shall be
deemed to be cash for the purposes of this provision); and
(3) upon the consummation of an Asset Sale, the Company shall apply, or
cause such Restricted Subsidiary to apply, the Net Cash Proceeds relating to
such Asset Sale within 365 days of receipt thereof:
(a) (i) to repurchase or otherwise acquire any Pari Passu
Indebtedness pursuant to any exercise by the holders thereof of the
right to require the issuer thereof to repurchase or acquire such Pari
Passu
64
Indebtedness prior to its scheduled maturity or scheduled repayment,
(ii) to prepay, repay, repurchase, redeem, defease or otherwise acquire
or retire for value, on or prior to any scheduled maturity, repayment or
amortization that portion of Pari Passu Indebtedness of the Company to
the extent that such Pari Passu Indebtedness has a stated maturity,
scheduled repayment or amortization that has or will become due prior to
the final stated maturity of the Notes, (iii) any Pari Passu
Indebtedness under the Credit Agreement (other than Capital Markets
Debt), or (iv) any Indebtedness of a Restricted Subsidiary; provided
that, in each case under this clause (a), if such Pari Passu
Indebtedness was borrowed under the revolving portion of any credit
facility, then a permanent reduction in the availability under the
revolving portion of such credit facility will be effected;
(b) to make an investment in or expenditures for properties and
assets that replace the properties and assets that were the subject of
such Asset Sale or in properties and assets (including Capital Stock of
any entity) that will be used in the business of the Company and its
Subsidiaries or in businesses reasonably related thereto or to fund the
cash portion of the Turnaround Program ("Replacement Assets"); and/or
(c) a combination of prepayment and investment permitted by the
foregoing clauses (3)(a) and (3)(b);
provided that, notwithstanding the preceding provisions of this paragraph
(3), if the Company or any Restricted Subsidiary;
(i) enters into any letter of intent, memorandum of understanding,
agreement or other instrument (each, an "Asset Sales Agreement") after
the Issue Date that contemplates one or more Asset Sales by the Company
or such Restricted Subsidiary, and
(ii) after the date of such Asset Sale Agreement and within 365 days
immediately prior to the consummation of the Asset Sale(s) pursuant
thereto, has applied any cash or Cash Equivalents (other than Net Cash
Proceeds from any other Asset Sale) ("Applied Cash") in any manner
permitted by clauses 3(a), 3(b) or 3(c) of the preceding paragraph
(other than any repayments of Indebtedness under the Revolving Credit
Facility, dated as of October 22, 1997 as it existed on the Issue Date
only),
then the amount of Net Cash Proceeds relating to such Asset Sale(s) up to
the amount of Applied Cash shall be deemed to have been applied by Company
or such Restricted Subsidiary in accordance with the provisions of clause
(3) above.
Pending the application of any Net Cash Proceeds required by this covenant,
the Company or such Restricted Subsidiary may temporarily reduce any short-term
loans or any Indebtedness under the revolving portion of any credit facility,
including without limitation, under the Credit Agreement, and such temporary
reductions shall not result in any permanent reduction in the availability
under the revolving portion of such credit facility.
On the 366th day after an Asset Sale or such earlier date, if any, as the
Board of Directors of the Company or of such Restricted Subsidiary determines
not to apply the Net Cash Proceeds relating to such Asset Sale as set forth in
clauses (3)(a), (3)(b) and (3)(c) of the preceding paragraph (each, a "Net
Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds which
have not been applied on or before such Net Proceeds Offer Trigger Date as
permitted in clauses (3)(a), (3)(b) and (3)(c) of the preceding paragraph or
deemed to have been applied pursuant to the proviso of the immediately
preceding paragraph (each a "Net Proceeds Offer Amount") shall be applied by
the Company or such Restricted Subsidiary to make an offer to purchase (the
"Net Proceeds Offer") to all Holders (and holders of other Pari Passu
Indebtedness of the Company to the extent required by the terms thereof) on a
date (the "Net Proceeds Offer Payment Date") not less than 30 nor more than 60
days following the applicable Net Proceeds Offer Trigger Date, from all Holders
(and holders of other Pari Passu Indebtedness of the Company to the extent
required by the terms thereof) on a pro rata basis, that amount of Notes (and
other Pari Passu Indebtedness) equal to the Net Proceeds Offer Amount at a
price equal to 100% of
65
the principal amount thereof, plus accrued and unpaid interest thereon, if any,
to the date of purchase; provided, however, that if at any time any non-cash
consideration received by the Company or any Restricted Subsidiary of the
Company, as the case may be, in connection with any Asset Sale is converted
into or sold or otherwise disposed of for cash (other than interest received
with respect to any such non-cash consideration), then such conversion or
disposition shall be deemed to constitute an Asset Sale hereunder and the Net
Cash Proceeds thereof shall be applied in accordance with this covenant.
The Company may defer the Net Proceeds Offer until there is an aggregate
unutilized Net Proceeds Offer Amount equal to or in excess of $75.0 million
resulting from one or more Asset Sales (at which time, the entire unutilized
Net Proceeds Offer Amount, and not just the amount in excess of $75.0 million,
shall be applied as required pursuant to this paragraph).
Notwithstanding the first two paragraphs of this covenant, the Company and
its Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent that:
(1) at least 75% of the consideration for such Asset Sale constitutes
Replacement Assets; and
(2) such Asset Sale is for fair market value; provided that any cash or
Cash Equivalents received by the Company or any of its Restricted
Subsidiaries in connection with any Asset Sale permitted to be consummated
under this paragraph shall constitute Net Cash Proceeds subject to the
provisions of the first two paragraphs of this covenant.
Each Net Proceeds Offer will be mailed to the record Holders as shown on the
register of Holders within 45 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustees, and shall comply with the procedures set
forth in the Indenture. Upon receiving notice of the Net Proceeds Offer,
Holders may elect to tender their Notes in whole or in part in integral
multiples of $1,000 or (Euro)1,000, as the case may be) in exchange for cash.
To the extent the aggregate principal amount of Notes and other Pari Passu
Indebtedness properly tendered exceeds the Net Proceeds Offer Amount, the
tendered Notes and other Pari Passu Indebtedness will be purchased on a pro
rata basis based on the amount of Notes and other Pari Passu Indebtedness
tendered. A Net Proceeds Offer shall remain open for a period of 20 business
days or such longer period as may be required by law.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset Sale"
provisions of the Indentures, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the "Asset Sale" provisions of the Indentures by virtue
thereof.
After consummation of any Net Proceeds Offer, any Net Proceeds Offer Amount
not applied to any such purchase may be used by the Company for any purpose
permitted by the other provisions of the Indentures.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause
or permit to exist or become effective any consensual, encumbrance or
restriction on the ability of any Restricted Subsidiary of the Company to:
(1) pay dividends or make any other distributions on or in respect of its
Capital Stock to the Company or any Restricted Subsidiary;
(2) make loans or advances or to pay any Indebtedness or other obligation
owed to the Company or any other Restricted Subsidiary of the Company; or
(3) transfer any of its property or assets to the Company or any other
Restricted Subsidiary of the Company,
66
except for such encumbrances or restrictions existing under or by reason of:
(a) applicable law, rules, regulations and/or orders;
(b) the Indentures (including, without limitation, any Liens permitted by
the Indentures);
(c) customary non-assignment provisions of any contract, or any lease or
license governing a leasehold interest, of any Restricted Subsidiary of the
Company;
(d) any agreement or instrument governing Acquired Indebtedness, which
encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person or the properties
or assets of the Person so acquired or any Subsidiary of such Person;
(e) agreements or instruments existing on the Issue Date to the extent
and in the manner such agreements are in effect on the Issue Date and any
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof, provided that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are no more restrictive (as
determined in the good faith judgment of the Company) in any material
respect, taken as a whole, with respect to such dividend and other payment
restrictions than those contained in such agreements or instruments as in
effect on the Issue Date;
(f) the Credit Agreement;
(g) Purchase Money Indebtedness incurred in compliance with the
"Limitation on Incurrence of Additional Indebtedness" covenant that impose
restrictions of the nature described in clause (3) above on the property
acquired;
(h) any agreement relating to Indebtedness of a Restricted Subsidiary
permitted to be incurred under the "Limitation on Incurrence of Additional
Indebtedness" covenant;
(i) restrictions on cash or other deposits or net worth imposed under
contracts entered into in the ordinary course of business;
(j) any encumbrance or restriction existing under or by reason of
contractual requirements in connection with a Qualified Receivables
Transaction;
(k) pursuant to any merger agreements, stock purchase agreements, asset
sale agreements and similar agreements limiting the transfer of properties
and assets or distributions pending consummation of the subject transaction;
(l) in the case of clause (3) of the first paragraph of this covenant,
any encumbrance or restriction (a) that restricts in a customary manner the
subletting, assignment or transfer of any property or asset that is subject
to a lease, license, or similar contract, (b) by virtue of any transfer of,
agreement to transfer, option or right with respect to, or Lien on, any
property or assets of the Company or any Restricted Subsidiary not otherwise
prohibited by the Indentures, or (c) contained in security agreements
securing Indebtedness of any Restricted Subsidiary to the extent permitted
by the Indentures and such encumbrance or restrictions restrict the transfer
of the property subject to such security agreements;
(m) an agreement governing Indebtedness incurred to Refinance the
Indebtedness issued, assumed or incurred pursuant to an agreement referred
to in clause (b), (d), (e), (g), (h) or (j) above; provided, however, that
the provisions relating to such encumbrance or restriction contained in any
such Indebtedness are no more restrictive in any material respect than the
provisions relating to such encumbrance or restriction contained in
agreements referred to in such clause (b), (d), (e), (g), (h) or (j) as
determined by the Company; and
(n) agreements or instruments, including, without limitation, joint
venture agreements, entered into to facilitate the Turnaround Program or in
connection with Permitted Joint Venture Investments.
Limitations on Transactions with Affiliates. The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, enter
into or permit to exist any transaction or series of related
67
transactions (including, without limitation, the purchase, sale, lease or
exchange of any property or the rendering of any service) with any of its
Affiliates (each, an "Affiliate Transaction"), other than (x) Affiliate
Transactions permitted under the third paragraph of this covenant and (y)
Affiliate Transactions on terms that are no less favorable in any material
respect than those that might reasonably have been obtained, in the good faith
judgment of the Board of Directors of the Company or the Restricted Subsidiary,
as the case may be, in a comparable transaction at such time on an arm's length
basis from a Person that is not an Affiliate of the Company or such Restricted
Subsidiary.
Each Affiliate Transaction (and each series of related Affiliate
Transactions which are similar or part of a common plan) involving aggregate
payments or other property with a fair market value in excess of $20.0 million
shall be approved by the Board of Directors of the Company or such Restricted
Subsidiary, as the case may be, such approval to be evidenced by a Board
Resolution stating that such Board of Directors has determined that such
transaction complies with the foregoing provisions.
The foregoing paragraphs shall not apply to:
(1) any employment agreement, collective bargaining agreement, employee
benefit plan, related trust agreement or any similar arrangement, payment of
compensation and fees to, and indemnity provided on behalf of, any present
or former employees, officers, directors or consultants, maintenance of
benefit programs or arrangements for any present or former employees,
officers or directors, including vacation plans, health and life insurance
plans, deferred compensation plans, and retirement or savings plan and
similar plans, and loans and advances to any present or former employees,
officers, directors, consultants and shareholders, in each case entered into
by the Company or any of its Restricted Subsidiaries in the ordinary course
of business or approved by the Board of Directors of the Company or such
Restricted Subsidiary, as the case may be;
(2) transactions exclusively between or among the Company and any of its
Restricted Subsidiaries or any joint venture in which the Company has a
Permitted Joint Venture Investment or exclusively between or among such
Restricted Subsidiaries; provided such transactions are not otherwise
prohibited by the Indentures;
(3) any agreement, instrument or arrangement as in effect as of the Issue
Date or any amendment thereto or any transaction contemplated thereby
(including pursuant to any amendment thereto) in any replacement agreement
thereto so long as any such amendment or replacement agreement is not more
disadvantageous to the Holders in any material respect than the original
agreement as in effect on the Issue Date as determined by the Company;
(4) Permitted Investments and Restricted Payments permitted by the
Indentures;
(5) the issuance or sale of any Capital Stock (other than Disqualified
Capital Stock) of the Company; and
(6) any transactions with joint ventures described in the definition of
Permitted Joint Venture Investments and transactions contemplated by or to
facilitate the Turnaround Program.
Certain Covenants Applicable At All Times
Set forth below are summaries of certain covenants contained in the
Indentures that, except as expressly indicated, will apply at all times so long
as any Notes remain outstanding.
Limitation on Liens. The Company will not create or suffer to exist, or
permit any of its Specified Subsidiaries to create or suffer to exist, any
Lien, or any other type of preferential arrangement, upon or with respect to
any of its properties (other than "margin stock" as that term is defined in
Regulation U issued by the Board of Governors of the Federal Reserve System),
whether now owned or hereafter acquired, or assign, or permit any of its
Specified Subsidiaries to assign, any right to receive income, in each case to
secure any
68
Indebtedness (other than Indebtedness described in clauses (5) and (8) of the
definition of "Indebtedness" herein) without making effective provision whereby
all of the Notes (together with, if the Company shall so determine, any other
Indebtedness of the Company or such Specified Subsidiary then existing or
thereafter created which is not subordinate to the Notes) shall be equally and
ratably secured with the Indebtedness secured by such security (provided that
any Lien created for the benefit of the Holders of the Notes pursuant to this
sentence shall provide by its terms that such Lien shall be automatically and
unconditionally released and discharged upon the release and discharge of the
Lien that resulted in such provision becoming applicable, unless a Default or
Event of Default shall then be continuing); provided, however, that the Company
or its Specified Subsidiaries may create or suffer to exist any Lien or
preferential arrangement of any kind in, of or upon any of the properties or
assets of the Company or its Specified Subsidiaries to secure such Indebtedness
in an aggregate amount at any time outstanding not greater than 20% of the
Consolidated Net Worth of the Company; and provided, further, that the
foregoing restrictions shall not apply to any of the following:
(1) deposits, liens or pledges arising in the ordinary course of business
to enable the Company or any of its Specified Subsidiaries to exercise any
privilege or license or to secure payments of workers' compensation or
unemployment insurance, or to secure the performance of bids, tenders,
leases contracts (other than for the payment of borrowed money) or statutory
landlords' liens or to secure public or statutory obligations or surety,
stay or appeal bonds, or other similar deposits or pledges made in the
ordinary course of business;
(2) Liens imposed by law or other similar Liens, if arising in the
ordinary course of business, such as mechanic's, materialman's, workman's,
repairman's or carrier's liens, or deposits or pledges in the ordinary
course of business to obtain the release of such Liens;
(3) Liens arising out of judgments or awards against the Company or any
of its Specified Subsidiaries in an aggregate amount not to exceed at any
time outstanding under this clause (3) the greater of (a) 15% of the
Consolidated Net Worth of the Company or (b) the minimum amount which, if
subtracted from such Consolidated Net Worth, would reduce such Consolidated
Net Worth below $3.2 billion and, in each case, with respect to which the
Company or such Specified Subsidiary shall in good faith be prosecuting an
appeal or proceedings for review, or Liens for the purpose of obtaining a
stay or discharge in the course of any legal proceedings;
(4) Liens for taxes if such taxes are not delinquent or thereafter can be
paid without penalty, or are being contested in good faith by appropriate
proceedings, or minor survey exceptions or minor encumbrances, easements or
restrictions which do not in the aggregate materially detract from the value
of the property so encumbered or restricted or materially impair their use
in the operation of the business of the Company or any Specified Subsidiary
owning such property;
(5) Liens in favor of any government or department or agency thereof or
in favor of a prime contractor under a government contract and resulting
from the acceptance of progress or partial payments under government
contracts or subcontracts thereunder;
(6) Liens existing on December 1, 1991;
(7) purchase money liens or security interests in property acquired or
held by the Company or any Specified Subsidiary in the ordinary course of
business to secure the purchase price thereof or Indebtedness incurred to
finance the acquisition thereof;
(8) Liens existing on property at the time of its acquisition;
(9) the rights of Xerox Credit Corporation relating to a certain reserve
account established pursuant to an operating agreement dated as of November
1, 1980, between the Company and Xerox Credit Corporation;
(10) the replacement, extension or renewal of any of the foregoing; and
(11) Liens on any assets of any Specified Subsidiary of up to $500.0
million incurred since December 1, 1991 in connection with the sale or
assignment of assets of such Specified Subsidiary for cash
69
where the proceeds are applied to repayment of Indebtedness of such
Specified Subsidiary and/or invested by such Specified Subsidiary in assets
which would be reflected as receivables on the balance sheet of such
Specified Subsidiary.
In addition, if after the Issue Date any Capital Markets Debt of the Company
or any Restricted Subsidiary becomes secured by a Lien pursuant to any
provision similar to the covenant in the immediately preceding paragraph, then:
(1) in the case of a Lien securing Subordinated Indebtedness, the Notes
are secured by a Lien on the same property as such Lien that is senior in
priority to such Lien; and
(2) in all other cases, the Notes are equally and ratably secured by a
Lien on the same property as such Lien.
