SCHEDULE 14A INFORMATION
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DOCUMENT COMPANY
XEROX
Xerox Corporation
800 Long Ridge Road
P.O. Box 1600
Stamford, Connecticut 06904
April 11, 1997
Dear Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders of Xerox
Corporation to be held Thursday, May 15, 1997 at 10:00 a.m. at The Sutton Place
Hotel, 955 Bay Street, Toronto, Ontario, Canada. Your Board of Directors and
Management look forward to greeting personally those shareholders able to
attend.
At the Annual Meeting, in addition to the election of 13 directors and the
election of KPMG Peat Marwick LLP as independent auditors for 1997, you are
being asked to consider and approve amendments to the 1991 Long-Term Incentive
Plan. The Board of Directors unanimously recommends that you vote in favor of
each of these proposals.
It is important that your shares be represented and voted at the Annual Meeting,
regardless of whether or not you plan to attend in person. You are therefore
urged to sign, date and mail the accompanying proxy card and return it promptly
in the postage paid envelope provided.
For the Board of Directors,
/s/ Paul A. Allaire
- -------------------
Paul A. Allaire
Chairman and Chief Executive Officer
Notice of Annual Shareholders' Meeting
The Annual Meeting of Shareholders of Xerox Corporation will be held at The
Sutton Place Hotel, 955 Bay Street, Toronto, Ontario, Canada on Thursday, May
15, 1997, at 10:00 a.m. The purposes of the meeting will be to elect directors,
to elect independent auditors for 1997, to approve amendments to the 1991
Long-Term Incentive Plan described on pages 24 through 28, and to conduct any
other business as may properly come before the meeting.
The Board of Directors has determined that holders of Common Stock and Series B
Convertible Preferred Stock of the Company at the close of business on March 27,
1997 will be entitled to notice of and to vote at the Annual Meeting.
We urge you to execute your proxy and return it in the enclosed envelope.
By order of the Board of Directors,
/s/ Eunice M. Filter
- --------------------
Eunice M. Filter
Secretary
April 11, 1997
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Whether you plan to attend the meeting or not, please fill in, sign, date and
mail the accompanying proxy as soon as possible. An envelope, which requires no
postage if mailed in the United States, is included for your convenience.
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1
Proxy Statement
The Board of Directors of Xerox Corporation (Company or Xerox) is requesting
your proxy for the Annual Meeting of Shareholders on May 15, 1997, and any
adjournments thereof. By executing and returning the enclosed proxy card, you
authorize the three directors whose names are listed on the front of it to
represent you and vote your shares in connection with the purposes set forth in
the Notice of Annual Meeting. The holders of a majority of the shares entitled
to vote at the meeting must be present in person or represented by proxy in
order to constitute a quorum for all matters to come before the meeting.
If you attend the meeting, you may of course vote by ballot. But if you are not
present, your shares can be voted only when represented by a properly executed
proxy. In this case you have several choices.
[bullet] You may vote on each proposal when returning the enclosed proxy card,
in which case your shares will be voted in accordance with your
choices.
[bullet] You may indicate a preference to abstain on any proposal, in which case
no vote will be recorded.
[bullet] You may return a properly executed proxy, without indicating your
voting preferences, in which case the proxies will vote your shares as
follows: for election of the directors nominated by the Board of
Directors; for election of KPMG Peat Marwick LLP as the Company's
independent auditors for 1997; and for the approval of amendments to
the 1991 Long-Term Incentive Plan.
You may revoke your proxy at any time, insofar as it has not been voted, by
notifying the Corporate Secretary in writing.
Under the law of New York, the Company's state of incorporation, only votes cast
"for" the election of directors or those cast "for" or "against" any other
proposal will be counted in determining whether a nominee for director has been
elected or whether any of the other proposals at this meeting have been
approved. Abstentions, broker non-votes and votes withheld are not treated as
votes cast at the meeting and will have the effect of a negative vote on
Proposal 3, where the vote of the majority of outstanding shares is required. In
the other proposals, they will have no effect on the outcome.