Merger, Consolidation and Sale of Assets. The Company will not, in a single
transaction or series of related transactions, consolidate or merge with or
into any Person, or sell, assign, transfer, lease, convey or otherwise dispose
of (or cause or permit any Restricted Subsidiary of the Company to sell,
assign, transfer, lease, convey or otherwise dispose of) all or substantially
all of the Company's assets (determined on a consolidated basis for the Company
and the Company's Restricted Subsidiaries) whether as an entirety or
substantially as an entirety to any Person unless:
(1) either:
(a) the Company shall be the surviving or continuing corporation; or
(b) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person which
acquires by sale, assignment, transfer, lease, conveyance or other
disposition the properties and assets of the Company and of the
Company's Restricted Subsidiaries substantially as an entirety (the
"Surviving Entity"):
(x) shall be a corporation organized and validly existing under
the laws of the United States or any State thereof or the District of
Columbia; and
(y) shall expressly assume, by supplemental indenture (in form and
substance satisfactory to the Trustees), executed and delivered to
the Trustees, the due and punctual payment of the principal of, and
premium, if any, and interest on all of the Notes and the performance
of every covenant of the Notes, the Indenture and the Registration
Rights Agreement on the part of the Company to be performed or
observed;
(2) if such transaction or series of related transactions occurs other
than during a Suspension Period, immediately after giving effect to such
transaction and the assumption contemplated by clause (1)(b)(y) above
(including giving effect to any Indebtedness (including Acquired
Indebtedness) incurred or anticipated to be incurred in connection with or
in respect of such transaction), the Company or such Surviving Entity, as
the case may be, shall either (x) be able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
first paragraph under the "Limitation on Incurrence of Additional
Indebtedness" covenant or (y) shall have a Consolidated Fixed Charge
Coverage Ratio immediately after such transaction or series of related
transactions equal to or greater than the Company's Consolidated Fixed
Charge Coverage Ratio immediately prior to such transaction or series of
related transactions;
(3) immediately after giving effect to such transaction and the
assumption contemplated by clause (1)(b)(y) above (including, without
limitation, giving effect to any Indebtedness (including Acquired
Indebtedness) incurred or anticipated to be incurred and any Lien granted in
connection with or in respect of the transaction), no Default or Event of
Default shall have occurred or be continuing; and
(4) the Company or the Surviving Entity shall have delivered to the
Trustees an officers' certificate and an opinion of counsel, each stating
that such consolidation, merger, sale, assignment, transfer, lease,
70
conveyance or other disposition and, if a supplemental indenture is required
in connection with such transaction, such supplemental indenture, comply
with the applicable provisions of the Indenture and that all conditions
precedent in the Indenture relating to such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company, the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
The Indentures will provide that upon any consolidation, combination or
merger or any transfer of all or substantially all of the assets of the Company
in accordance with the foregoing, in which the Company is not the continuing
corporation, the successor Person formed by such consolidation or into which
the Company is merged or to which such conveyance, lease or transfer is made
shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under the Indentures and the Notes with the same effect
as if such surviving entity had been named as such.
Notwithstanding the foregoing, the Company need not comply with clause (2)
of the first paragraph of this covenant in connection with (x) a sale
assignment, transfer, conveyance or other disposition of assets between or
among the Company and any of its Wholly Owned Restricted Subsidiaries or (y)
any merger of the Company with or into any Wholly Owned Restricted Subsidiary
or (z) a merger by the Company with an Affiliate incorporated or organized
solely for the purpose of reincorporating or reorganizing the Company in
another jurisdiction.
Subsidiary Guarantees. If on or after the Issue Date:
(a) any other Capital Market Debt of the Company is or becomes guaranteed
by any Restricted Subsidiary of the Company, or
(b) any one or more Wholly Owned Domestic Restricted Subsidiaries (singly
or in the aggregate) would at the end of any fiscal quarter constitute a
Significant Subsidiary (which term for the purposes of this covenant
entitled "Subsidiary Guarantees" shall be limited to any Person that
satisfies only the asset criteria set forth in clauses (1) and (2) of
paragraph (w) of Rule 1.02 of Regulation S-X under the Exchange Act) (other
than (i) Xerox Financial Services, Inc. and each of its Subsidiaries (other
than Xerox Credit Corporation) for so long as its respective business is
conducted in a manner similar to that on the Issue Date, (ii) Xerox Credit
Corporation or any other Restricted Subsidiary of the Company, in each case
so long as it is primarily a special purpose financing vehicle of the
Company or its Restricted Subsidiaries (a "Financing Subsidiary"), or any
holding company whose principal asset is Capital Stock of a Financing
Subsidiary or (iii) any Domestic Restricted Subsidiary so long as its
primary asset is Capital Stock of one or more Foreign Subsidiaries and/or
its primary asset is Indebtedness of one or more Foreign Subsidiaries or any
combination of the foregoing), then the Company shall cause, in the case of
(a), such Restricted Subsidiary that is guaranteeing Company Capital Markets
Debt, and, in the case of (b), such Domestic Restricted Subsidiar(ies), to
execute and deliver to the Trustees a supplemental indenture in form
reasonably satisfactory to the Trustees pursuant to which such Person shall
fully and unconditionally guarantee all of the Company's obligations under
the Notes and the Indentures on the terms set forth in the Indentures.
Any Guarantee executed pursuant to clause (a) of the immediately preceding
paragraph shall provide by its terms that such Guarantee shall be automatically
and unconditionally released upon the release of the guarantee that resulted in
such clause (a) becoming applicable (other than by reason of payment under such
guarantee) so long as such Restricted Subsidiary is not at such time
guaranteeing any other Capital Markets Debt of the Company and no Default or
Event of Default is then continuing. In addition, any Guarantee executed
pursuant either to clause (a) or clause (b) of the immediately preceding
paragraph shall provide by its terms that such Guarantee shall be automatically
and unconditionally released upon: (i) the designation of the Restricted
71
Subsidiary that gave such Guarantee as an Unrestricted Subsidiary in compliance
with the provisions of the Notes or (ii) any transaction, including without
limitation, any sale, exchange or transfer, to any Person not an Affiliate of
the Company, of the Company's Capital Stock in, or all or substantially all the
property of, such Restricted Subsidiary, which transaction is in compliance
with the terms of the Indentures, and which results in the Restricted
Subsidiary that gave such Guarantee ceasing to be a Subsidiary of the Company
and, in the case of either clause (i) or clause (ii), such Restricted
Subsidiary is released from all guarantees, if any, by it of other Capital
Markets Debt of the Company.
Notwithstanding the foregoing, the Company shall have the right to cause any
Restricted Subsidiary to execute a Guarantee in respect of the Company's
obligations under the Notes provided that such Restricted Subsidiary shall
execute and deliver to the Trustees a supplemental indenture in a form
reasonably satisfactory to the Trustees in respect of such Guarantee.
Reports to Holders. The Indentures will provide that, whether or not
required by the rules and regulations of the Commission, so long as any Notes
are outstanding, the Company will furnish the Holders of Notes:
(1) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K if
the Company were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
that describes the financial condition and results of operations of the
Company and its consolidated Subsidiaries and, with respect to the annual
information only, a report thereon by the Company's certified independent
accounts; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports, in
each case within the time periods specified in the Commission's rules and
regulations.
In addition, following the consummation of the exchange offer contemplated
by the Registration Rights Agreements, whether or not required by the rules and
regulations of the Commission, the Company will file a copy of all such
information and reports with the Commission for public availability within the
time periods specified in the Commission's rules and regulations (unless the
Commission will not accept such a filing) and make such information available
to securities analysts and prospective investors upon request. In addition, the
Company has agreed that, for so long as any Notes remain outstanding, it will
furnish to the Holders and to securities analysts and prospective investors,
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
Events of Default
The following events are defined in the Indenture as "Events of Default":
(1) the failure to pay interest on any Notes when the same becomes due
and payable and the default continues for a continuous period of 30 days;
(2) the failure to pay the principal on any Notes, when such principal
becomes due and payable, at maturity, upon redemption or otherwise
(including the failure to make a payment to purchase Notes tendered pursuant
to a Change of Control Offer or a Net Proceeds Offer);
(3) a default in the observance or performance of any other covenant or
agreement contained in the Indentures which default continues for a period
of 90 days after the Company receives written notice specifying the default
(and demanding that such default be remedied) from the Trustee or the
Holders of at least 25% of the outstanding principal amount of the Notes
(except in the case of a default with respect to the "Merger, Consolidation
and Sale of Assets" covenant, which will constitute an Event of Default with
such notice requirement but without such passage of time requirement);
72
(4) the failure to pay at final maturity (giving effect to any applicable
grace periods and any extensions thereof) the principal amount of any
Indebtedness of the Company or any Restricted Subsidiary of the Company, or
the acceleration of the final stated maturity of any such Indebtedness, if
the aggregate principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness in default for failure to
pay principal at final maturity or which has been accelerated, aggregates
$50.0 million or more at any time;
(5) one or more judgments in an aggregate amount in excess of $50.0
million (excluding any amounts adequately covered by insurance from a
solvent and unaffiliated insurance company) shall have been rendered against
the Company or any of its Restricted Subsidiaries and such judgments remain
undischarged, unpaid or unstayed for a period of 90 days after such judgment
or judgments become final and non-appealable; or
(6) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries.
If an Event of Default (other than an Event of Default specified in clause
(6) above with respect to the Company) shall occur and be continuing, the
applicable Trustee or the Holders of at least 25% in principal amount of
outstanding Notes under either Indenture may declare the principal of and
accrued interest on all the Notes under such Indenture to be due and payable by
notice in writing to the Company and the applicable Trustee specifying the
respective Event of Default and that it is a "notice of acceleration," and the
same shall become immediately due and payable. If an Event of Default specified
in clause (6) above with respect to the Company occurs and is continuing, then
all unpaid principal of, and premium, if any, and accrued and unpaid interest
on all of the outstanding Notes shall ipso facto become and be immediately due
and payable without any declaration or other act on the part of the applicable
Trustee or any Holder.
Each Indenture will provide that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding paragraph,
the Holders of a majority in principal amount of the Notes under such Indenture
may rescind and cancel such declaration and its consequences:
(1) if the rescission would not conflict with any judgment or decree;
(2) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
the acceleration;
(3) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal, which has become due
otherwise than by such declaration of acceleration, has been paid; and
(4) if the Company has paid the Trustee its reasonable compensation and
reimbursed the Trustee for its expenses, disbursements and advances.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
The Holders of a majority in principal amount of the Notes under either
Indenture may waive any existing Default or Event of Default under such
Indenture, and its consequences, except a default in the payment of the
principal of or interest on any Notes.
Holders of the Notes may not enforce the Indentures or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of each
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indentures and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding Notes have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustees
or exercising any trust or power conferred on the Trustees.
73
Under the Indentures, the Company is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge
of any Default or Event of Default (provided that such officers shall provide
such certification at least annually whether or not they know of any Default or
Event of Default) that has occurred and, if applicable, describe such Default
or Event of Default and the status thereof.
Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance"). Such Legal Defeasance means that the Company shall be deemed to
have paid and discharged the entire indebtedness represented by the outstanding
Notes, except for:
(1) the rights of Holders to receive payments in respect of the principal
of, premium, if any, and interest on the Notes when such payments are due
from the trust fund referred to below;
(2) the Company's obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, issuing Notes to replace
mutilated, destroyed, lost or stolen Notes and the maintenance of an office
or agency for payments;
(3) the rights, powers, trust, duties and immunities of the Trustee and
the Company's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the applicable Indenture.
In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company released with respect to certain covenants
(other than, among others, the covenant to make payments in respect of the
principal, premium, if any, and interest on the Notes) that are described in
the Indenture ("Covenant Defeasance") and thereafter any omission to comply
with such obligations shall not constitute a Default or Event of Default with
respect to the Notes. In the event Covenant Defeasance occurs, certain events
(not including non-payment, bankruptcy, receivership, reorganization and
insolvency events) described under "Events of Default" will no longer
constitute Events of Default with respect to the Notes. The Company may
exercise its Legal Defeasance option notwithstanding its prior exercise of its
Covenant Defeasance option.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Company must irrevocably deposit with the applicable Trustee, in
trust, (a) for the benefit of the Holders of Dollar Notes, cash in U.S.
dollars, non-callable U.S. government obligations, or a combination thereof,
and (b) for the benefit of the holders of the Euro Notes, cash in euros,
non-callable euro government obligations, or a combination thereof, in each
case, in such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the principal of,
premium, if any, and interest on the applicable Notes on the stated date for
payment thereof or on the applicable redemption date, as the case may be;
(2) in the case of Legal Defeasance, the Company shall have delivered to
the applicable Trustee an opinion of counsel in the United States reasonably
acceptable to the applicable Trustee confirming that:
(a) the Company has received from, or there has been published by,
the Internal Revenue Service a ruling; or
(b) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that,
and based thereon such opinion of counsel shall confirm that, the
Holders will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred;
(3) in the case of Covenant Defeasance, the Company shall have delivered
to the applicable Trustee an opinion of counsel in the United States
reasonably acceptable to the applicable Trustee confirming that the Holders
will not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant
74
Defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit or insofar as Events of Default from bankruptcy
or insolvency events are concerned, at any time in the period ending on the
91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under the applicable
Indenture or any other material agreement or instrument to which the Company
or any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(6) the Company shall have delivered to the applicable Trustee an
officers' certificate stating that the deposit was not made by the Company
with the intent of preferring the Holders over any other creditors of the
Company or with the intent of defeating, hindering, delaying or defrauding
any other creditors of the Company or others;
(7) the Company shall have delivered to the applicable Trustee an
officers' certificate and an opinion of counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance or the
Covenant Defeasance have been complied with; and
(8) certain other customary conditions precedent are satisfied.
Notwithstanding the foregoing, the opinion of counsel required by clause (2)
above with respect to a Legal Defeasance need not be delivered if all Notes not
theretofore delivered to the applicable Trustee for cancellation (1) have
become due and payable or (2) will become due and payable on the maturity date
within one year under arrangements satisfactory to the applicable Trustee for
the giving of notice of redemption by the applicable Trustee in the name, and
at the expense, of the Company.
Satisfaction and Discharge
Each Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
applicable Notes, as expressly provided for in the Indenture) as to all
outstanding Notes under such indenture when:
(1) either:
(a) all the Notes theretofore authenticated and delivered (except
lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust) have been delivered to the
applicable Trustee for cancellation; or
(b) all Notes not theretofore delivered to the applicable Trustee for
cancellation have become due and payable within one year or as a result
of a mailing of a notice of redemption and the Company has irrevocably
deposited or caused to be deposited with the applicable Trustee cash in
the relevant currency, non-callable U.S. government obligations or
government obligations denominated in euros, as applicable, or a
combination thereof in an amount sufficient to pay and discharge the
entire Indebtedness on the Notes not theretofore delivered to the
applicable Trustee for cancellation, for principal of, premium, if any,
and interest on the Notes to the date of deposit together with
irrevocable instructions from the Company directing the applicable
Trustee to apply such funds to the payment thereof at maturity or
redemption, as the case may be;
(2) the Company has paid all other sums payable under the Indenture by
the Company; and
(3) the Company has delivered to the applicable Trustee an officers'
certificate and an opinion of counsel stating that all conditions precedent
under the Indenture relating to the satisfaction and discharge of the
Indenture have been complied with.
75
Modification of the Indenture
From time to time, the Company and the applicable Trustee, without the
consent of the Holders, may amend each Indenture for certain specified
purposes, including curing ambiguities, defects or inconsistencies, complying
with the covenant described under "--Certain Covenants Applicable At All
Times--Merger, Consolidation and Sale of Assets," complying with any
requirement of the Commission in connection with qualifying, or maintaining the
qualification of, the Indentures under the TIA and making any change (including
any change requested by the Luxembourg Stock Exchange in order to list the
Notes thereon) that does not adversely affect the rights of any Holder of the
Notes in any material respect. Other modifications and amendments of each
Indenture may be made with the consent of the Holders of a majority in
principal amount of the then outstanding Notes issued under such Indenture,
except that, without the consent of each Holder affected thereby, no amendment
may:
(1) reduce the amount of Notes whose Holders must consent to an amendment;
(2) reduce the rate of or change or have the effect of changing the time
for payment of interest, including defaulted interest, on any Notes;
(3) reduce the principal of or change or have the effect of changing the
fixed maturity of any Notes, or change the date on which any Notes may be
subject to redemption or reduce the redemption price therefor;
(4) make any Notes payable in money other than that stated in the Notes;
(5) make any change in provisions of the Indenture protecting the right
of each Holder to receive payment of principal of and interest on such Note
on or after the due date thereof or to bring suit to enforce such payment,
or permitting Holders of a majority in principal amount of Notes to waive
Defaults or Events of Default;
(6) after the Company's obligation to purchase Notes arises thereunder,
amend, change or modify in any material respect the obligation of the
Company to make and consummate a Change of Control Offer in the event of a
Change of Control or, after such Change of Control has occurred, modify any
of the provisions or definitions with respect thereto; provided, that for
purposes of this provision, a Change of Control shall not be deemed to have
occurred upon the entering into or execution of any agreement or instrument
notwithstanding that the consummation of the transactions contemplated by
such agreement or instrument would result in a Change of Control as defined
in the Indentures if such agreement or instrument expressly provides that it
shall be a condition to closing thereunder that the Holders of the Notes
shall have waived the Change of Control on or prior to such closing unless
and until such condition is waived by the parties to such agreement or
instrument or the Change of Control has actually occurred; or
(7) modify or change any provision of the Indenture or the related
definitions affecting the ranking of the Notes in a manner which adversely
affects the Holders.
Governing Law
The Indentures will provide that they and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York but without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
The Trustees
The Indentures will provide that, except during the continuance of an Event
of Default, the Trustees will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the
Trustees will exercise such rights and powers vested in them by the Indentures,
and use the same degree of care and skill in their exercise as a prudent person
would exercise or use under the circumstances in the conduct of his or her own
affairs.
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The Indentures and the provisions of the TIA contain certain limitations on
the rights of the Trustees, should any Trustee become a creditor of the
Company, to obtain payments of claims in certain cases or to realize on certain
property received in respect of any such claim as security or otherwise.
Subject to the TIA, the Trustees will be permitted to engage in other
transactions; provided that if the Trustees acquire any conflicting interest as
described in the TIA, they must eliminate such conflict or resign.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
Indentures. Reference is made to the Indentures for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary
of the Company or at the time it merges or consolidates with or into the
Company or any of its Subsidiaries or assumed in connection with the
acquisition of property or assets from such Person and in each case not
incurred by such Person in connection with, or in anticipation or contemplation
of, such Person becoming a Restricted Subsidiary of the Company or such
acquisition, merger or consolidation.
"Affiliate" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the foregoing.
"Asset Acquisition" means (1) an Investment by the Company or any Restricted
Subsidiary of the Company in any other Person pursuant to which such Person
shall become a Restricted Subsidiary of the Company or any Restricted
Subsidiary of the Company, or shall be merged with or into the Company or any
Restricted Subsidiary of the Company, or (2) the acquisition by the Company or
any Restricted Subsidiary of the Company of the assets of any Person (other
than a Restricted Subsidiary of the Company) which constitute all or
substantially all of the assets of such Person or comprises any division or
line of business of such Person or any other properties or assets of such
Person other than in the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary
course of business), assignment or other transfer for value by the Company or
any of its Restricted Subsidiaries (including any Sale and Leaseback
Transaction) to any Person other than the Company or a Restricted Subsidiary of
the Company of: (1) any Capital Stock of any Restricted Subsidiary of the
Company (other than directors' qualifying shares or shares required by
applicable law to be held by a Person other than the Company or a Restricted
Subsidiary); or (2) any other property or assets of the Company or any
Restricted Subsidiary of the Company other than in the ordinary course of
business; provided, however, that asset sales or other dispositions shall not
include: (a) a transaction or series of related transactions for which the
Company or its Restricted Subsidiaries receive aggregate consideration of up to
$25.0 million; (b) the sale, lease, conveyance, disposition or other transfer
of all or substantially all of the assets of the Company in accordance with and
as permitted by the "Merger, Consolidation and Sale of Assets" covenant; (c)
any Restricted Payment permitted by the "Limitation on Restricted Payments"
covenants or that constitutes a Permitted Investment; (d) the sale, lease,
conveyance, disposition or other transfer of any Capital Stock or other
ownership interest in or assets or property of an Unrestricted Subsidiary or a
Person which is not a Subsidiary pursuant to any foreclosure of assets or other
remedy provided by applicable law to a creditor of the Company or any
Subsidiary of the Company with a Lien on such assets, which Lien is permitted
under the Indenture; provided that such foreclosure or other remedy is
conducted in a commercially reasonable manner or in accordance with any
bankruptcy law; (e) a disposition of obsolete or worn out property or property
that is no longer useful in the conduct of the business of the Company and its
Restricted Subsidiaries; (f) the discounting or compromising by the Company or
any Restricted Subsidiary for less than the face value thereof of notes or
accounts receivable in order to resolve
77
disputes that occur in the ordinary course of business and not in connection
with a factoring or financing transaction; and (g) for purposes of clauses (1)
and (2) of the first paragraph of the "Limitation on Asset Sales" covenant
only, any disposition, sale or transfer of property or assets that are part of
the Turnaround Program (excluding any Qualified Receivables Transaction unless
in connection with the sale of an entire business in connection with the
Turnaround Program).
"Board of Directors" means, as to any Person, the board of directors or
similar governing body of such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a resolution
certified by the Secretary or an Assistant Secretary of such Person to have
been duly adopted by the Board of Directors of such Person and to be in full
force and effect on the date of such certification, and delivered to the
Trustee.
"Bund Rate" means (i) the rate borne by direct obligations of the Federal
Republic of Germany (Bunds of Bundesanleihen) having a constant maturity most
nearly equal to the period from the redemption date to January 15, 2009 and
(ii) if there are no such obligations, the rate determined by linear
interpolation between the rates borne by the two direct obligations of the
Federal Republic of Germany maturing closest to, but straddling such date in
each case as published in the Financial Times.
"Capital Markets Debt" means any Indebtedness that is a security (other than
syndicated commercial loans) that is eligible for resale in the United States
pursuant to Rule 144A under the Securities Act or outside the United States
pursuant to Regulation S of the Securities Act or a security (other than
syndicated commercial loans) that is sold or subject to resale pursuant to a
registration statement under the Securities Act.
"Capital Stock" means:
(1) with respect to any Person that is a corporation, any and all shares,
interests, participations or other equivalents (however designated and
whether or not voting) of corporate stock, including each class of Common
Stock and Preferred Stock of such Person; and
(2) with respect to any Person that is not a corporation, any and all
partnership, membership or other equity interests of such Person.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means:
(1) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States Government or the government of any
Eligible Jurisdiction or issued by any agency thereof and backed by the full
faith and credit of such government, in each case maturing within one year
from the date of acquisition thereof;
(2) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either S&P or Moody's;
(3) commercial paper and other securities maturing no more than one year
from the date of acquisition thereof and, at the time of acquisition, having
a rating of at least A-2 from S&P or at least P-2 from Moody's;
(4) certificates of deposit or bankers' acceptances maturing within one
year from the date of acquisition thereof issued by any bank organized under
the laws of the United States of America or any state
78
thereof or the District of Columbia or any Eligible Jurisdiction or any U.S.
branch of a foreign bank having at the date of acquisition thereof combined
capital and surplus of not less than $100.0 million;
(5) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (1) above entered
into with any bank meeting the qualifications specified in clause (4) above;
and
(6) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (1) through (5)
above.
"Change of Control" means the occurrence of one or more of the following
events:
(1) any "person," including its affiliates and associates, other than the
Company, its Subsidiaries or the Company's or such Subsidiaries' employee
benefit plans, or any "group" files a Schedule 13D or Schedule TO (or any
successor schedule, form or report under the Exchange Act) disclosing that
such person or group has become the "beneficial owner" of 50% or more of the
combined voting power of the Company's Capital Stock or other Capital Stock
into which the Company's Common Stock is reclassified or changed, with
certain exceptions having ordinary power to elect directors, or has the
power to, directly or indirectly, elect managers, trustees or a majority of
the members of the Company's Board of Directors;
(2) there shall be consummated any share exchange, consolidation or
merger of the Company pursuant to which the Company's Common Stock would be
converted into cash, securities or other property, or the Company sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets, in each case other than pursuant to a share
exchange, consolidation or merger of the Company in which the holders of the
Company's Common Stock immediately prior to the share exchange,
consolidation or merger have, directly or indirectly, at least a majority of
the total voting power in the aggregate of all classes of Capital Stock of
the continuing or surviving corporation immediately after the share
exchange, consolidation or merger; or
(3) the Company is dissolved or liquidated.
For purposes of this Change of Control definition:
. "person" or "group" has the meaning given to it for purposes of Sections
13(d) and 14(d) of the Exchange Act or any successor provisions, and the
term "group" includes any group acting for the purpose of acquiring,
holding or disposing of securities within the meaning of Rule
13d-5(b)(1) under the Exchange Act or any successor provision;
. a "beneficial owner" will be determined in accordance with Rule 13d-3
under the Exchange Act, as in effect on the date of the Indentures; and
. the number of shares of the Company's voting stock outstanding will be
deemed to include, in addition to all outstanding shares of the
Company's voting stock and unissued shares deemed to be held by the
"person" or "group" or other person with respect to which the Change of
Control determination is being made, all unissued shares deemed to be
held by all other persons.
"Commission" means the Securities and Exchange Commission.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Consolidated EBITDA" means, with respect to any Person, for any period, the
sum, all as determined on a consolidated basis for such Person and its
Restricted Subsidiaries in accordance with GAAP (without duplication), of:
(1) Consolidated Net Income; and
79
(2) to the extent Consolidated Net Income has been reduced thereby:
(a) all income taxes of such Person and its Restricted Subsidiaries
paid or accrued in accordance with GAAP for such period (other than
income taxes attributable to extraordinary, or nonrecurring gains or
losses, taxes attributable to Asset Sales and taxes attributable to
discontinued operations);
(b) Consolidated Fixed Charges; and
(c) Consolidated Non-cash Charges.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending prior to the date of the
transaction giving rise to the need to calculate the Consolidated Fixed Charge
Coverage Ratio for which financial statements are available (the "Transaction
Date") to Consolidated Fixed Charges of such Person for the Four Quarter
Period. In addition to and without limitation of the foregoing, for purposes of
this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall
be calculated after giving effect on a pro forma basis for the period of such
calculation to:
(1) the incurrence or repayment of any Indebtedness of such Person or any
of its Restricted Subsidiaries (and the application of the proceeds thereof)
giving rise to the need to make such calculation and any incurrence or
repayment of other Indebtedness (and the application of the proceeds
thereof), other than the incurrence or repayment of Indebtedness in the
ordinary course of business for working capital purposes pursuant to working
capital facilities, occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such incurrence or repayment, as the case may be
(and the application of the proceeds thereof), occurred on the first day of
the Four Quarter Period; and
(2) any asset sales or other dispositions or Asset Acquisitions
(including, without limitation, any Asset Acquisition giving rise to the
need to make such calculation as a result of such Person or one of its
Restricted Subsidiaries (including any Person who becomes a Restricted
Subsidiary as a result of the Asset Acquisition) incurring, assuming or
otherwise being liable for Acquired Indebtedness and also including any
Consolidated EBITDA (including any pro forma expense and cost reductions
calculated on a basis consistent with Regulation S-X under the Exchange Act)
attributable to the assets which are the subject of the Asset Acquisition or
asset sale or other disposition during the Four Quarter Period) occurring
during the Four Quarter Period or at any time subsequent to the last day of
the Four Quarter Period and on or prior to the Transaction Date, as if such
asset sale or other disposition or Asset Acquisition (including the
incurrence, assumption or liability for any such Acquired Indebtedness)
occurred on the first day of the Four Quarter Period.
If such Person or any of its Restricted Subsidiaries directly or indirectly
guarantees Indebtedness of a third Person, the preceding sentence shall give
effect to the incurrence of such guaranteed Indebtedness, without duplication,
as if such Person or any Restricted Subsidiary of such Person had directly
incurred or otherwise assumed such guaranteed Indebtedness.
Furthermore, in calculating "Consolidated Fixed Charges":
(1) for purposes of determining the numerator (but not the denominator)
of this "Consolidated Fixed Charge Coverage Ratio," interest income
determined on a fluctuating basis as of the Transaction Date and which will
continue to be so determined thereafter, shall be deemed to have accrued at
a fixed rate per annum equal to the applicable rate of interest in effect on
the Transaction Date;
(2) for purposes of determining the denominator (but not the numerator)
of this "Consolidated Fixed Charge Coverage Ratio", interest on outstanding
Indebtedness, determined on a fluctuating basis as of the Transaction Date
and which will continue to be so determined thereafter, shall be deemed to
have accrued at a fixed rate per annum equal to the applicable rate of
interest in effect on the Transaction Date; and
80
(3) notwithstanding clause (2) above, interest on Indebtedness determined
on a fluctuating basis, to the extent such interest is covered by agreements
relating to Interest Swap Obligations, shall be deemed to accrue at the rate
per annum resulting after giving effect to the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of:
(1) Consolidated Interest Expense; plus
(2) the amount of all dividends on any series of Preferred Stock of such
Person and its Restricted Subsidiaries paid, declared or accrued during such
period multiplied, to the extent such dividend payments are not otherwise a
deduction to such Person's federal income tax liabilities by a fraction, the
numerator of which is one and the denominator of which is one minus the then
current effective consolidated federal, state and local tax rate of such
Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person for any
period, total interest expense (including that portion attributable to Capital
Lease Obligations in accordance with GAAP) of the Company and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in conformity
with GAAP.
"Consolidated Net Income" means, with respect to any Person, for any period,
the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom:
(1) after-tax gains or losses from Asset Sales or abandoments or reserves
relating thereto;
(2) after-tax items classified as extraordinary or nonrecurring gains or
losses;
(3) the net income (but not loss) of any Restricted Subsidiary of the
referent Person to the extent that the declaration of dividends or similar
distributions by that Restricted Subsidiary of that income is restricted by
a contract, operation of law or otherwise;
(4) the net income of any other Person, other than a Restricted
Subsidiary of the referent Person, joint ventures described in the
definition of Permitted Joint Venture Investments and any joint ventures in
which the Company or any Restricted Subsidiary is a party that exists as of
the Issue Date, except to the extent of
cash dividends or distributions paid to the referent Person or to a
Restricted Subsidiary of the referent Person by such Person;
(5) after-tax income or loss attributable to discontinued operations; and
(6) in the case of a successor to the referent Person by consolidation or
merger or as a transferee of the referent Person's assets, any earnings of
the successor corporation prior to such consolidation, merger or transfer of
assets.
For purposes of determining the Consolidated Fixed Charge Coverage Ratio only,
any loss, charge or cost attributable to the Turnaround Program shall also be
excluded, provided that any loss, charge or cost described in clause (v) of the
definition of Turnaround Program shall only be so excluded to the extent it is
non-cash.
"Consolidated Net Worth" means, at any time, as to a given entity (a) the
sum of the amounts appearing on the latest consolidated balance sheet of such
entity and its Subsidiaries, prepared in accordance with generally accepted
accounting principles consistently applied, as (i) the par or stated value of
all outstanding Capital Stock (including preferred stock), (ii) capital paid-in
and earned surplus or earnings retained in the business plus or minus
cumulative transaction adjustments, (iii) any unappropriated surplus reserves,
(iv) any net
unrealized appreciation of equity investment, and (v) minorities' interests in
equity of subsidiaries, less (b) treasury stock, plus (c) in the case of the
Company, $600.0 million.
"Consolidated Non-cash Charges" means, with respect to any Person, for any
period, the aggregate depreciation and amortization of such Person and its
Restricted Subsidiaries reducing Consolidated Net Income
81
of such Person and its Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP.
"Convertible Subordinated Debentures" means the 3.625% Convertible
Subordinated Debentures due 2018 of the Company.
"Convertible Trust Preferred Securities" means the $650.0 million aggregate
liquidation amount of 8% Convertible Trust Preferred Securities of Xerox
Capital Trust I and the $1,035.0 million aggregate liquidation amount of 7 1/2%
Convertible Trust Preferred Securities of Xerox Capital Trust II, in each case,
as in effect on the Issue Date.
"Credit Agreement" means the Revolving Credit Agreement, dated as of October
22, 1997, among the Company, the lenders party thereto in their capacities as
lenders thereunder and the agents named therein, together with the related
documents thereto (including, without limitation, any guarantee agreements and
security documents), in each case as such agreement may be amended (including
any amendment and restatement thereof), supplemented or otherwise modified from
time to time, including any agreements extending the maturity of, refinancing,
replacing (whether or not contemporaneously) or otherwise restructuring
(including increasing the amount of available borrowings thereunder (provided
that such increase in borrowings is permitted by the "Limitation on Incurrence
of Additional Indebtedness" covenant above) or adding Restricted Subsidiaries
of the Company as additional borrowers or collateral guarantors thereunder) all
or any portion of the Indebtedness under such agreement or any successor or
replacement agreements and whether by the same or any other agent, lender or
group of lenders or investors and whether such refinancing or replacement is
under one or more debt facilities or commercial paper facilities, indentures or
other agreements, in each case with banks or other institutional lenders or
trustees or investors providing for revolving credit loans, term loans, notes
or letters of credit, together with related documents thereto (including,
without limitation, any guaranty agreements and security documents).
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"Disqualified Capital Stock" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable at the option of the holder thereof), or upon the
happening of any event (other than an event which would constitute an Asset
Sale or Change of Control), matures or is mandatorily redeemable (other than
such Capital Stock that will be redeemed with Qualified Capital Stock),
pursuant to a sinking fund obligation or otherwise, or is redeemable at the
sole option of the holder thereof (except, in each case, upon the occurrence of
an Asset Sale or Change of Control) on or prior to the final maturity date of
the Notes.
"Domestic Insignificant Subsidiary" means any Domestic Wholly Owned
Restricted Subsidiary that is not a Guarantor other than a Person that is
described in clause (b) of the "Subsidiary Guarantees" covenant.
"Domestic Restricted Subsidiary" means a Restricted Subsidiary incorporated
or otherwise organized or existing under the laws of the United States, any
state thereof or any territory or possession of the United States.
"Domestic Wholly Owned Restricted Subsidiary" means a Domestic Restricted
Subsidiary that is also a Wholly Owned Restricted Subsidiary.
"Eligible Jurisdiction" means any country in the European Union (as it
exists on the Issue Date) or Switzerland.
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"ESOP Notes" means the then outstanding 7.89% (7.82% since January 1, 1993)
Guaranteed Series B ESOP Notes due October 1, 2002 and the then outstanding
Guaranteed ESOP Restructuring Notes due October 1, 2003.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or any
successor statute or statutes thereto.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom is
under undue pressure or compulsion to complete the transaction.
"Foreign Subsidiary" means a Restricted Subsidiary that is incorporated or
formed in a jurisdiction other than the United States or a State thereof or the
District of Columbia.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect from time to time.
"Guarantee" means any guarantee of the Notes by a Guarantor.
"Guarantor" means each of the Company's Restricted Subsidiaries that in the
future executes a supplemental indenture in which such Restricted Subsidiary
agrees to be bound by the terms of the Indenture as a Guarantor; provided that
any Person constituting a Guarantor as described above shall cease to
constitute a Guarantor when its respective Guarantee is released in accordance
with the terms of the Indentures.
"Indebtedness" means with respect to any Person, without duplication:
(1) all indebtedness of such Person for borrowed money;
(2) all indebtedness of such Person evidenced by bonds, debentures, notes
or other similar instruments;
(3) all Capitalized Lease Obligations of such Person;
(4) all indebtedness of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and all
indebtedness under any title retention agreement (but excluding trade
accounts payable incurred in the ordinary course with a maturity of not
greater than 90 days);
(5) all indebtedness for the reimbursement of any obligor on any letter
of credit, banker's acceptance or similar credit transaction (other than
obligations with respect to letters of credit supporting obligations not for
money borrowed entered into in the ordinary course of business of such
Person to the extent such letters of credit are not drawn upon or, if and to
the extent drawn upon, such drawing is reimbursed no later than the fifth
business day following payment on the letter of credit);
(6) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (1) through (5) above and clause (8)
below;
(7) all indebtedness of any other Person of the type referred to in
clauses (1) through (6) which are secured by any Lien on any property or
asset of such Person, the amount of such indebtedness being deemed to be the
lesser of the fair market value of such property or asset or the amount of
the indebtedness so secured;
(8) all indebtedness under currency agreements and interest swap
agreements of such Person; and
(9) all Disqualified Capital Stock issued by such Person or any Preferred
Stock of any Restricted Subsidiary of such Person ("Subsidiary Preferred
Stock") with the amount of Indebtedness represented by
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such Disqualified Capital Stock or Subsidiary Preferred Stock being equal to
the greater of its voluntary or involuntary liquidation preference and its
maximum fixed repurchase price, but excluding accrued dividends, if any.