On March 27, 1997 the Company had outstanding 323,961,155 shares of Common Stock
and 9,171,401 shares of Series B Convertible Preferred Stock, each of which is
entitled to one vote on each proposal at the meeting. The Board of Directors has
set the close of business on March 27, 1997 as the record date for determining
the shareholders entitled to notice of and to vote at the meeting.
Proposal 1 -- Election of Directors
Shareholders annually elect directors to serve for one year and until their
successors have been elected and shall have qualified. The 13 persons whose
biographies appear on pages 5 through 11 have been proposed by the Board of
Directors based on a recommendation by the Nominating Committee of the Board of
Directors. The Nominating Committee consists of Vernon E. Jordan, Jr., Hilmar
Kopper, Ralph S. Larsen, George J. Mitchell and N. J. Nicholas, Jr., none of
whom is an officer or employee of the Company.
Eleven of the 13 nominees are neither employees nor former employees of Xerox,
its subsidiaries or associated companies. These Board members bring to the
Company valuable experience from a variety of fields.
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The By-Laws of the Company require that all nominees for director file with the
Secretary, at least 24 hours prior to the Annual Meeting, a statement indicating
consent to being a nominee and, if elected, intention to serve as a director.
Each of the nominees proposed by the Board of Directors has filed such a
statement.
If for any reason, which the Board of Directors does not expect, a nominee is
unable to serve, the proxies may use their discretion to vote for a substitute
proposed by the Board of Directors.
The vote required for election as a director of the Company is a plurality of
the votes cast at the meeting.
Committee Functions, Membership and Meetings
The Company's Board of Directors has several standing committees: the Audit,
Nominating, Executive Compensation and Benefits, Finance and Executive
Committees.
Audit Committee: The Audit Committee is responsible for recommending to the
Board of Directors the engagement of independent auditors for the Company and
reviewing with the independent auditors the plan and results of the auditing
engagement. The committee reviews summaries of the year-end financial data and
significant changes in accounting policies and financial reporting practices
with management, the Company's Director, Corporate Audit and independent
auditors. In addition, the committee reviews the recommendations contained in
the independent auditors' audit management letter and management's response to
that letter. The Audit Committee also reviews the plan for and results of the
Company's internal audits. It is authorized to receive reports on such matters
from the internal and external auditors and the Company's General Counsel as may
be required by law. With the assistance of management it can review and
investigate any such matter to the extent deemed appropriate.
The members of the Audit Committee are all non-employee directors: B. R. Inman,
Antonia Ax:son Johnson, John D. Macomber, John E. Pepper, Martha R. Seger and
Thomas C. Theobald. Mr. Macomber is the Chairman. Three meetings of the Audit
Committee were held during 1996.
Nominating Committee: The Nominating Committee recommends to the Board of
Directors nominees for election as directors of the Company. The committee
considers the performance of incumbent directors in determining whether to
recommend that they be nominated to stand for reelection.
The members of the Nominating Committee are Vernon E. Jordan, Jr., Hilmar
Kopper, Ralph S. Larsen, George J. Mitchell and N. J. Nicholas, Jr. Mr. Jordan
is the Chairman of the Nominating Committee. The committee held three meetings
in 1996.
Shareholders who wish to recommend individuals for consideration by the
Nominating Committee may do so by submitting a written recommendation to the
Secretary of the Company, P.O. Box 1600, Stamford, Connecticut 06904.
Submissions must include sufficient biographical information concerning the
recommended individual, including age, employment and board memberships (if
any), for the committee to consider, as well as a written consent by the nominee
to stand for election if nominated by the Board of Directors and to serve if
elected by the shareholders. Recommendations received by December 31, 1997 will
be considered for nomination at the 1998 Annual Meeting of Shareholders.
Recommendations received after December 31, 1997 will be considered for
nomination at the 1999 Annual Meeting of Shareholders.
Executive Compensation and Benefits Committee: The Executive Compensation and
Benefits Committee is responsible for recommending to the Board of Directors the
remuneration arrangements for senior
3
management of the Company, including the adoption of compensation plans in which
senior management is eligible to participate and the granting of benefits under
any such plans. The committee also consults with the Chief Executive Officer and
advises the Board with respect to senior management succession planning.