For purposes hereof, the "maximum fixed repurchase price" of any
Disqualified Capital Stock or Subsidiary Preferred Stock which does not have a
fixed repurchase price shall be calculated in accordance with the terms of such
Disqualified Capital Stock or Subsidiary Preferred Stock as if such
Disqualified Capital Stock or Subsidiary Preferred Stock were purchased on any
date on which Indebtedness shall be required to be determined pursuant to the
Indenture, and if such price is based upon, or measured by, the fair market
value of such Disqualified Capital Stock or Subsidiary Preferred Stock, such
fair market value shall be determined reasonably and in good faith by the Board
of Directors of the issuer of such Disqualified Capital Stock or Subsidiary
Preferred Stock.
Accrual of interest, accrual of dividends, the accretion of accreted value,
the payment of interest in the form of additional Indebtedness and the payment
of dividends in the form of additional shares of Preferred Stock will not be
deemed to be an incurrence of Indebtedness. The amount of any Indebtedness
outstanding as of any date shall be (i) the accreted value of the Indebtedness
in the case of any Indebtedness issued with original issue discount and (ii)
the principal amount or liquidation preference thereof.
For purposes of determining compliance with any U.S. dollar-denominated
restriction on the incurrence of Indebtedness, the U.S. dollar-equivalent
principal amount of Indebtedness denominated in a foreign currency shall be
calculated based on the relevant currency exchange rate in effect on the date
such Indebtedness was incurred, in the case of term Indebtedness, or first
committed, in the case of revolving credit Indebtedness. Notwithstanding any
other provision of the "Limitation on Incurrence of Additional Indebtedness"
covenant, the maximum amount of Indebtedness that the Company or any Restricted
Subsidiary may incur pursuant to the "Limitation on Incurrence of Additional
Indebtedness" covenant shall not be deemed to be exceeded solely as a result of
fluctuations in the exchange rate of currencies. The principal amount of any
Indebtedness incurred to refinance other Indebtedness, if incurred in a
different currency from the Indebtedness being refinanced, shall be calculated
based on the currency exchange rate applicable to the currencies in which such
refinancing Indebtedness is denominated that is in effect on the date of such
refinancing.
"Independent Financial Advisor" means a firm: (1) which is not an Affiliate
of the Company; and (2) which, in the judgment of the Company, is otherwise
independent and qualified to perform the task for which it is to be engaged.
"Interest Swap Obligations" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated
by applying a fixed or a floating rate of interest on the same notional amount
and shall include, without limitation, interest rate swaps, caps, floors,
collars and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee of
Indebtedness) or capital contribution to (by means of any transfer of cash or
other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition by such Person of any
Capital Stock, bonds, notes, debentures or other securities or evidences of
Indebtedness issued by, any Person, or any keep-well agreement of any Person.
"Investment" shall exclude extensions of trade credit by the Company and its
Restricted Subsidiaries in the ordinary course of business. If the Company or
any Restricted Subsidiary of the Company sells or otherwise disposes of any
Capital Stock of any direct or indirect Restricted Subsidiary of the Company
such that, after giving effect to any such sale or disposition, such Restricted
Subsidiary is no longer a Restricted Subsidiary of the Company, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Common Stock of such
Restricted Subsidiary not sold or disposed of. If the Company designates any
84
of its Subsidiaries to be an Unrestricted Subsidiary, the Company shall be
deemed to have made an Investment on the date of such designation equal to the
Designation Amount determined in accordance with the definition of
"Unrestricted Subsidiary."
"Investment Grade Status," with respect to the Company, shall occur when the
Notes have both (i) a rating of "BBB-" or higher from S&P and (ii) a rating of
"Baa3" or higher from Moody's, and each such rating shall have been published
by the applicable agency, in each case with no negative outlook.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other
title retention agreement, any lease in the nature thereof and any agreement to
give any security interest).
"Make-Whole Premium" with respect to a Note means an amount equal to the
excess of (a) the present value of the remaining interest, premium and
principal payments due on such Note to its final maturity date, computed using
a discount rate equal to the Treasury Rate, in the case of Dollar Notes, and
the Bund Rate in the case of Euro Notes, on such date plus 0.50%, over (b) the
outstanding principal amount of such Note.
"Moody's" means Moody's Investors Service, Inc., and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents
(other than the portion of any such deferred payment constituting interest)
received by the Company or any of its Restricted Subsidiaries from such Asset
Sale net of:
(1) out-of-pocket expenses and fees relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking
fees and sales commissions);
(2) all legal, title and recording tax expenses, commissions and other
fees and expenses incurred, and all federal, state, foreign and local taxes
required to be accrued as a liability under GAAP, as a consequence of such
Asset Sale;
(3) repayment of Indebtedness and any accrued interest and premium that
is secured by the property or assets that are the subject of such Asset Sale;
(4) appropriate amounts to be provided by the Company or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP,
against any liabilities associated with such Asset Sale and retained by the
Company or any Restricted Subsidiary, as the case may be, after such Asset
Sale, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale; and
(5) all distributions and other payments required to be made to minority
interest holders in Restricted Subsidiaries as a result of such Asset Sale.
"Pari Passu Indebtedness" means any Indebtedness of the Company that is
not subordinated to the Notes.
"Permitted Indebtedness" means, without duplication, each of the
following:
(1) Indebtedness under the Notes (other than Additional Notes) and the
Exchange Notes and any Guarantees required by the Indentures;
(2) Indebtedness of the Company or any Restricted Subsidiary incurred in
the ordinary course of business (including, without limitation, in
connection with the Turnaround Program) so long as the proceeds
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thereof are not used, directly or indirectly, to finance an Asset
Acquisition or to make a Restricted Payment (other than a Permitted
Investment) or to effect a refinancing of Indebtedness or Capital Stock
(other than Refinancing Indebtedness incurred to refinance any Indebtedness
originally permitted to be incurred under this clause (2)); provided,
however, that Indebtedness incurred under this clause (2) (including
Guarantees thereof) by Domestic Insignificant Subsidiaries shall not exceed
$100.0 million outstanding at any time in the aggregate for all Domestic
Insignificant Subsidiaries;
(3) Indebtedness incurred pursuant to the Credit Agreement in an
aggregate principal amount at any time outstanding not to exceed $7.0
billion (such amount to be reduced (but not increased) to the amount of the
aggregate commitments and loans under the first refinancing of the Credit
Agreement after the Issue Date), less the sum of all principal payments of
such Indebtedness with the proceeds of Asset Sales (other than the sale or
liquidation of receivables) (but in no event reduced below $4.75 billion);
(4) other Indebtedness of the Company and its Restricted Subsidiaries
(other than the Credit Agreement) outstanding on the Issue Date;
(5) Interest Swap Obligations of the Company or any Restricted Subsidiary
of the Company covering Indebtedness of the Company or any of its Restricted
Subsidiaries; provided, however, that such Interest Swap Obligations are
entered into to protect the Company or its Restricted Subsidiaries from
fluctuations in interest rates on outstanding Indebtedness to the extent the
notional principal amount of such Interest Swap Obligation does not, at the
time of the incurrence thereof, exceed the principal amount of the
Indebtedness to which such Interest Swap Obligation relates;
(6) Indebtedness under Currency Agreements; provided that in the case of
Currency Agreements which relate to Indebtedness, such Currency Agreements
do not increase the Indebtedness of the Company and its Restricted
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder;
(7) Indebtedness of a Restricted Subsidiary of the Company to the Company
or to a Restricted Subsidiary of the Company for so long as such
Indebtedness is held by the Company or a Restricted Subsidiary of the
Company, in each case subject to no Lien held by a Person other than the
Company or a Restricted Subsidiary of the Company (other than in favor of a
senior secured credit agreement that is permitted to be incurred under
clause (3) above); provided that if as of any date any Person other than the
Company or a Restricted Subsidiary of the Company owns or holds any such
Indebtedness or holds a Lien (other than in favor of a senior secured credit
agreement that is permitted to be incurred under clause (3) above) in
respect of such Indebtedness, such date shall be deemed the incurrence of
Indebtedness not constituting Permitted Indebtedness by the issuer of such
Indebtedness;
(8) Indebtedness of the Company to a Restricted Subsidiary of the Company
for so long as such Indebtedness is held by a Restricted Subsidiary of the
Company and subject to no Lien (other than in favor of a senior secured
credit agreement that is permitted to be incurred under clause (3) above);
provided that if as of any date any Person other than a Restricted
Subsidiary of the Company owns or holds any such Indebtedness or any Person
holds a Lien (other than in favor of a senior secured credit agreement that
is permitted to be incurred under clause (3) above) in respect of such
Indebtedness, such date shall be deemed the incurrence of Indebtedness not
constituting Permitted Indebtedness by the Company;
(9) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except in
the case of daylight overdrafts) drawn against insufficient funds in the
ordinary course of business; provided, however, that such Indebtedness is
extinguished within five business days of incurrence;
(10) Indebtedness of the Company or any Restricted Subsidiary in respect
of performance bonds, bankers' acceptances, workers' compensation claims,
surety or appeal bonds, payment obligations in connection with
self-insurance or similar obligations, and operating leases, trade contracts
and bank overdrafts (and letters of credit in respect thereof) in the
ordinary course of business;
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(11) Indebtedness Incurred in a Qualified Receivables Transaction that is
not recourse to the Company or any Restricted Subsidiary (except for
Standard Securitization Undertakings or a Restricted Subsidiary whose
principal assets are the receivables, leases or other assets that are the
subject of the Qualified Receivables Transaction);
(12) any guarantee by the Company or a Restricted Subsidiary of
Indebtedness of the Company or any Restricted Subsidiary so long as the
incurrence of such Indebtedness would otherwise be permitted to be incurred
under the Indentures and such guarantee is otherwise not prohibited by the
Indentures and clause (a) of the "Subsidiary Guarantees" covenant, to the
extent applicable, is complied with;
(13) Indebtedness arising from guarantees of Indebtedness of the Company
or any Restricted Subsidiary or the agreements of the Company or a
Restricted Subsidiary providing for indemnification, adjustment of purchase
price or similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or Capital Stock of
a Subsidiary, or other guarantees of Indebtedness incurred by any person
acquiring all or any portion of such business, assets, Subsidiary or Capital
Stock of a Subsidiary for the purpose of financing such acquisition;
provided that the maximum aggregate liability in respect of all such
Indebtedness shall at no time exceed the gross proceeds (including non-cash
proceeds) actually received by the Company and/or such Restricted Subsidiary
in connection with such disposition;
(14) the issuance of shares of Disqualified Stock by the Company to a
Restricted Subsidiary of the Company; provided, however, that (a) any
subsequent issuance or transfer that results in any such Disqualified Stock
being held by a Person other than a Restricted Subsidiary thereof and (b)
any sale or other transfer of any such Disqualified Stock to a Person that
is not a Restricted Subsidiary thereof shall be deemed, in each case, to
constitute an issuance of such Disqualified Stock by the Company that was
not permitted by this clause (14);
(15) obligations incurred in the ordinary course of business and not for
money borrowed (for example, repurchase agreements) to purchase securities
or other property, if such obligations arise out of or in connection with
the sale of the same or similar securities or properties;
(16) obligations to deliver goods or services in consideration of advance
payments therefor;
(17) Indebtedness consisting of take-or-pay obligations contained in
supply contracts entered into in the ordinary course of business;
(18) Refinancing Indebtedness; and
(19) additional Indebtedness of the Company and its Restricted
Subsidiaries (other than Domestic Insignificant Subsidiaries) in an
aggregate principal amount not to exceed $75.0 million at any one time
outstanding (which amount may, but need not, be incurred in whole or in part
under the Credit Agreement).
For purposes of determining compliance with the "Limitation on Incurrence of
Additional Indebtedness" covenant, in the event that an item of Indebtedness
meets the criteria of more than one of the categories of Permitted Indebtedness
described in clauses (1) through (19) above or is entitled to be incurred
pursuant to the Consolidated Fixed Charge Coverage Ratio provisions of such
covenant, the Company shall, in its sole discretion, classify such item of
Indebtedness in any manner that complies with such covenant. In addition, the
Company may, at any time, change the classification of an item of Indebtedness
(or any portion thereof) to any other clause, and in part under any one or more
of the clauses listed above, or to the first paragraph of the "Limitation on
Incurrence of Additional Indebtedness" covenant provided that the Company would
be permitted to incur such item of Indebtedness (or portion thereof) pursuant
to such other clause or clauses, as the case may be, or of the first paragraph
of the "Limitation on Incurrence of Additional Indebtedness" covenant, as the
case may be, at such time of reclassification. Accrual of interest, accretion
or amortization of original issue discount or other discounts or premiums, the
payment of interest on any Indebtedness in the form of additional Indebtedness
with the same terms, and the payment of dividends on Disqualified Capital Stock
or Subsidiary Preferred Stock in the form of additional shares of the same
class of Disqualified Capital Stock or Subsidiary Preferred Stock and any other
changes in reported Indebtedness required by GAAP and other non-cash changes
87
in Indebtedness due to fluctuations in interest rates, will not be deemed to be
an incurrence of Indebtedness or an issuance of Disqualified Capital Stock or
Subsidiary Preferred Stock for purposes of the "Limitation on Incurrence of
Additional Indebtedness" covenant.
"Permitted Investments" means:
(1) Investments by the Company or any Restricted Subsidiary of the
Company in any Person that is or will become immediately after such
Investment a Restricted Subsidiary of the Company or that will merge or
consolidate into the Company or a Restricted Subsidiary of the Company;
(2) Investments in the Company by any Restricted Subsidiary of the
Company;
(3) Investments in cash in euros or dollars and Cash Equivalents or, to
the extent determined by the Company or a Foreign Subsidiary in good faith
to be necessary for local working capital requirements and operational
requirements of the Foreign Subsidiaries, other cash and cash equivalents
denominated in the currency of the jurisdiction of organization or place of
business of such Foreign Subsidiary which are, in the case of cash
equivalents, otherwise substantially similar to the items specified in the
definition of "Cash Equivalents";
(4) loans and advances to employees and officers of the Company and its
Subsidiaries to purchase Capital Stock of the Company for bona fide business
purposes;
(5) Currency Agreements and Interest Swap Obligations entered into in the
ordinary course of the Company's or its Restricted Subsidiaries' businesses
and not for speculative purposes and otherwise in compliance with the
Indenture;
(6) additional Investments having an aggregate fair market value, taken
together with all other Investments made pursuant to this clause (6) that
are at that time outstanding, not to exceed $75.0 million in any calendar
year at the time of such Investment (with the fair market value of each
Investment being measured at the time made and without giving effect to
subsequent changes in value);
(7) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy, work-out or insolvency of such trade creditors or customers or
as a result of a foreclosure by the Company or any of its Restricted
Subsidiaries with respect to any secured Investment or other transfer of
title with respect to any secured Investment in default;
(8) Investments made by the Company or its Restricted Subsidiaries as a
result of consideration received in connection with any sale or other
transfer of assets, to the extent applicable, in compliance with the
"Limitation on Asset Sales" covenant;
(9) Permitted Joint Venture Investments;
(10) receivables owing to the Company or any Restricted Subsidiary or
other trade credit provided by the Company or any Restricted Subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however,
that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances;
(11) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of business;
(12) stock, obligations or securities received as security for, or in
settlement of, debts created in the ordinary course of business and owing to
the Company or any of its Restricted Subsidiaries or in satisfaction of
judgments or claims;
(13) Investments relating to purchase or acquisition of products from
vendors, manufacturers or suppliers in the ordinary course of business;
88
(14) Investments owned by the Company and any Restricted Subsidiary as of
the Issue Date, and any repayment of the ESOP Notes by the Company or any
Restricted Subsidiary after the Issue Date; and
(15) Investments in connection with pledges, deposits, payments or
performance bonds made or given in the ordinary course of business in
connection with or to secure statutory, regulatory or similar obligations,
including obligations under health, safety or environmental obligations.
"Permitted Joint Venture Investments" means any Investment (A) in a joint
venture, partnership or other arrangement with a Person or Persons that are not
Affiliates of the Company, to the extent necessary or desirable, as determined
by the Company, to (x) facilitate, or as contemplated by, the Turnaround
Program or (y) facilitate Qualified Receivables Transactions and (B) in Fuji
Xerox Co., Limited.
"Person" means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture, or a governmental
agency or political subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Purchase Money Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries incurred for the purpose of financing all or any part
of the purchase price, or the cost of installation, construction or
improvement, of property or equipment; provided, however, that (1) the amount
of such Indebtedness shall not exceed such purchase price or cost, (2) such
Indebtedness shall not be secured by any asset other than the specified asset
being financed or, in the case of real property or fixtures, including
additions and improvements, the real property to which such asset is attached
and (3) such Indebtedness shall be incurred within 180 days after such
acquisition of such asset by the Company or such Restricted Subsidiary or such
installation, construction or improvement.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Qualified Receivables Transaction" means any transaction or series of
transactions entered into by the Company or any of its Restricted Subsidiaries
in order to monetize or otherwise finance a discrete pool (which may be fixed
or revolving) of receivables, leases or other financial assets (including,
without limitation, financing contracts) (in each case whether now existing or
arising in the future), and which may include a grant of a security interest in
any such receivables, leases, other financial assets (whether now existing or
arising in the future) of the Company or any of its Restricted Subsidiaries,
and any assets related thereto, including all collateral securing such
receivables, leases, or other financial assets, all contracts and all
guarantees or other obligations in respect thereof, proceeds thereof and other
assets that are customarily transferred, or in respect of which security
interests are customarily granted, in connection with asset securitization
transactions involving receivables, leases, or other financial assets.
"Refinance" means, in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a
security or Indebtedness in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
Restricted Subsidiary of the Company of Indebtedness permitted by the
"Limitation on Incurrence of Additional Indebtedness" covenant (other than
pursuant to clauses (2), (3), (5), (6), (7), (8), (9), (10), (11), (13), (14),
(15), (16), (17) or (19) of the definition of Permitted Indebtedness), in each
case that does not:
(1) result in an increase in the aggregate principal amount of
Indebtedness of such Person as of the date of such proposed Refinancing
(plus the amount of any premium required to be paid under the terms of the
instrument governing such Indebtedness and plus the amount of reasonable
expenses incurred by the Company in connection with such Refinancing); or
89
(2) create Indebtedness with: (a) a Weighted Average Life to Maturity
that is less than the Weighted Average Life to Maturity of the Indebtedness
being Refinanced; or (b) a final maturity earlier than the final maturity of
the Indebtedness being Refinanced; provided that (x) if such Indebtedness
being Refinanced is Indebtedness of the Company, then such Refinancing
Indebtedness shall be Indebtedness solely of the Company and (y) if such
Indebtedness being Refinanced is subordinate or junior to the Notes, then
such Refinancing Indebtedness shall be subordinate to the Notes at least to
the same extent and in the same manner as the Indebtedness being Refinanced.
"Registration Rights Agreements" means the registration rights agreements
dated as of the Issue Date among the Company and the Initial Purchasers.
"Restricted Subsidiary" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Rating Service, a division of The McGraw-Hill
Companies, Inc., and its successors.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any property, whether
owned by the Company or any Restricted Subsidiary at the Issue Date or later
acquired, which has been or is to be sold or transferred by the Company or such
Restricted Subsidiary to such Person or to any other Person from whom funds
have been or are to be advanced by such Person on the security of such Property.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute or statutes thereto.
"Series B Convertible Preferred Stock" means the 10.0 million shares of
Series B Convertible Preferred Stock of the Company issued to the Company's
Employee Stock Ownership Plan Trust, as in effect on the Issue Date.
"Significant Subsidiary," with respect to any Person, means any Restricted
Subsidiary of such Person that satisfies the criteria for a "significant
subsidiary" set forth in Rule 1.02 of Regulation S-X under the Exchange Act as
such Regulation is in effect on the Issue Date.
"Specified Subsidiary" means any Subsidiary of the Company from time to time
having a Consolidated Net Worth Amount of at least $100.0 million; provided,
however, that each of Xerox Financial Services, Inc., Xerox Credit Corporation
and any other corporation principally engaged in any business or businesses
other than development, manufacture and/or marketing of (x) business equipment
(including, without limitation, reprographic, computer (including software) and
facsimile equipment), (y) merchandise or (z) services (other than financial
services) shall be excluded as a "Specified Subsidiary" of the Company.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by the Company or any of its Restricted
Subsidiaries that are reasonably customary in an accounts receivable
transaction.
"Subordinated Indebtedness" means Indebtedness of the Company that is
subordinated or junior in right of payment to the Notes.
"Subsidiary," with respect to any Person, means:
(1) any corporation of which the outstanding Capital Stock having at
least a majority of the votes entitled to be cast in the election of
directors under ordinary circumstances shall at the time be owned, directly
or indirectly, by such Person; or
90
(2) any other Person of which at least a majority of the voting interest
under ordinary circumstances is at the time, directly or indirectly, owned
by such Person.
"Subsidiary Preferred Stock" has the meaning given to such term in the
definition of Indebtedness.
"Suspension Period " has the meaning set forth under "--Suspension Period."
"Synthetic Purchase Agreement" shall mean any agreement pursuant to which
the Company or any of its Subsidiaries is or may become obligated to make any
payment the amount of which is determined by reference to a derivative
agreement that relates to the price or value at any time of any Capital Stock
of the Company; provided, that no phantom stock or similar plan providing for
payments only to current or former directors, officers or employees of the
Company or any Subsidiary (or to their heirs or estates or successors or
assigns) shall be deemed to be a Synthetic Purchase Agreement.
"Treasury Rate" for any date, means the yield to maturity at the time of
computation of United States Treasury securities with a constant maturity (as
compiled and published in the most recent Federal Reserve Statistical Release
H.15 (519) that has become publicly available at least two business days prior
to the date the redemption is effected pursuant to a Specified Redemption (the
"Specified Redemption Date") (or, if such Statistical Release is no longer
published, any publicly available source of similar market data) most nearly
equal to the period from the Specified Redemption Date to January 15, 2009;
provided, however, that if the period from the Specified Redemption Date to
January 15, 2009 is not equal to the constant maturity of a United States
Treasury security for which a weekly average yield is given, the Treasury Rate
shall be obtained by linear interpolation (calculated to the nearest
one-twelfth of a year) from the weekly average yields of United States Treasury
securities for which such yields are given except that if the period from the
Specified Redemption Date to January 15, 2009 is less than one year, the weekly
average yield on actually traded United States Treasury securities adjusted to
a constant maturity of one year shall be used.
"Turnaround Program" means (i) arranging third party vendor financing for
customers of the Company and its Subsidiaries, including the sale of finance
receivables or financing assets (and related assets); (ii) the outsourcing of
manufacturing activities, including the sale or other disposition of any
related manufacturing assets; (iii) the exit from the SOHO business and charges
and other costs related thereto to the extent incurred prior to the Issue Date;
(iv) the optimization of the Company's research spending, including, without
limitation, through the disposition of the Palo Alto Research Center, whether
as an outright sale, joint venture or otherwise; and (v) to the extent not
covered in clause (i), (ii), (iii) or (iv) above, charges relating to cost
reduction initiatives or measures announced by the Company from time to time,
including, without limitation, (a) reductions in workforce, (b) the closing or
disposition, including by sale, termination of leases or otherwise, of or
relating to the Company's or any of its Subsidiaries' manufacturing sites,
offices and other real property, (c) deployment of, and transition to, a
"distributor" model in the "Developing Markets Operations" or other markets
where the Company's or its Subsidiaries' products or services, or any
receivables relating to any thereof, would be sold or disposed of to
third-party vendors or any other Person, (d) other dispositions of the
Company's or any of its Subsidiaries' real, personal or intellectual property,
assets or other rights relating thereto, and (e) any asset impairment relating
to any of the foregoing initiatives or measures; in each case for any matter
referred to in clauses (i) through (v) above as determined by the Company in
good faith and as announced by the Company as part of its Turnaround Program.
"Unrestricted Subsidiary" of any Person means:
(1) the Subsidiary to be so designated has total assets of $1,000 or less
or any Subsidiary of such Person that at the time of determination shall be
or continue to be designated an Unrestricted Subsidiary by the Board of
Directors of such Person in the manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
91
The Board of Directors may designate any Subsidiary (including any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless
such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any
property of, the Company or any other Subsidiary of the Company that is not a
Subsidiary of the Subsidiary to be so designated; provided that:
(1) the Company certifies to the Trustees that such designation complies
with the "Limitation on Restricted Payments" covenant, including that the
Company would be permitted to make, at the time of such designation, (a) a
Permitted Investment or (b) an Investment pursuant to the first paragraph of
the "Limitation on Restricted Payments" covenant, in either case, in an
amount (the "Designation Amount") equal to the fair market value of the
Company's proportionate interest in such Subsidiary on such date; and
(2) each Subsidiary to be so designated and each of its Subsidiaries has
not at the time of designation, and does not thereafter, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable
with respect to any Indebtedness pursuant to which the lender has recourse
to any of the assets of the Company or any of its Restricted Subsidiaries.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary only if it contemporaneously becomes a Guarantor or:
(1) immediately after giving effect to such designation, the Company is
able to incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) in compliance with the "Limitation on Incurrence of
Additional Indebtedness" covenant; and
(2) immediately before and immediately after giving effect to such
designation, no Default or Event of Default shall have occurred and be
continuing.
Any such designation by the Board of Directors shall be evidenced to the
Trustees by promptly filing with the Trustees a copy of the Board Resolution
giving effect to such designation and an officers' certificate certifying that
such designation complied with the foregoing provisions.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total
of the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any Wholly Owned
Subsidiary of such Person which at the time of determination is a Restricted
Subsidiary of such Person.
"Wholly Owned Subsidiary" of any Person means any Subsidiary of such Person
of which all the outstanding voting securities (other than in the case of a
foreign Subsidiary, directors' qualifying shares or an immaterial amount of
shares required to be owned by other Persons pursuant to applicable law) are
owned by such Person or any Wholly Owned Subsidiary of such Person.
92
BOOK-ENTRY, DELIVERY AND FORM
The dollar notes will be represented by one or more global notes in
definitive, fully registered form without interest coupons (collectively, the
"Dollar Global Note") and will be deposited with the Dollar Trustee as
custodian for the Depository Trust Company ("DTC") and registered in the name
of a nominee of DTC.
The euro notes will be represented by one or more global notes in
definitive, fully registered form without interest coupons (collectively, the
"Euro Global Note") and will be deposited with a common depositary (the "Common
Depositary") for Euroclear system as operator by Euroclear Bank S.A./N.V.
("Euroclear") and Clearstream Banking, S.A. ("Clearstream, Luxembourg,"
formerly Cedelbank) and registered in the name of a nominee of the Common
Depositary.
Except in the limited circumstances described below, owners of beneficial
interests in global notes will not be entitled to receive physical delivery of
certificated notes. Transfers of beneficial interests in the global notes will
be subject to the applicable rules and procedures of DTC, Euroclear and
Clearstream, Luxembourg and their respective direct or indirect participants,
which rules and procedures may change from time to time.
Global Notes. The following description of the operations and procedures of
DTC, Euroclear and Clearstream, Luxembourg are provided solely as a matter of
convenience. These operations and procedures are solely within the control of
the respective settlement systems and are subject to changes by them from time
to time. Neither the Company nor the initial purchasers takes any
responsibility for these operations and procedures and urges investors to
contact the systems or their participants directly to discuss these matters.
Upon the issuance of the Dollar Global Note, DTC will credit, on its
internal system, the respective principal amount of the individual beneficial
interests represented by such global notes to the accounts of persons who have
accounts with such depositary. Ownership of beneficial interests in a Dollar
Global Note will be limited to its participants or persons who hold interests
through its participants. Ownership of beneficial interests in the Dollar
Global Notes will be shown on, and the transfer of that ownership will be
effected only through, records maintained by DTC or its nominee (with respect
to interests of participants) and the records of participants (with respect to
interests of persons other than participants).
Upon the issuance of the Euro Global Note, the Common Depositary will
credit, on its internal system, the respective principal amount of the
beneficial interests represented by such global note to the accounts of
Euroclear and Clearstream, Luxembourg. Euroclear and Clearstream, Luxembourg
will credit, on their internal systems, the respective principal amounts of the
individual beneficial interests in such global notes to the accounts of persons
who have accounts with Euroclear and Clearstream, Luxembourg. Such accounts
initially will be designated by or on behalf of the Initial Purchasers.
Ownership of beneficial interests in the Euro Global Note will be limited to
participants or persons who hold interests through participants in Euroclear or
Clearstream, Luxembourg. Ownership of beneficial interests in the Euro Global
Note will be shown on, and the transfer of that ownership will be effected only
through, records maintained by Euroclear and Clearstream, Luxembourg or their
nominees (with respect to interests of participants) and the records of
participants (with respect to interests of persons other than participants).
As long as DTC or the Common Depositary, or its respective nominee, is the
registered holder of a global note, DTC or the Common Depositary or such
nominee, as the case may be, will be considered the sole owner and holder of
the notes represented by such global notes for all purposes under the
Indentures and the notes. Unless (1) in the case of a Dollar Global Note, DTC
notifies the Company that it is unwilling or unable to continue as depositary
for a global note or ceases to be a "Clearing Agency" registered under the
Exchange Act, (2) in the case of a Euro Global Note, Euroclear and Clearstream,
Luxembourg notify the Company they are unwilling or unable to continue as
clearing agency, (3) in the case of a Euro Global Note, the Common Depositary
notifies the Company that it is unwilling or unable to continue as Common
Depositary and
93
a successor Common Depositary is not appointed within 120 days of such notice
or (4) in the case of any Note, an event of default has occurred and is
continuing with respect to such note, owners of beneficial interests in a
global note will not be entitled to have any portions of such global note
registered in their names, will not receive or be entitled to receive physical
delivery of notes in certificated form and will not be considered the owners or
holders of the global note (or any notes represented thereby) under the
Indentures or the notes. In addition, no beneficial owners of an interest in a
global note will be able to transfer that interest except in accordance with
DTC's and/or Euroclear's and Clearstream, Luxembourg's applicable procedures
(in addition to those under the Indentures referred to herein).
Investors may hold their interests in the Euro Global Notes through
Euroclear or Clearstream, Luxembourg, if they are participants in such systems,
or indirectly through organizations which are participants in such systems.
Investors may hold their interests in the Dollar Global Notes directly through
DTC, if they are participants in such system, or indirectly through
organizations (including Euroclear and Clearstream, Luxembourg) which are
participants in such system. All interests in a global note may be subject to
the procedures and requirements of DTC and/or Euroclear and Clearstream,
Luxembourg.
Payments of the principal of and interest on Dollar Global Notes will be
made to DTC or its nominee as the registered owner thereof. Payments of the
principal of and interest on the Euro Global Notes will be made to the order of
the Common Depositary or its nominee as the registered owner thereof. Neither
the Company, the Trustees, the Common Depositary nor any of their respective
agents will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in
the global notes or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
We expect that DTC or its nominee, upon receipt of any payment of principal
or interest in respect of a global note representing any notes held by it or
its nominee, will immediately credit participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of such global note for such notes as shown on the records of DTC or its
nominee. We expect that the Common Depositary, in its capacity as paying agent,
upon receipt of any payment of principal or interest in respect of a global
note representing any notes held by it or its nominee, will immediately credit
the accounts of Euroclear and Clearstream, Luxembourg, which in turn will
immediately credit accounts of participants in Euroclear and Clearstream,
Luxembourg with payments in amounts proportionate to their respective
beneficial interests in the principal amount of such global note for such notes
as shown on the records of Euroclear and Clearstream, Luxembourg. We also
expect that payments by participants to owners of beneficial interests in such
global note held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in "street name." Such payments will
be the responsibility of such participants.
Because DTC, Euroclear and Clearstream, Luxembourg can only act on behalf of
their respective participants, who in turn act on behalf of indirect
participants and certain banks, the ability of a holder of a beneficial
interest in global notes to pledge such interest to persons or entities that do
not participate in the DTC, Euroclear or Clearstream, Luxembourg systems, or
otherwise take actions in respect of such interest, may be limited by the lack
of a definitive certificate for such interest. The laws of some countries and
some U.S. states require that certain persons take physical delivery of
securities in certificated form. Consequently, the ability to transfer
beneficial interests in a global note to such persons may be limited. Because
DTC, Euroclear and Clearstream, Luxembourg can act only on behalf of
participants, which in turn, act on behalf of indirect participants and certain
banks, the ability of a person having a beneficial interest in a global note to
pledge such interest to persons or entities that do not participate in the DTC
system or in Euroclear and Clearstream, Luxembourg, as the case may be, or
otherwise take actions in respect of such interest, may be affected by the lack
of a physical certificate evidencing such interest.
Except for trades involving only Euroclear and Clearstream, Luxembourg
participants, interests in the Dollar Global Notes will trade in DTC's Same-Day
Funds Settlement System and secondary market trading
94
activity in such interests will therefore settle in immediately available
funds, subject in all cases to the rules and procedures of DTC and its
participants. Transfers of interests in Dollar Global Notes between
participants in DTC will be effected in accordance with DTC's procedures, and
will be settled in same-day funds. Transfers of interests in Euro Global Notes
and Dollar Global Notes between participants in Euroclear and Clearstream,
Luxembourg will be effected in the ordinary way in accordance with their
respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the notes
described above, cross-market transfers of dollar notes between DTC
participants, on the one hand, and Euroclear or Clearstream, Luxembourg
participants, on the other hand, will be effected in DTC in accordance with
DTC's rules on behalf of Euroclear or Clearstream, Luxembourg, as the case may
be, by its respective depositary; however, such crossmarket transactions will
require delivery of instructions to Euroclear or Clearstream, Luxembourg, as
the case may be, by the counterpary in such system in accordance with the rules
and procedures and within the established deadlines (Brussels time) of such
system. Euroclear or Clearstream, Luxembourg, as the case may be, will, if the
transaction meets its settlement requirements, deliver instructions to its
respective depositary to take action to effect final settlement on its behalf
by delivering or receiving interests in the relevant global note in DTC, and
making or receiving payment in accordance with normal procedures for same-day
funds settlement applicable to DTC. Euroclear participants and Clearstream,
Luxembourg participants may not deliver instructions directly to the
depositaries for Euroclear or Clearstream, Luxembourg.
Because of time zone differences, the securities account of a Euroclear or
Clearstream, Luxembourg participant purchasing an interest in a Dollar Global
Note from a DTC participant will be credited, and any such crediting will be
reported to the relevant Euroclear or Clearstream, Luxembourg participant,
during the securities settlement processing day (which must be a business day
for Euroclear and Clearstream, Luxembourg immediately following the DTC
settlement date). Cash received in Euroclear or Clearstream, Luxembourg as a
result of sales of interests in a global note by or through a Euroclear or
Clearstream, Luxembourg participant to a DTC participant will be received with
value on the DTC settlement date but will be available in the relevant
Euroclear or Clearstream, Luxembourg cash account only as of the business day
for Euroclear or Clearstream, Luxembourg following the DTC settlement date.
DTC, Euroclear and Clearstream, Luxembourg have advised the Company that
they will take any action permitted to be taken by a holder of notes (including
the presentation of notes for exchange as described below) only at the
direction of one or more participants to whose account with DTC or Euroclear or
Clearstream, Luxembourg, as the case may be, interests in the global notes are
credited and only in respect of such portion of the aggregate principal amount
of the notes as to which such participant or participants has or have given
such direction. However, if there is an event of default under the notes, DTC,
Euroclear and Clearstream, Luxembourg reserve the right to exchange the global
notes for legended notes in certificated form, and to distribute such notes to
their respective participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve system, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical transfer and delivery of certificates. Participants include securities
brokers and dealers, banks, trust companies and clearing corporations and may
include certain other organizations. Indirect access to the DTC system is
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
either directly or indirectly ("indirect participants").