B. R. Inman, Antonia Ax:son Johnson, Ralph S. Larsen, John D. Macomber and John
E. Pepper are the members of the Executive Compensation and Benefits Committee,
and are all non-employee directors of the Company. Mr. Larsen is the Chairman.
Three meetings of the committee were held in 1996.
Finance Committee: The Finance Committee oversees the investment management of
the Company's employee profit sharing and retirement plans. In addition, the
Finance Committee is responsible for reviewing the Company's asset mix, capital
structure and strategies, financing strategies, insurance coverage and dividend
policy.
The members of the Finance Committee, all of whom are non-employee directors,
are Vernon E. Jordan, Jr., Hilmar Kopper, George J. Mitchell, N. J. Nicholas,
Jr., Martha R. Seger and Thomas C. Theobald. Mr. Nicholas is the Chairman of the
Finance Committee. The Finance Committee held four meetings in 1996.
Executive Committee: The Executive Committee has all the authority of the Board
of Directors, except with respect to certain matters that by statute may not be
delegated by the Board of Directors. The committee acts only in the intervals
between meetings of the full Board of Directors. It acts usually in those cases
where it is not feasible to convene a special meeting or where the agenda is the
technical completion of undertakings already approved in principle by the Board.
The members of the Executive Committee are Paul A. Allaire,
B. R. Inman and Vernon E. Jordan, Jr. Mr. Allaire is the Chairman. The Executive
Committee did not meet in 1996.
Attendance and Remuneration of Directors
Nine meetings of the Board of Directors and 13 meetings of the Board committees
were held in 1996. All incumbent directors other than Hilmar Kopper attended at
least 75 percent of the total number of meetings of the Board of Directors and
Board committees on which they served. The Company believes that attendance at
meetings is only one means by which directors may contribute to the effective
management of the Company and that the contributions of all directors have been
substantial and are highly valued.
Directors who are not employees of the Company receive $65,000 per year for
service as a director, an annual award of 2,500 stock options, and reimbursement
for out-of-pocket expenses incurred in connection with attendance at meetings
and other services as a director. Directors who are employees of subsidiary
companies are not eligible to receive stock option awards and Directors who are
employees of the Company do not receive any compensation for service as a
director.
Pursuant to the Restricted Stock Plan For Directors, $25,000 of the annual
director's fee of $65,000 is paid in the form of restricted shares of Common
Stock of the Company. The shares may not be sold or transferred except upon
death, retirement, disability, change in control or termination of service as a
director with the consent of a majority of the Board of Directors. If the
individual's service as a director is terminated for any other reason, the
shares are forfeited. The holders of restricted shares are entitled to all
distribution and voting rights of the Common Stock. The directors have the
option to receive part or all of their total cash fees for service on the Board
and committees of the Board in the form of shares of Common Stock, which may be
restricted or unrestricted at the election of the individual. The number of
shares issued is based on the market
4
value at the time the fee is payable. The shares held by directors under this
Plan are included in the Xerox securities owned shown in the biographies of the
directors beginning on page 5.
Terms Used in Biographies
To help you consider the nominees, we use a biographical format that provides a
ready reference on their backgrounds. Certain terms used in the biographies may
be unfamiliar to you, so we are defining them here.
Xerox securities owned means the Company's Common Stock, including restricted
shares of Common Stock issued under the Restricted Stock Plan For Directors, and
Series B Convertible Preferred Stock. Series B shares are owned through the
individual's account in the Xerox Employee Stock Ownership Plan. None of the
nominees owns any of the Company's other securities.
Options/Rights/Restricted Shares is the number of the Company's shares of Common
Stock held subject to performance-based vesting restrictions and shares of
Common Stock subject to stock options and incentive stock rights held by a
nominee.
Immediate family means the spouse, the minor children and any relatives sharing
the same home as the nominee.
Unless otherwise noted, all Xerox securities held are owned beneficially by the
nominee. This means he or she has or shares voting power and/or investment power
with respect to the securities, even though another name-that of a broker, for
example-appears in the Company's records. All ownership figures are as of March
27, 1997.
For information on compensation for officers, see the compensation section
starting on page 14.
[Photograph of Paul A. Allaire]
Paul A. Allaire
Age: 58 Director since: 1986
Xerox securities owned: 192,759 common shares; 454 Series B
Convertible Preferred shares
Options/Rights/Restricted Shares: 922,541 common shares
Occupation: Chairman and Chief Executive Officer and
Chairman of the Executive Committee, Xerox Corporation.
Education: BS, Worcester Polytechnic Institute; MS,
Carnegie-Mellon University.
Other Directorships: Fuji Xerox Co., Ltd.; Lucent Technologies, Inc.; The New
York Stock Exchange, Inc.; Rank Xerox Limited; Sara Lee Corporation; SmithKline
Beecham plc; and Xerox Financial Services, Inc.
Other Background: Joined Xerox in 1966. Member, Board of Trustees,
Carnegie-Mellon University and Member, Business Advisory Council of the Graduate
School of Industrial Administration, Carnegie-Mellon University. Member, Board
of Trustees, Worcester Polytechnic Institute. Member, The Business Roundtable,
and The Business Council. Member, Board of Directors, the Council on Foreign
Relations, the New York City Ballet, and Catalyst. Chairman, Council on
Competitiveness.
5
[Photograph of B. R. Inman]
B. R. Inman
Age: 67 Director since: 1987
Xerox securities owned: 3,879 common shares and an indirect
interest in approximately 4,027 common shares through the
Deferred Compensation Plan
Options/Rights/Restricted Shares: 2,500
Occupation: Investor.
Education: BA, University of Texas.
Other Directorships: Fluor Corporation; Science
Applications International Corporation; SBC Communications,
Inc.; and Temple-Inland Inc.
Other Background: Entered Naval Reserve in 1951, graduated
from National War College in 1972, promoted to Rear Admiral in 1974, to Vice
Admiral in 1976 and to Admiral in 1981. Retired with permanent rank of Admiral
in 1982. Between 1974 and 1982 served as Director of Naval Intelligence, Vice
Director of the Defense Intelligence Agency, Director of the National Security
Agency and Deputy Director of Central Intelligence. Between 1983 and 1989 served
as Chairman and Chief Executive Officer of Microelectronics and Computer
Technology Corporation. Served as Chairman, President and Chief Executive
Officer, Westmark Systems, Inc., 1987 to 1989 and Chairman, Federal Reserve Bank
of Dallas, 1987 to 1990. Member, National Academy of Public Administration.
Trustee, the American Assembly, the Center for Excellence in Education and the
California Institute of Technology. Adjunct Professor at the LBJ School of
Public Affairs and at the Graduate School of Business of the University of Texas
at Austin. Member of the Audit, Executive Compensation and Benefits, and
Executive Committees of Xerox.
[Photograph of Antonia Ax:son Johnson]
Antonia Ax:son Johnson
Age: 53 Director since: 1996
Xerox securities owned: 275 common shares and an indirect
interest in approximately 746 common shares through the
Deferred Compensation Plan
Options/Rights/Restricted Shares: 2,500
Occupation: Chairman, Axel Johnson AB and Axel Johnson,
Inc.
Education: BA, MA, University of Stockholm.
Other Directorships: Axel Johnson International, Hemkop AB,
Ahlens AB, Saba Trading AB, Nordstjernan AB, Spira AB.
Other Background: In 1971 joined the Axel Johnson Group;
became primary stockholder in 1975 and Owner and Chairman in 1982. Board Member,
the Royal Swedish Academy of Engineering Sciences, The International Institute
for Industrial Environmental Economics of the University of Lund, The World
Business Council for Sustainable Development, Middlebury College, The Advisory
Council of the Graduate Business School of Stanford University, The Axel and
Margaret Ax:son Johnson Foundation, Chairman of the City Mission of Stockholm
and The Business Leadership Academy. Member of the Audit and Executive
Compensation and Benefits Committees of Xerox.