95
Euroclear and Clearstream, Luxembourg have advised the Company as follows:
Euroclear and Clearstream, Luxembourg each hold securities for their account
holders and facilitate the clearance and settlement of securities transactions
by electronic book-entry transfer between their respective account holders,
thereby eliminating the need for physical movements of certificates and any
risk from lack of simultaneous transfers of securities.
Euroclear and Clearstream, Luxembourg each provide various services,
including safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing.
Euroclear and Clearstream, Luxembourg each also deal with domestic securities
markets in several countries through established depository and custodial
relationships. The respective systems of Euroclear and Clearstream, Luxembourg
have established an electronic bridge between their two systems across which
their respective account holders may settle trades with each other.
Account holders in both Euroclear and Clearstream, Luxembourg are worldwide
financial institutions including underwriters, securities brokers and dealers,
trust companies and clearing corporations. Indirect access to both Euroclear
and Clearstream, Luxembourg is available to other institutions that clear
through or maintain a custodial relationship with an account holder of either
system.
An account holder's overall contractual relations with either Euroclear or
Clearstream, Luxembourg are governed by the respective rules and operating
procedures of Euroclear or Clearstream, Luxembourg and any applicable laws.
Both Euroclear and Clearstream, Luxembourg act under such rules and operating
procedures only on behalf of their respective account holders, and have no
record of or relationship with persons holding through their respective account
holders.
Although DTC, Euroclear and Clearstream, Luxembourg currently follow the
foregoing procedures to facilitate transfers of interests in global notes among
participants of DTC, Euroclear and Clearstream, Luxembourg, they are under no
obligation to do so, and such procedures may be discontinued or modified at any
time. Neither the Company nor the Trustees will have any responsibility for the
performance by DTC, Euroclear or Clearstream, Luxembourg or their respective
participants or indirect participants of their respective obligations under the
rules and procedures governing their operations.
Certificated Notes. If any depositary is at any time unwilling or unable to
continue as a depositary for Notes for the reasons set forth above under
"--Book-Entry, Delivery and Form--Global Notes" the Company will issue
certificates for such Notes in definitive, fully registered, non-global form
without interest coupons in exchange for the Dollar Global Notes or the Euro
Global Notes, as the case may be. Certificates for Note delivered in exchange
for any global note or beneficial interests therein will be registered in the
names, and issued in any approved denominations, requested by DTC, Euroclear,
Clearstream, Luxembourg or the Common Depositary (in accordance with their
customary procedures). The holder of a non-global note may transfer such note,
subject to compliance with the provisions of the applicable legend, by
surrendering it at the office or agency maintained by the Company for such
purpose in the Borough of Manhattan, The City of New York, which initially will
be the office of the applicable Trustee or of the Transfer Agent in Luxembourg.
Upon the transfer, change or replacement of any note bearing a legend, or upon
specific request for removal of a legend on a note, we will deliver only notes
that bear such legend, or will refuse to remove such legend, as the case may
be, unless there is delivered to us such satisfactory evidence, which may
include an opinion of counsel, as may reasonably be required by us that neither
such legend nor any restrictions on transfer set forth therein are required to
ensure compliance with the provisions of the Securities Act. Upon transfer or
partial redemption of any note, new certificates may be obtained from the
Transfer Agent in Luxembourg.
Notwithstanding any statement herein, we and the Trustees reserve the right
to impose such transfer, certification, exchange or other requirements, and to
require such restrictive legends on certificates evidencing notes, as they may
determine are necessary to ensure compliance with the securities laws of the
United States and the states therein and any other applicable laws or as DTC,
Euroclear or Clearstream, Luxembourg may require.
96
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of material United States federal
income tax consequences of the acquisition, ownership and disposition of the
notes. Unless otherwise stated, this discussion is limited to the tax
consequences to those persons who are original beneficial owners of the notes
and who hold such notes as capital assets (Holders). This discussion does not
address specific tax consequences that may be relevant to particular persons
(including, for example, pass-through entities (e.g., partnerships) or persons
who hold the notes through pass-through entities, individuals who are U.S.
expatriates, financial institutions, broker-dealers, insurance companies,
tax-exempt organizations, dealers in securities or foreign currency, persons
that have a functional currency other than the U.S. dollar and persons in
special situations, such as those who hold notes as part of a straddle, hedge,
conversion transaction, or other integrated investment). This discussion also
does not address the tax consequences to Non-U.S. Holders (as defined below)
that are subject to U.S. federal income tax on a net basis on income realized
with respect to a note because such income is effectively connected with the
conduct of a U.S. trade or business. In addition, this discussion does not
address U.S. federal alternative minimum tax consequences, and does not
describe any tax consequences arising under U.S. federal gift and estate or
other federal tax laws or under the tax laws of any state, local or foreign
jurisdiction. This discussion is based upon the Internal Revenue Code of 1986,
as amended (the Code), the Treasury Department regulations promulgated
thereunder, and administrative and judicial interpretations thereof, all as of
the date hereof and all of which are subject to change, possibly on a
retroactive basis.
Prospective purchasers of the notes are urged to consult their tax advisors
concerning the United States federal income tax consequences to them of
acquiring, owning and disposing of the notes, as well as the application of
state, local and foreign income and other tax laws.
U.S. Federal Income Taxation of U.S. Holders
The following discussion is limited to the U.S. federal income tax
consequences relevant to a Holder that is: (i) a citizen or individual resident
of the United States; (ii) a corporation (including an entity treated as a
corporation for U.S. federal income tax purposes) or a partnership created or
organized in or under the laws of the United States or any political
subdivision thereof; (iii) an estate, the income of which is subject to U.S.
federal income tax regardless of the source; or (iv) a trust, if a court within
the United States is able to exercise primary supervision over the trust's
administration and one or more U.S. persons have the authority to control all
its substantial decisions, or if the trust was in existence on August 20, 1996,
and has properly elected to continue to be treated as a U.S. person (each, a
U.S. Holder). The U.S. federal income tax consequences of payments received by
a partnership will in many cases be determined by reference to the status of a
partner and the activities of the partnership.
A "Non-U.S. Holder" is a Holder that is not a U.S. Holder.
Original Issue Discount. The outstanding notes were issued at an original
issue discount (OID) for U.S. federal income tax purposes. In general, the
amount of OID with respect to a note will be equal to the excess of the stated
redemption price at maturity (i.e., the face amount of the note) over its issue
price (i.e., the price at which the notes are sold).
In each tax year during which a note is held, a U.S. Holder (regardless of
its accounting method) must generally include in gross income a portion of the
OID in an amount equal to the OID that accrued during such period, determined
by using a constant yield to maturity method that reflects compounding of
interest. This means that a U.S. Holder will be required to include amounts in
gross income in advance of the receipt of cash attributable to such income. The
amount of OID included in income each year will increase over the term of the
notes.
97
A U.S. Holder's adjusted tax basis in a note will be equal to the issue
price of such note, increased by the OID included in gross income with respect
to such Note.
Payments of Interest on Euro Notes. In the case of notes denominated in
euros, U.S. persons on the cash method of accounting are required to include in
income the U.S. dollar value of the amount received, based on the spot rate on
the date of receipt, regardless of whether the payment is in fact converted
into U.S. dollars. No exchange gain or loss is recognized with respect to the
receipt of such payment. Cash method taxpayers will treat OID in the same
manner that accrual basis taxpayers treat interest and OID. U.S. persons on the
accrual method of accounting may determine the amount of income recognized with
respect to the notes denominated in euros in accordance with either of two
methods. Under the first method, the U.S. person will be required to include in
income for each taxable year the U.S. dollar value of the interest and OID that
has accrued during the taxable year, determined by translating the interest and
OID at the average rate of exchange for the period or periods during which the
interest and OID accrued. Under the second method, the U.S. person may elect to
translate interest income and OID at the spot rate on the last day of the
accrual period (or last day of the taxable year in the case of an accrual
period that straddles the U.S. person's taxable year) or on the date the
interest payment is received if the date is within five business days of the
end of the accrual period. Upon receipt of an interest payment on the note or a
payment attributable to OID (including, upon the sale of a note, the receipt of
proceeds that are attributable to accrued interest and OID previously included
in income), such U.S. person will recognize ordinary income or loss in an
amount equal to the difference between the U.S. dollar value of the payment of
euros (determined by translating the euros received at the "spot rate" for the
euros on the date received) and the U.S. dollar value of the interest income
and OID that the U.S. person has previously included in income with respect to
the payment.
Sale, Exchange and Retirement of Notes. A U.S. person's tax basis in a note
will, in general, be the U.S. person's cost (in the case of notes denominated
in euros, the U.S. dollar value of the euros paid for such note determined at
the time of purchase). The original tax basis will be increased by any accruals
of OID on a note. Upon the sale, exchange, retirement or other disposition of a
note, a U.S. person will recognize gain or loss equal to the difference between
the U.S. dollar value of the amount realized determined at the time of the
sale, exchange, retirement or other disposition (less any amounts attributable
to accrued but unpaid interest or OID not previously included in such U.S.
person's income, which will be subject to tax as interest income) and the
adjusted tax basis of the note. The gain or loss will generally be capital gain
or loss. In the case of notes denominated in euros, the gain or loss on the
sale, exchange, retirement or other disposition of the euro notes will be
ordinary income or loss to the extent attributable to the movement in exchange
rates between the time of purchase and the time of disposition of the notes.
Capital gains of individuals derived in respect of capital assets held for more
than one year are eligible for reduced tax rates. The deductibility of capital
losses is subject to limitations.
Exchange Gain or Loss with Respect to Euros. A U.S. person's tax basis in
euros received as interest on notes denominated in euros, or received on the
sale, exchange, retirement or other disposition of notes denominated in euros
will be the U.S. dollar value of the payment at the spot rate at the time the
U.S. person received the euros. Any gain or loss recognized by a U.S. person on
a sale, exchange, retirement or other disposition of euros will be ordinary
income or loss and will not be treated as interest income or expense, except to
the extent provided for in Treasury regulations or administrative
pronouncements of the Internal Revenue Service (the IRS).
Exchange Offer. The exchange of outstanding notes for exchange notes will
generally not constitute a taxable event for U.S. Holders. As a result, (1) a
U.S. Holder will generally not recognize gain or loss as a result of exchanging
notes for exchange notes pursuant to the exchange offer, (2) the holding period
of the exchange notes will generally include the holding period of the notes
exchanged therefor, and (3) the adjusted tax basis of the exchange notes will
generally be the same as the adjusted tax basis of the notes exchanged therefor
immediately before such exchange.
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U.S. Federal Income Taxation of Non-U.S. Holders
Payments of Interest. Payments of principal and interest (including OID) on
the notes by us or any of our agents to a Non-U.S. Holder will not be subject
to U.S. federal withholding tax, provided that:
(1) the Non-U.S. Holder does not actually or constructively own 10
percent or more of the total combined voting power of all classes of our
stock entitled to vote;
(2) the Non-U.S. Holder is not a controlled foreign corporation that is
related to us through stock ownership;
(3) the Non-U.S. Holder is not a bank whose receipt of interest on the
notes is described in section 881(c) (3) (A) of the Code; and
(4) either (A) the beneficial owner of the notes certifies to us or our
agent on IRS Form W-8BEN (or successor form), under penalties of perjury,
that it is not a "U.S. person" (as defined in the Code) and provides its
name and address and the certificate is renewed periodically as required by
the Treasury Regulations, or (B) the notes are held through certain foreign
intermediaries and the beneficial owner of the notes satisfies certification
requirements of applicable Treasury Regulations. Special certification rules
apply to certain Non-U.S. Holders that are entities rather than individuals.
If a Non-U.S. Holder cannot satisfy the requirements of the portfolio
interest exemption described above (the Portfolio Interest Exemption), payments
of interest made to such Non-U.S. Holder will be subject to a 30% withholding
tax unless the beneficial owner of the note provides us or our agent, as the
case may be, with a properly executed:
(1) IRS Form W-8BEN (or successor form) claiming an exemption from
withholding or reduced rate of tax under the benefit of an applicable tax
treaty (a Treaty Exemption) or
(2) IRS Form W-8ECI (or successor form) stating that interest paid on the
note is not subject to withholding tax because it is effectively connected
with the conduct of a U.S. trade or business of the beneficial owner,
each form to be renewed periodically as required by the Treasury Regulations.
If interest or OID on the note is effectively connected with the conduct of
a U.S. trade or business of the beneficial owner, the Non-U.S. Holder, although
exempt from the withholding tax described above, will be subject to United
States federal income tax on such interest on a net income basis in the same
manner as if it were a U.S. Holder. In addition, if such Holder is a foreign
corporation, it may be subject to a branch profits tax equal to 30% (or lower
applicable treaty rate) of its effectively connected earnings and profits for
the taxable year, subject to adjustments. For this purpose, interest on a note
will be included in such foreign corporation's earnings and profit.
Disposition of Notes. Generally, no withholding of United States federal
income tax will be required with respect to any gain realized by a Non-U.S.
Holder upon the sale, exchange or other disposition of a note.
A Non-U.S. Holder will not be subject to U.S. federal income tax on gain
realized on the sale, exchange or other disposition of a note unless (a) the
Non-U.S. Holder is an individual who is present in the United States for a
period or periods aggregating 183 or more days in the taxable year of the
disposition and certain other conditions are met, or (b) such gain is
effectively connected with the Non-U.S. Holder's U.S. trade or business.
Exchange of Notes. The exchange of outstanding notes for exchange notes in
the exchange offer will not constitute a taxable event for a Non-U.S. Holder.
99
Each Non-U.S. Holder should consult such Holder's tax advisor as to the
application of the Treasury Regulations and the procedures for establishing an
exemption from withholding tax.
Information Reporting and Backup Withholding
Information reporting and backup withholding will not be required with
respect to payments that we make to a Non-U.S. Holder if the Non-U.S. Holder
has (i) furnished documentation establishing eligibility for the Portfolio
Interest Exemption or a Treaty Exemption (provided that, in the case of a sale
of a note by an individual, Form W-8BEN (or successor form) includes a
certification that the individual has not been, and does not intend to be,
present in the United States for 183 days or more days for the relevant period)
or (ii) otherwise establishes an exemption, provided that neither we nor our
agent has actual knowledge that the holder is a U.S. person or that the
conditions of any exemption are not in fact satisfied. Certain additional rules
may apply where the notes are held through a custodian, nominee, broker,
foreign partnership or foreign intermediary.
In addition, information reporting and backup withholding will not apply to
the proceeds of the sale of a note made within the United States or conducted
through certain United States related financial intermediaries, if the payor
receives the statement described above and does not have actual knowledge that
you are a U.S. person or you otherwise establish an exemption.
Each Non-U.S. Holder should consult such Holder's tax advisor as to the
application of the Treasury Regulations and the procedures for establishing an
exemption from backup withholding.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of the exchange notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of exchange notes received in exchange for outstanding
notes where the outstanding notes were acquired as a result of market-making
activities or other trading activities. We have agreed that, for a period of 20
days after the date on which the exchange offer is consummated, we will make
this prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any such resale.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own
accounts pursuant to this exchange offer may be sold from time to time in one
or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the exchange notes or a
combination of these methods of resale, at prevailing market prices at the time
of resale, at prices related to prevailing market prices or at negotiated
prices. Any resale may be made directly to purchasers or to or through brokers
or dealers who may receive compensation in the form of commissions or
concessions from any broker-dealer or the purchasers of any exchange notes. Any
broker-dealer that resells exchange notes that were received by it for its own
account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of exchange notes may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any profit on any
resale of exchange notes and any commissions or compensation received by any
persons may be deemed to be underwriting compensation under the Securities Act.
The letter of transmittal states that, by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act.
For a period of 20 days after the date on which the exchange offer is
consummated, we will promptly send additional copies of this prospectus and any
amendments or supplements to this prospectus to any broker-dealer that requests
these documents in the letter of transmittal. We have agreed to indemnify the
holders of outstanding notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
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LEGAL MATTERS
Certain legal matters in connection with the validity of the exchange notes
will be passed upon for Xerox by Martin S. Wagner, Associate General Counsel,
Corporate, Finance and Ventures and by Skadden, Arps, Slate, Meagher & Flom
LLP, New York, New York.
INDEPENDENT AUDITORS
On October 5, 2001, Xerox announced that PricewaterhouseCoopers LLP ("PWC")
has been named its independent auditors for the fiscal year ended December 31,
2001, replacing KPMG LLP.
Change in the Company's Certifying Accountant
As reported in our Form 8-K Report dated September 28, 2001 filed with the
SEC (the "8-K"), on October 4, 2001, we determined to change the Company's
independent accountants, and, accordingly, ended the engagement of KPMG LLP
("KPMG") in that role and retained PWC as our independent accountants for the
fiscal year ending December 31, 2001. The Audit Committee of the Board of
Directors and the Board of Directors of the Company approved the decision to
change independent accountants.
The reports of KPMG on the financial statements of the Company for each of
the fiscal years ended December 31, 2000 and December 31, 1999 contained no
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principles. Except to the extent
discussed below, for the fiscal years ended December 31, 2000 and December 31,
1999 and through the date of the 8-K, there were no disagreements with KPMG on
any matter of accounting principles or practices, financial statement
disclosure or audit scope or procedure which, if not resolved to the
satisfaction of KPMG, would have caused it to make reference to the subject
matter of such disagreement in its reports on the financial statements for such
fiscal years. Nor, except to the extent discussed below, were there any
reportable events within the meaning of Item 304(a)(1)(v) of Regulation S-K for
the fiscal years ended December 31, 2000 and December 31, 1999 and through the
date of the 8-K. With respect to the matters discussed below, the Audit
Committee discussed them with KPMG and authorized KPMG to respond fully to
inquiries of PWC concerning them.
In March 2001, KPMG informed management and the Audit Committee that it
wished to expand significantly the scope of its audit work in connection with
the audit of the Company's 2000 financial statements. KPMG proposed that
certain additional procedures be performed, including that the Audit Committee
appoint Special Counsel to conduct an inquiry into certain issues, which
procedures were performed in March, April and May, 2001.
While the expanded procedures were being performed, KPMG informed the Audit
Committee and management that KPMG was unwilling to rely on representations by
two employees in one of the Company's geographic operating units. Management
removed those employees from responsibility in connection with the Company's
system of financial reporting.
As a result of observations during its 2000 audit, and other information
discussed with the Audit Committee, KPMG reported certain material weaknesses
in the Company's internal control systems and made recommendations concerning
certain components of the Company's business:
102
. KPMG emphasized the importance for internal control of the tone set by
the Company's top management. KPMG noted that, as a result of its audit
and information reported by Special Counsel, it believed there was
evidence that management was not successful in setting the appropriate
tone with respect to financial reporting. It recommended that the
Company take steps to remediate appropriately those issues. Certain
personnel changes were made based in part on KPMG views offered to the
Audit Committee and management.
. Customer Business Operations in the Company's North American Solutions
Group. KPMG noted issues with regard to CBO's ability to bill customers
accurately for services, and noted that difficulties in that area had
resulted in unfavorable billing adjustments during 2000. Although KPMG
recognized that the Company had initiated several steps to address this
issue, it concluded that it remained unclear when those changes would
result in sustained improvement in reducing non-cash resolution
adjustments of billing differences. It acknowledged that this weakness
did not suggest that the net trade receivable account balance is
unreasonably stated at December 31, 2000, but that proper reporting
required extensive evaluation of billing adjustments during the fourth
quarter. KPMG suggested various business and operational changes to
address this issue.
. Communication of Accounting and Control Policies. KPMG noted that policy
documents need to be updated, among other things to address issues
identified by the Company's worldwide audit function, Special Counsel
and KPMG, and recommended that the Company also provide increased formal
training to ensure that its personnel understand the accounting and
control guidance in its policies.
. Consolidation and Corporate-Level Entries. KPMG observed that the
Company's quarterly consolidation process is manually intensive,
requiring numerous adjustments at corporate financial reporting levels.
It recommended that the Company's Consolidated Financial Information
System be augmented to enhance the monitoring and review of
corporate-level and manual entries, and further that the Company ensure
adequate segregation of duties in the preparation and approval of such
entries.
. Appropriateness of the Concessionaire Business Model in Latin American
Countries. KPMG noted that during 2000, analysis by the Company's
worldwide audit function indicated that certain issues existed with
respect to this business model, including that certain concessionaires
may lack economic substance independent of the Company, and that certain
business practices involving concessionaires resulted in allowances with
respect to receivables in 2000. KPMG suggested periodic assessment of
the financial position of prospective and existing concessionaires, and
that the Company monitor its business relationship with them to ensure
that they are substantive independent distributors of the Company's
products.
In addition to those items, KPMG noted that organizational changes,
including the Company's turnaround program and associated reductions in
headcount, had and would continue to stress the Company's internal control
structure. KPMG recommended that the Company take steps to ensure that issues
likely to impact the control environment receive appropriate management
attention. KPMG also recommended improved balance sheet account reconciliation
and analysis on a global basis, in particular with respect to intercompany
balances.
The foregoing matters were considered by KPMG in connection with their 2000
audit and did not result in any adverse opinion or disclaimer of opinion or any
qualification or modification as to uncertainty, audit scope or accounting
principles. KPMG's auditor's report dated May 30, 2001 contained a separate
paragraph stating that the Company's 1999 and 1998 consolidated financial
statements had been restated.
The Company commenced actions in fiscal 2000 and expanded actions in fiscal
2001 which, collectively, it believes have effectively addressed the
above-discussed matters.
The Company has provided KPMG a copy of the 8-K and requested KPMG to
furnish it with a letter addressed to the Securities and Exchange Commission
stating whether it agrees with the statements made herein. A copy of such
letter, dated October 4, 2001, is incorporated herein by reference to the 8-K
as Exhibit 16.1.
103
================================================================================
We have not authorized any dealer, salesperson or other person to give any
information or represent anything to you other than the information contained
in this prospectus. You must not rely on unauthorized information or
representations.
This prospectus does not offer to sell or ask for offers to buy any of the
securities in any jurisdiction where it is unlawful, where the person making
the offer is not qualified to do so, or to any person who cannot legally be
offered the securities.
The information in this prospectus is current only as of the date on its
cover, and may change after that date. For any time after the cover date of
this prospectus, we do not represent that our affairs are the same as described
or that the information in this prospectus is correct--nor do we imply those
things by delivering this prospectus or selling securities to you.
-----------------
TABLE OF CONTENTS
Page
----
Market Share, Ranking and Other Data................................... i
Where You Can Find More Information.................................... i
Forward-Looking Statements............................................. i
Risk Factors........................................................... 11
Xerox Corporation...................................................... 18
Use of Proceeds........................................................ 28
Capitalization......................................................... 28
Management............................................................. 30
Certain Relationships and Related Transactions......................... 43
Certain Other Indebtedness and Preferred Stock......................... 46
Exchange Offer......................................................... 48
Description of the Notes............................................... 58
Book-Entry, Delivery and Form.......................................... 93
Certain United States Federal Income Tax Considerations................ 97
Plan of Distribution................................................... 101
Legal Matters.......................................................... 102
Independent Auditors................................................... 102
-----------------
================================================================================
================================================================================
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PROSPECTUS
--------------------------------------------------------------------------------
[GRAPHIC]
X
Exchange Offer for
Xerox Corporation
$600,000,000 9 3/4% Senior Notes due 2009
(Euro)225,000,000 9 3/4% Senior Notes due 2009
-----------------
, 2002
================================================================================
PART II
Item 20. Indemnification of Officers and Directors
Article VIII, Section 2 of the Company's By-Laws states:
"Indemnification of Directors and Officers: Except to the extent
expressly prohibited by law, the Company shall indemnify any person, made or
threatened to be made, a party in any civil or criminal action or
proceeding, including an action or proceeding by or in the right of the
Company to procure a judgment in its favor or by or in the right of any
other corporation of any type or kind, domestic or foreign, or any
partnership, joint venture, trust, employee benefit plan or other
enterprise, which any Director or officer of the Company served in any
capacity at the request of the Company, by reason of the fact that he, his
testator or intestate is or was a Director or officer of the Company or
serves or served such other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, in any capacity, against
judgments, fines, penalties, amounts paid in settlement and reasonable
expenses, including attorneys' fees, incurred in connection with such action
or proceeding, or any appeal therein, provided that no such indemnification
shall be required with respect to any settlement unless the Company shall
have given its prior approval thereto. Such indemnification shall include
the right to be paid advances of any expenses incurred by such person in
connection with such action, suit or proceeding, consistent with the
provisions of applicable law. In addition to the foregoing, the Company is
authorized to extend rights to indemnification and advancement of expenses
to such persons by i) resolution of the shareholders, ii) resolution of the
Directors or iii) an agreement, to the extent not expressly prohibited by
law."
Reference is made to Sections 721 through 726 of the Business Corporation
Law of the State of New York.
Item 21. Exhibits and Financial Statement Schedules
3.1 Restated Certificate of Incorporation of Registrant filed by the Department of State of New York on
October 29, 1996, as amended by Certificate of Amendment of the Certificate of Incorporation of
Registrant filed by the Department of State of New York on May 21, 1999.
Incorporated by reference to Exhibit 3(a) to Amendment No. 5 to Registrant's Form 8-A Registration
Statement dated February 8, 2000.
3.2 By-Laws of Registrant, as amended through January 1, 2002.+
4.1 Indenture dated as of December 1, 1991, between Registrant and Citibank, N.A., as trustee, relating to
unlimited amounts of debt securities which may be issued from time to time by Registrant when and as
authorized by or pursuant to a resolution of Registrant's Board of Directors (the "December 1991
Indenture").
Incorporated by reference to Exhibit 4(a) to Registration Nos. 33-44597, 33-49177 and 33-54629.
4.2 Instrument of Resignation, Appointment and Acceptance dated as of February 1, 2001, among
Registrant, Citibank, N.A., as resigning trustee, and Wilmington Trust Company, as successor trustee,
relating to the December 1991 Indenture.
Incorporated by reference to Exhibit 4(a)(2) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 filed on June 7, 2001.
4.3 Indenture dated as of September 20, 1996, between Registrant and Citibank, N.A., as trustee, relating to
unlimited amounts of debt securities which may be issued from time to time by Registrant when and as
authorized by or pursuant to a resolution of Registrant's Board of Directors (the "September 1996
Indenture").
Incorporated by reference to Exhibit 4(a) to Registration Statement No. 333-13179.
4.4 Instrument of Resignation, Appointment and Acceptance dated as of February 1, 2001, among
Registrant, Citibank, N.A., as resigning trustee, and Wilmington Trust Company, as successor trustee,
relating to the September 1996 Indenture.
Incorporated by reference to Exhibit 4(b)(2) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 filed on June 7, 2001.
II-1
4.5 Indenture dated as of January 29, 1997, between Registrant and Bank One, National Association (as
successor by merger with The First National Bank of Chicago) ("Bank One"), as trustee (the "January
1997 Indenture"), relating to Registrant's Junior Subordinated Deferrable Interest Debentures ("Junior
Subordinated Debentures").
Incorporated by reference to Exhibit 4.1 to Registration Statement No. 333-24193.
4.6 Form of Certificate of Exchange relating to Junior Subordinated Debentures.
Incorporated by reference to Exhibit A to Exhibit 4.1 to Registration Statement No. 333-24193.
4.7 Certificate of Trust of Xerox Capital Trust I executed as of January 23, 1997.
Incorporated by reference to Exhibit 4.3 to Registration Statement No. 333-24193.
4.8 Amended and Restated Declaration of Trust of Xerox Capital Trust I dated as of January 29, 1997.
Incorporated by reference to Exhibit 4.4 to Registration Statement No. 333-24193.
4.9 Form of Exchange Capital Security Certificate for Xerox Capital Trust I.
Incorporated by reference to Exhibit A-1 to Exhibit 4.4 to Registration Statement No. 333-24193.
4.10 Series A Capital Securities Guarantee Agreement of Registrant dated as of January 29, 1997, relating to
Series A Capital Securities of Xerox Capital Trust I.
Incorporated by reference to Exhibit 4.6 to Registration Statement No. 333-24193.
4.11 Registration Rights Agreement dated January 29, 1997, among Registrant, Xerox Capital Trust I and
the initial purchasers named therein.
Incorporated by reference to Exhibit 4.7 to Registration Statement No. 333-24193.
4.12 Instrument of Resignation, Appointment and Acceptance dated as of November 30, 2001, among
Registrant, Bank One as resigning trustee, and Wells Fargo Bank Minnesota, National Association
"Wells Fargo"), as successor Trustee, relating to the January 1997 Indenture.+
4.13 Indenture dated as of October 1, 1997, among Registrant, Xerox Overseas Holding Limited (formerly
Xerox Overseas Holding PLC), Xerox Capital (Europe) plc (formerly Rank Xerox Capital (Europe) plc)
and Citibank, N.A., as trustee, relating to unlimited amounts of debt securities which may be issued
from time to time by Registrant and unlimited amounts of guaranteed debt securities which may be
issued from time to time by the other issuers when and as authorized by or pursuant to a resolution or
resolutions of the Board of Directors of Registrant or the other issuers, as applicable (the "October 1997
Indenture").
Incorporated by reference to Exhibit 4(b) to Registration Statement Nos. 333-34333, 333-34333-01 and
333-34333-02.
4.14 Instrument of Resignation, Appointment and Acceptance dated as of February 1, 2001, among
Registrant, the other issuers under the October 1997 Indenture, Citibank, N.A., as resigning trustee, and
Wilmington Trust Company, as successor trustee, relating to the October 1997 Indenture.
Incorporated by reference to Exhibit 4(d)(2) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 filed on June 7, 2001.
4.15 Indenture dated as of April 21, 1998, between Registrant and Bank One, as trustee, relating to
$1,012,198,000 principal amount at maturity of Registrant's Convertible Subordinated Debentures due
2018 (the "April 1998 Indenture").
Incorporated by reference to Exhibit 4(b) to Registration Statement No. 333-59355.
4.16 Instrument of Resignation, Appointment and Acceptance dated as of July 26, 2001, among Registrant,
Bank One as resigning trustee, and Wells Fargo, as successor Trustee, relating to the April 1998
Indenture (the "April 1998 Indenture Trustee Assignment").+
II-2
4.17 Amendment to Instrument of Resignation, Appointment and Acceptance dated as of October 22, 2001,
among Registrant, Bank One as resigning trustee, and Wells Fargo, as successor Trustee, relating to the
April 1998 Indenture Trustee Assignment.+
4.18 Indenture, dated as of July 1, 2001, between Xerox Equipment Lease Owner Trust 2001-1 ("Trust") and
U.S. Bank National Association, as trustee, relating to $513,000,000 Floating Rate Asset Backed Notes
issued by the Trust.+
4.19 Indenture, dated as of November 27, 2001, between Registrant and Wells Fargo, as trustee, relating to
Registrant's 7 1/2% Convertible Junior Subordinated Debentures Due 2021.+
4.20 Indenture, dated as of November 27, 2001, between Xerox Funding LLC II and Wells Fargo, as trustee,
relating to Xerox Funding LLC II's 7 1/2% Convertible Junior Subordinated Debentures Due 2021.+
4.21 Amended and Restated Declaration of Trust of Xerox Capital Trust II, dated as of November 27, 2001,
by Registrant, as sponsor, Wells Fargo, as property trustee, Wilmington Trust Company, as Delaware
trustee, and the administrative trustees named therein, relating to Xerox Capital Trust II's 7 1/2%
Convertible Trust Preferred Securities and 7 1/2% Convertible Common Securities.+
4.22 Pledge Agreement, made as of November 27, 2001, by Xerox Funding LLC II in favor of Wells Fargo,
as trustee and for the holders of Xerox Funding LLC II's 7 1/2% Convertible Junior Subordinated
Debentures Due 2021.+
4.23 Indenture, dated as of January 17, 2002, between Registrant and Wells Fargo, as trustee, relating to
Registrant's 9 3/4% Senior Notes due 2009 (Denominated in U.S. Dollars).+
4.24 Indenture, dated as of January 17, 2002, between Registrant and Wells Fargo, as trustee, relating to
Registrant's 9 3/4% Senior Notes due 2009 (Denominated in Euros).+
4.25 Registration Rights Agreement, dated as of January 17, 2002, among Registrant and the initial
purchasers named therein, relating to Registrant's $600,000,000 9 3/4% Senior Notes due 2009.+
4.26 Registration Rights Agreement, dated as of January 17, 2002, among Registrant and the initial
purchasers named therein, relating to Registrant's (euro)225,000,000 9 3/4% Senior Notes due 2009.+
4.27 Indenture dated as of October 2, 1995, between Xerox Credit Corporation ("XCC") and State Street
Bank and Trust Company ("State Street"), as trustee, relating to unlimited amounts of debt securities
which may be issued from time to time by XCC when and as authorized by XCC's Board of Directors
or Executive Committee of the Board of Directors.
Incorporated by reference to Exhibit 4(a) to XCC's Registration Statement Nos. 33-61481 and
333-29677.
4.28 Indenture dated as of April 1, 1999, between XCC and Citibank, N.A., relating to unlimited amounts of
debt securities which may be issued from time to time by XCC when and as authorized by XCC's
Board of Directors or Executive Committee of the Board of Directors (the "April 1999 XCC
Indenture").
Incorporated by reference to Exhibit 4(a) to XCC's Registration Statement No. 33-61481.
4.29 Instrument of Resignation, Appointment and Acceptance dated as of February 1, 2001, among XCC,
Citibank, N.A., as resigning trustee, and Wilmington Trust Company, as successor trustee, relating to
the April 1999 XCC Indenture.
Incorporated by reference to Exhibit 4(h)(2) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 filed on June 7, 2001.
4.30 $7,000,000,000 Revolving Credit Agreement, dated October 22, 1997, among Registrant, XCC and
certain Overseas Borrowers, as Borrowers, various lenders and Morgan Guaranty Trust Company of
New York, The Chase Manhattan Bank, Citibank, N.A. and Bank One, as Agents.
Incorporated by reference to Exhibit 4(h) to Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000.
II-3
5.1 Opinion and consent of Skadden, Arps, Slate, Meagher & Flom LLP as to the legality of the exchange
notes to be issued by Xerox Corporation.+
10.1** Registrant's Form of Salary Continuance Agreement.+
10.2** Registrant's 1991 Long-Term Incentive Plan, as amended through October 9, 2000.
Incorporated by reference to Exhibit 10(b) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 filed on June 7, 2001.
10.3 Registrant's 1996 Non-Employee Director Stock Option Plan, as amended through May 20, 1999.
Incorporated by reference to Registrant's Notice of the 1999 Annual Meeting of Shareholders and
Proxy Statement pursuant to Regulation 14A.
10.4** Description of Registrant's Annual Performance Incentive Plan.+
10.5** 1997 Restatement of Registrant's Unfunded Retirement Income Guarantee Plan, as amended through
October 9, 2000.
Incorporated by reference to Exhibit 10(e) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 filed on June 7, 2001.
10.6** 1997 Restatement of Registrant's Unfunded Supplemental Retirement Plan, as amended through
October 9, 2000.
Incorporated by reference to Exhibit 10(f) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 filed on June 7, 2001.
10.7 Executive Performance Incentive Plan.+
10.8 1996 Amendment and Restatement of Registrant's Restricted Stock Plan for Directors.
10.9** Form of severance agreement entered into with various executive officers, effective October 15, 2000.
Incorporated by reference to Exhibit 10(i)(2) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000 filed on June 7, 2001.
10.10** Registrant's Contributory Life Insurance Program, as amended as of January 1, 1999.
Incorporated by reference to Exhibit 10(j) to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1999.
10.11 Registrant's Deferred Compensation Plan for Directors, 1997 Amendment and Restatement, as
amended through October 9, 2000.
Incorporated by reference to Exhibit 10(k) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 filed on June 7, 2001.