6
[Photograph of Vernon E. Jordan, Jr.]
Vernon E. Jordan, Jr.
Age: 61 Director since: 1974
Xerox securities owned: 11,897 common shares and an
indirect interest in approximately 3,287 common shares
through the Deferred Compensation Plan
Options/Rights/Restricted Shares: 2,500
Occupation: Partner, Akin, Gump, Strauss, Hauer & Feld,
LLP.
Education: BA, DePauw University; JD, Howard University Law
School.
Other Directorships: American Express Company; Bankers
Trust Company; Bankers Trust New York Corporation; Dow
Jones & Co.; J.C. Penney Company, Inc.; Revlon Group; Ryder
System, Inc.; Sara Lee Corporation; and Union Carbide
Corporation.
Other Background: Became a partner in the law firm of Akin, Gump, Strauss, Hauer
& Feld in 1982, following ten years as President of the National Urban League,
Inc. Member of the Bar of Arkansas, Georgia and the District of Columbia as well
as the U.S. Supreme Court Bar. Director of the Brookings Institution, the LBJ
Foundation, Howard University, the NAACP Legal Defense and Education Fund, Inc.
Trustee of the Ford Foundation. Former Member of the National Advisory
Commission on Selective Service, the American Revolution Bicentennial
Commission, the Presidential Clemency Board, the Advisory Council on Social
Security, the Secretary of State's Advisory Committee on South Africa and the
President's Advisory Committee of the Points of Light Foundation. Chairman of
the Nominating Committee and member of the Finance and Executive Committees of
Xerox.
[Photograph of Yotaro Kobayashi]
Yotaro Kobayashi
Age: 63 Director since: 1987
Xerox securities owned: 7,415 common shares
Options/Rights/Restricted Shares: 2,500
Occupation: Chairman and Chief Executive Officer, Fuji
Xerox Co., Ltd.
Education: BA, Keio University; MBA, Wharton Graduate
School, University of Pennsylvania.
Other Directorships: Fuji Xerox Co., Ltd.; ABB Asea Brown
Boveri Ltd.; Iwaki Glass Co., Ltd.; and Japan Research
Center Co., Ltd.
Other Background: Joined Fuji Photo Film Co., Ltd in 1958, was assigned to Fuji
Xerox Co., Ltd. in 1963, named President and Chief Executive Officer in 1978 and
Chairman and Chief Executive Officer in 1992. Chairman of the Japan-U.S.
Business Council. Vice-Chairman, Japan Association of Corporate Executives.
Member of the Trilateral Commission; University Council and Curriculum Council
of the Ministry of Education, Science, Sports and Culture; Economic Council of
the Economic Planning Agency; the International Council of JP Morgan; the
International Advisory Board of Northern Telecom Limited; the International
Advisory Board of the Council on Foreign Relations; the Board of Overseers of
The Wharton School of the University of Pennsylvania and the Advisory Council of
the Institute for International Studies, Stanford University. Vice-Chairman,
Board of Trustees, International University of Japan and member of the Board of
Trustees, Keio University. Former member of the U.S. Japan Advisory Commission
and The Provisional Council for the Promotion of Administrative Reform. Past
Chairman, Japan Business Machine Makers Association.
7
[Photograph of Hilmar Kopper]
Hilmar Kopper
Age: 62 Director since: 1991
Xerox securities owned: 6,880 common shares
Options/Rights/Restricted Shares: 2,500
Occupation: Spokesman of the Board of Managing Directors,
Deutsche Bank AG.
Education: High school diploma.
Other Directorships: Akzo NV; Bayer AG; Daimler-Benz AG;
Linde AG; Deutsche Lufthansa AG; Mannesmann AG; Munchener
Ruckversicherung AG; Solvay SA; VEBA AG; and RWE AG.
Other Background: Apprenticeship with Rheinisch-Westfalischen Bank AG in
Cologne, 1954. Management trainee at J. Henry Schroder Banking Corporation, New
York. Foreign Department, Deutsche Bank's Central Office in Dusseldorf and
Manager, Leverkusen branch, 1969. Appointed to the Board of Managing Directors
of Deutsche Bank subsidiary European Asian Bank AG in Hamburg, 1972. Executive
Vice President, Deutsche Bank AG, 1975; and Member of the Board of Managing
Directors, Deutsche Bank AG, 1977. Succeeded Alfred Herrhausen as Spokesman of
the Board of Managing Directors, December 1989. Member of the Finance and
Nominating Committees of Xerox.
[Photograph of Ralph S. Larsen]
Ralph S. Larsen
Age: 58 Director since: 1990
Xerox securities owned: 9,217 common shares and an indirect
interest in approximately 9,296 common shares through the
Deferred Compensation Plan
Options/Rights/Restricted Shares: 2,500
Occupation: Chairman and Chief Executive Officer, Johnson &
Johnson.
Education: BBA, Hofstra University.
Other Directorships: Johnson & Johnson; AT&T, The New York
Stock Exchange, Inc.
Other Background: Joined Johnson & Johnson in 1962, was
named Vice President of Marketing, McNeil Consumer Products Company in 1980.
President of Becton Dickinson's Consumer Products Division, 1981 to 1983.
Returned to Johnson & Johnson as President of its Chicopee subsidiary in 1983.
Named a company Group Chairman in 1986, and Chairman of the Board and Chief
Executive Officer in 1989. Member, Board of the Tri-State United Way. Member of
The Business Council and the Policy Committee of The Business Roundtable. Served
two years in the U.S. Navy. Chairman of the Executive Compensation and Benefits
Committee and member of the Nominating Committee of Xerox.
8
[Photograph of John D. Macomber]
John D. Macomber
Age: 69 Director since: 1994, and 1987 to 1989
Xerox securities owned: 16,701 common shares and an
indirect interest in approximately 4,690 common shares
through the Deferred Compensation Plan
Options/Rights/Restricted Shares: 2,500
Occupation: Principal, JDM Investment Group.
Education: BA, Yale University; MBA, Harvard University
Graduate School of Business Administration.
Other Directorships: Bristol-Myers Squibb Company; Brown
Group Inc; Lehman Brothers; Pilkington plc; and Textron.
Other Background: Principal of JDM Investment Group since
1992. Served as Chairman and President, Export-Import Bank of the United States,
1989 to 1992. Joined Celanese Corporation in 1973 as President and held the
positions of Chairman and Chief Executive Officer from 1980 to 1987. Prior to
joining Celanese, served as Senior Director with McKinsey & Co. Inc. Member of
the Advisory Board of the Center for Strategic and International Studies and
STRIVE. Member of the Board of Directors of the Atlantic Council of the United
States, the French-American Foundation and the National Executive Services
Corps. Member of the Council on Foreign Relations and the Bretton Woods
Committee. Trustee of the Carnegie Institution of Washington and the Folger
Library. Chairman, Council For Excellence In Government. Served two years in the
U.S. Air Force. Chairman of the Audit Committee and member of the Executive
Compensation and Benefits Committee of Xerox.
[Photograph of George J. Mitchell]
George J. Mitchell
Age: 63 Director since: 1996
Xerox securities owned: 1,200 common shares and an indirect
interest in approximately 185 common shares through the
Deferred Compensation Plan
Options/Rights/Restricted Shares: 2,500
Occupation: Special Counsel, Verner, Liipfert, Bernhard,
McPherson and Hand, Chartered
Education: BA, Bowdoin College; LLB, Georgetown University
Law Center.
Other Directorships: Federal Express Corporation, The Walt
Disney Company, UNUM Corporation.
Other Background: Trial lawyer with the U.S. Department of Justice Antitrust
Division, 1960 to 1962. Served as Executive Assistant to U.S. Senator Edmund S.
Muskie from 1962 to 1965. Private law practice from 1965 to 1977. Served as U.S.