10.12** Registrant's Deferred Compensation Plan for Executives, 1997 Amendment and Restatement, as
amended through October 9, 2000.
Incorporated by reference to Exhibit 10(l) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 filed on June 7, 2001.
10.13** Letter Agreement dated June 4, 1997 between Registrant and G. Richard Thoman, former President
and Chief Executive Officer of Registrant.
Incorporated by reference to Exhibit 10(m) to Registrant's Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 1997.
10.14** Registrant's 1998 Employee Stock Option Plan, as amended through October 9, 2000.
Incorporated by reference to Exhibit 10(n) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 filed on June 7, 2001.
10.15** Registrant's CEO Challenge Bonus Program.
Incorporated by reference to Exhibit 10(o) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 filed on June 7, 2001.
II-4
10.16** Separation Agreement dated May 11, 2000 between Registrant and G. Richard Thoman, former
President and Chief Executive Officer of Registrant.
Incorporated by reference to Exhibit 10(p) to Registrant's Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 2000.
10.17** Letter Agreement dated December 4, 2000 between Registrant and William F. Buehler,
Vice Chairman of Registrant.
Incorporated by reference to Exhibit 10(p) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 filed on June 7, 2001.
10.17 Separation Agreement dated October 3, 2001 between Registrant and Barry D. Romeril,
Vice Chairman and Chief Financial Officer of Registrant.+
10.18 Form of Release between Registrant and Barry D. Romeril, Vice Chairman and Chief Financial
Officer of Registrant.+
10.19 Letter Agreement dated April 2, 2001 between Registrant and Carlos Pascual, Executive Vice
President of Registrant.
Incorporated by reference to Exhibit 10(s) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 filed on June 7, 2001.
10.20 Master Supply Agreement, dated as of November 30, 2001, between Registrant and Flextronics
International Ltd.+
12.1 Computation of Ratio of Earnings to Fixed charges.+
16.1 Letter, dated October 4, 2001, of KPMG LLP.
Incorporated by Reference to Registrant's 8-K, filed October 4, 2001.
24.1 Certified Resolution re: Power of Attorney
24.2 Power of Attorney
25.1 Form T-1 Statement of Eligibility of Wells Fargo Bank Minnesota, N.A. to act as Trustee under the
Indentures.+
99.1 Form of Letter of Transmittal for the notes.+
99.2 Letter to Brokers for the notes.+
99.3 Letter to Clients for the notes.+
--------
+ To be filed by amendment.
** The management contracts or compensatory plans or arrangements listed above
that are applicable to the executive officers named in the Summary
Compensation Table which will appear in Registrant's 2002 Proxy Statement
are preceded by two asterisks (**).
Item 22. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers to sale are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
II-5
dollar value of securities would not exceed that which was registered)
and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liabilities under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from the registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of the receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrants hereby undertake to supply by means of
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 20 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Stamford, state of
Connecticut, on April 17, 2002.
XEROX CORPORATION
By: /S/ ANNE M. MULCAHY*
-----------------------------------
Anne M. Mulcahy
Chairman of the Board, Chief Executive Officer,
Director and Acting Chief Financial Officer
Pursuant to the requirments of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
Principal Executive Officer and Principal Financial By: /S/ ANNE M. MULCAHY*
Officer: -----------------------------------
Anne M. Mulcahy
Chairman of the Board, Chief Executive Officer,
Director and Acting Chief Financial Officer
Date: April 17, 2002
Principal Accounting Officer: By: /S/ GARY R. KABURECK*
-----------------------------------
Gary R. Kabureck
Assistant Controller and Chief Accounting Officer
Date: April 17, 2002
Directors: By: /S/ VERNON E. JORDAN, JR.*
-----------------------------------
Vernon E. Jordan, Jr.
Director
Date: April 17, 2002
By: /S/ YOTARO KOBAYASHI*
-----------------------------------
Yotaro Kobayashi
Director
Date: April 17, 2002
By: /S/ HILMAR KOPPER*
-----------------------------------
Hilmar Kopper
Director
Date: April 17, 2002
By: /S/ RALPH S. LARSEN*
-----------------------------------
Ralph S. Larsen
Director
Date: April 17, 2002
II-7
By: /S/ MARTHA R. SEGER*
------------------------
Martha R. Seger
Director
Date: April 17, 2002
By: /S/ THOMAS C. THEOBALD*
------------------------
Thomas C. Theobald
Director
Date: April 17, 2002
--------
*By /S/ MARTIN S. WAGNER
---------------------
Martin S. Wagner
Attorney-in-fact
II-8
EXHIBIT INDEX
Document and Location
3.1 Restated Certificate of Incorporation of Registrant filed by the Department of State of New York on
October 29, 1996, as amended by Certificate of Amendment of the Certificate of Incorporation of
Registrant filed by the Department of State of New York on May 21, 1999.
Incorporated by reference to Exhibit 3(a) to Amendment No. 5 to Registrant's Form 8-A Registration
Statement dated February 8, 2000.
3.2 By-Laws of Registrant, as amended through January 1, 2002.+
4.1 Indenture dated as of December 1, 1991, between Registrant and Citibank, N.A., as trustee, relating to
unlimited amounts of debt securities which may be issued from time to time by Registrant when and as
authorized by or pursuant to a resolution of Registrant's Board of Directors (the "December 1991
Indenture").
Incorporated by reference to Exhibit 4(a) to Registration Nos. 33-44597, 33-49177 and 33-54629.
4.2 Instrument of Resignation, Appointment and Acceptance dated as of February 1, 2001, among
Registrant, Citibank, N.A., as resigning trustee, and Wilmington Trust Company, as successor trustee,
relating to the December 1991 Indenture.
Incorporated by reference to Exhibit 4(a)(2) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 filed on June 7, 2001.
4.3 Indenture dated as of September 20, 1996, between Registrant and Citibank, N.A., as trustee, relating to
unlimited amounts of debt securities which may be issued from time to time by Registrant when and as
authorized by or pursuant to a resolution of Registrant's Board of Directors (the "September 1996
Indenture").
Incorporated by reference to Exhibit 4(a) to Registration Statement No. 333-13179.
4.4 Instrument of Resignation, Appointment and Acceptance dated as of February 1, 2001, among
Registrant, Citibank, N.A., as resigning trustee, and Wilmington Trust Company, as successor trustee,
relating to the September 1996 Indenture.
Incorporated by reference to Exhibit 4(b)(2) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 filed on June 7, 2001.
4.5 Indenture dated as of January 29, 1997, between Registrant and Bank One, National Association (as
successor by merger with The First National Bank of Chicago) ("Bank One"), as trustee (the "January
1997 Indenture"), relating to Registrant's Junior Subordinated Deferrable Interest Debentures ("Junior
Subordinated Debentures").
Incorporated by reference to Exhibit 4.1 to Registration Statement No. 333-24193.
4.6 Form of Certificate of Exchange relating to Junior Subordinated Debentures.
Incorporated by reference to Exhibit A to Exhibit 4.1 to Registration Statement No. 333-24193.
4.7 Certificate of Trust of Xerox Capital Trust I executed as of January 23, 1997.
Incorporated by reference to Exhibit 4.3 to Registration Statement No. 333-24193.
4.8 Amended and Restated Declaration of Trust of Xerox Capital Trust I dated as of January 29, 1997.
Incorporated by reference to Exhibit 4.4 to Registration Statement No. 333-24193.
4.9 Form of Exchange Capital Security Certificate for Xerox Capital Trust I.
Incorporated by reference to Exhibit A-1 to Exhibit 4.4 to Registration Statement No. 333-24193.
4.10 Series A Capital Securities Guarantee Agreement of Registrant dated as of January 29, 1997, relating to
Series A Capital Securities of Xerox Capital Trust I.
Incorporated by reference to Exhibit 4.6 to Registration Statement No. 333-24193.
4.11 Registration Rights Agreement dated January 29, 1997, among Registrant, Xerox Capital Trust I and
the initial purchasers named therein.
Incorporated by reference to Exhibit 4.7 to Registration Statement No. 333-24193.
4.12 Instrument of Resignation, Appointment and Acceptance dated as of November 30, 2001, among
Registrant, Bank One as resigning trustee, and Wells Fargo Bank Minnesota, National Association
"Wells Fargo"), as successor Trustee, relating to the January 1997 Indenture.+
4.13 Indenture dated as of October 1, 1997, among Registrant, Xerox Overseas Holding Limited (formerly
Xerox Overseas Holding PLC), Xerox Capital (Europe) plc (formerly Rank Xerox Capital (Europe) plc)
and Citibank, N.A., as trustee, relating to unlimited amounts of debt securities which may be issued
from time to time by Registrant and unlimited amounts of guaranteed debt securities which may be
issued from time to time by the other issuers when and as authorized by or pursuant to a resolution or
resolutions of the Board of Directors of Registrant or the other issuers, as applicable (the "October 1997
Indenture").
Incorporated by reference to Exhibit 4(b) to Registration Statement Nos. 333-34333, 333-34333-01 and
333-34333-02.
4.14 Instrument of Resignation, Appointment and Acceptance dated as of February 1, 2001, among
Registrant, the other issuers under the October 1997 Indenture, Citibank, N.A., as resigning trustee, and
Wilmington Trust Company, as successor trustee, relating to the October 1997 Indenture.
Incorporated by reference to Exhibit 4(d)(2) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 filed on June 7, 2001.
4.15 Indenture dated as of April 21, 1998, between Registrant and Bank One, as trustee, relating to
$1,012,198,000 principal amount at maturity of Registrant's Convertible Subordinated Debentures due
2018 (the "April 1998 Indenture").
Incorporated by reference to Exhibit 4(b) to Registration Statement No. 333-59355.
4.16 Instrument of Resignation, Appointment and Acceptance dated as of July 26, 2001, among Registrant,
Bank One as resigning trustee, and Wells Fargo, as successor Trustee, relating to the April 1998
Indenture (the "April 1998 Indenture Trustee Assignment").+
4.17 Amendment to Instrument of Resignation, Appointment and Acceptance dated as of October 22, 2001,
among Registrant, Bank One as resigning trustee, and Wells Fargo, as successor Trustee, relating to the
April 1998 Indenture Trustee Assignment.+
4.18 Indenture, dated as of July 1, 2001, between Xerox Equipment Lease Owner Trust 2001-1 ("Trust") and
U.S. Bank National Association, as trustee, relating to $513,000,000 Floating Rate Asset Backed Notes
issued by the Trust.+
4.19 Indenture, dated as of November 27, 2001, between Registrant and Wells Fargo, as trustee, relating to
Registrant's 7 1/2% Convertible Junior Subordinated Debentures Due 2021.+
4.20 Indenture, dated as of November 27, 2001, between Xerox Funding LLC II and Wells Fargo, as trustee,
relating to Xerox Funding LLC II's 7 1/2% Convertible Junior Subordinated Debentures Due 2021.+
4.21 Amended and Restated Declaration of Trust of Xerox Capital Trust II, dated as of November 27, 2001,
by Registrant, as sponsor, Wells Fargo, as property trustee, Wilmington Trust Company, as Delaware
trustee, and the administrative trustees named therein, relating to Xerox Capital Trust II's 7 1/2%
Convertible Trust Preferred Securities and 7 1/2% Convertible Common Securities.+
4.22 Pledge Agreement, made as of November 27, 2001, by Xerox Funding LLC II in favor of Wells Fargo,
as trustee and for the holders of Xerox Funding LLC II's 7 1/2% Convertible Junior Subordinated
Debentures Due 2021.+
4.23 Indenture, dated as of January 17, 2002, between Registrant and Wells Fargo, as trustee, relating to
Registrant's 9 3/4% Senior Notes due 2009 (Denominated in U.S. Dollars).+
4.24 Indenture, dated as of January 17, 2002, between Registrant and Wells Fargo, as trustee, relating to
Registrant's 9 3/4% Senior Notes due 2009 (Denominated in Euros).+
4.25 Registration Rights Agreement, dated as of January 17, 2002, among Registrant and the initial
purchasers named therein, relating to Registrant's $600,000,000 9 3/4% Senior Notes due 2009.+
4.26 Registration Rights Agreement, dated as of January 17, 2002, among Registrant and the initial
purchasers named therein, relating to Registrant's (euro)225,000,000 9 3/4% Senior Notes due 2009.+
4.27 Indenture dated as of October 2, 1995, between Xerox Credit Corporation ("XCC") and State Street
Bank and Trust Company ("State Street"), as trustee, relating to unlimited amounts of debt securities
which may be issued from time to time by XCC when and as authorized by XCC's Board of Directors
or Executive Committee of the Board of Directors.
Incorporated by reference to Exhibit 4(a) to XCC's Registration Statement Nos. 33-61481 and
333-29677.
4.28 Indenture dated as of April 1, 1999, between XCC and Citibank, N.A., relating to unlimited amounts of
debt securities which may be issued from time to time by XCC when and as authorized by XCC's
Board of Directors or Executive Committee of the Board of Directors (the "April 1999 XCC
Indenture").
Incorporated by reference to Exhibit 4(a) to XCC's Registration Statement No. 33-61481.
4.29 Instrument of Resignation, Appointment and Acceptance dated as of February 1, 2001, among XCC,
Citibank, N.A., as resigning trustee, and Wilmington Trust Company, as successor trustee, relating to
the April 1999 XCC Indenture.
Incorporated by reference to Exhibit 4(h)(2) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 filed on June 7, 2001.
4.30 $7,000,000,000 Revolving Credit Agreement, dated October 22, 1997, among Registrant, XCC and
certain Overseas Borrowers, as Borrowers, various lenders and Morgan Guaranty Trust Company of
New York, The Chase Manhattan Bank, Citibank, N.A. and Bank One, as Agents.
Incorporated by reference to Exhibit 4(h) to Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000.
5.1 Opinion and consent of Skadden, Arps, Slate, Meagher & Flom LLP as to the legality of the exchange
notes to be issued by Xerox Corporation.+
10.1** Registrant's Form of Salary Continuance Agreement.+
10.2** Registrant's 1991 Long-Term Incentive Plan, as amended through October 9, 2000.
Incorporated by reference to Exhibit 10(b) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 filed on June 7, 2001.
10.3 Registrant's 1996 Non-Employee Director Stock Option Plan, as amended through May 20, 1999.
Incorporated by reference to Registrant's Notice of the 1999 Annual Meeting of Shareholders and
Proxy Statement pursuant to Regulation 14A.
10.4** Description of Registrant's Annual Performance Incentive Plan.+
10.5** 1997 Restatement of Registrant's Unfunded Retirement Income Guarantee Plan, as amended through
October 9, 2000.
Incorporated by reference to Exhibit 10(e) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 filed on June 7, 2001.
10.6** 1997 Restatement of Registrant's Unfunded Supplemental Retirement Plan, as amended through
October 9, 2000.
Incorporated by reference to Exhibit 10(f) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 filed on June 7, 2001.
10.7 Executive Performance Incentive Plan.+
10.8 1996 Amendment and Restatement of Registrant's Restricted Stock Plan for Directors.+
10.9** Form of severance agreement entered into with various executive officers, effective October 15, 2000.
Incorporated by reference to Exhibit 10(i)(2) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000 filed on June 7, 2001.
10.10** Registrant's Contributory Life Insurance Program, as amended as of January 1, 1999.
Incorporated by reference to Exhibit 10(j) to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1999.
10.11 Registrant's Deferred Compensation Plan for Directors, 1997 Amendment and Restatement, as
amended through October 9, 2000.
Incorporated by reference to Exhibit 10(k) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 filed on June 7, 2001.
10.12** Registrant's Deferred Compensation Plan for Executives, 1997 Amendment and Restatement, as
amended through October 9, 2000.
Incorporated by reference to Exhibit 10(l) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 filed on June 7, 2001.
10.13** Letter Agreement dated June 4, 1997 between Registrant and G. Richard Thoman, former President
and Chief Executive Officer of Registrant.
Incorporated by reference to Exhibit 10(m) to Registrant's Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 1997.
10.14** Registrant's 1998 Employee Stock Option Plan, as amended through October 9, 2000.
Incorporated by reference to Exhibit 10(n) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 filed on June 7, 2001.
10.15** Registrant's CEO Challenge Bonus Program.
Incorporated by reference to Exhibit 10(o) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 filed on June 7, 2001.
10.16** Separation Agreement dated May 11, 2000 between Registrant and G. Richard Thoman, former
President and Chief Executive Officer of Registrant.
Incorporated by reference to Exhibit 10(p) to Registrant's Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 2000.
10.17** Letter Agreement dated December 4, 2000 between Registrant and William F. Buehler,
Vice Chairman of Registrant.
Incorporated by reference to Exhibit 10(p) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 filed on June 7, 2001.
10.17 Separation Agreement dated October 3, 2001 between Registrant and Barry D. Romeril,
Vice Chairman and Chief Financial Officer of Registrant.+
10.18 Form of Release between Registrant and Barry D. Romeril, Vice Chairman and Chief Financial
Officer of Registrant.+
10.19 Letter Agreement dated April 2, 2001 between Registrant and Carlos Pascual, Executive Vice
President of Registrant.
Incorporated by reference to Exhibit 10(s) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 filed on June 7, 2001.
10.20 Master Supply Agreement, dated as of November 30, 2001, between Registrant and Flextronics
International Ltd.+
12.1 Computation of Ratio of Earnings to Fixed charges.+
16.1 Letter, dated October 4, 2001, of KPMG LLP.
Incorporated by Reference to Registrant's 8-K, filed October 4, 2001.
24.1 Certified Resolution re: Power of Attorney
24.2 Power of Attorney
25.1 From T-1 Statement of Eligability of Wells Fargo Bank Minnesota, N.A. to act as Trustee under the
Indentures.+
99.1 Form of Letter of Transmittal for the notes.+
99.2 Letter to Brokers for the notes.+
99.3 Letter to Clients for the notes.+
--------
+ To be filed by amendment.
** The management contracts or compensatory plans or arrangements listed above
that are applicable to the executive officers named in the Summary
Compensation Table which appear in Registrant's 2002 Proxy Statement are
preceded by two asterisks (**).
5