Attorney for Maine, 1977 to 1979; appointed U.S. District Court Judge in 1979;
resigned in 1980 to accept appointment to the U.S. Senate. Elected U.S. Senator
from the State of Maine in 1982, serving as Majority Leader of the Senate from
1989 to 1995 when he retired from the Senate and joined the law firm of Verner,
Liipfert, Bernhard, McPherson and Hand. He also serves as Chairman of the
International Crisis Group and as Chairman of The Peace Negotiations in Northern
Ireland. Member of the Finance and Nominating Committees of Xerox.
9
[Photograph of N. J. Nicholas, Jr.]
N. J. Nicholas, Jr.
Age: 57 Director since: 1987
Xerox securities owned: 9,573 common shares and an indirect
interest in approximately 7,934 common shares through the
Deferred Compensation Plan
Options/Rights/Restricted Shares: 2,500
Occupation: Investor.
Education: BA, Princeton University; MBA, Harvard
University Graduate School of Business Administration.
Other Directorships: Bankers Trust Company; Boston
Scientific Corporation.
Other Background: President and Co-Chief Executive Officer,
Time-Warner Inc., 1990 to 1992. Former member of the President's Advisory
Committee on Trade Policy and Negotiations and the President's Commission on
Environmental Quality. Chairman of the Advisory Board of Columbia University
Graduate School of Journalism. Chairman of the Finance Committee and Member of
the Nominating Committee
of Xerox.
[Photograph of John E. Pepper]
John E. Pepper
Age: 57 Director since: 1990
Xerox securities owned: 19,138 common shares and an
indirect interest in approximately 2,855 common shares
through the Deferred Compensation Plan; immediate family
owns 3,000 shares
Options/Rights/Restricted Shares: 2,500
Occupation: Chairman of the Board and Chief Executive, The
Procter & Gamble Company.
Education: BA, Yale University.
Other Directorships: Motorola, Inc.; The Procter & Gamble
Company.
Other Background: Joined Procter & Gamble in 1963. Named Executive Vice
President and elected to the Board of Directors in 1984, named President in 1986
and Chairman and Chief Executive in 1996. Chairman, Total Quality Leadership
Steering Committee. Co-Chair, Governor's Education Council of the State of Ohio
and Cincinnati Youth Collaborative. Member, Board of Directors, National
Alliance of Business. Member, Cincinnati Business Committee, Grocery
Manufacturers of America, Yale Corporation, The Business Council and The
Business Roundtable. Trustee, Cincinnati Council on World Affairs, Christ Church
Endowment Fund, Center for Strategic and International Studies. Served three
years in the U.S. Navy. Member of the Audit and Executive Compensation and
Benefits Committees of Xerox.
10
[Photograph of Martha R. Seger]
Martha R. Seger
Age: 65 Director since: 1991
Xerox securities owned: 3,936 common shares and an indirect
interest in approximately 4,519 common shares through the
Deferred Compensation Plan
Options/Rights/Restricted Shares: 2,500
Occupation: Financial economist and Former Governor,
Federal Reserve System; currently Distinguished Visiting
Professor of Finance, Hillsdale College.
Education: BBA, MBA, PhD, University of Michigan.
Other Directorships: Fluor Corporation; Michigan Mutual and
the Amerisure Companies; Amoco Corporation; Johnson
Controls; Providian Corporation; The Kroger Co.; and Tucson
Electric Power Co.
Other Background: Financial Economist, Federal Reserve
Board, 1964 to 1967. Chief Economist, Detroit Bank & Trust, 1967 to 1974,
elected Vice President in 1971. Vice President, Economics and Investments, Bank
of the Commonwealth (Detroit), 1974 to 1976. Adjunct Associate Professor,
University of Michigan, 1976 to 1979. Associate Professor of Economics and
Finance, Oakland University, 1980. Commissioner of Financial Institutions, State
of Michigan, 1981 to 1982. Professor of Finance, Central Michigan University,
1983 to 1984. Governor, Federal Reserve System, 1984 to 1991. Member of the
Audit and Finance Committees of Xerox.
[Photograph of Thomas C. Theobald]
Thomas C. Theobald
Age: 59 Director since: 1983
Xerox securities owned: 4,479 common shares and an indirect
interest in approximately 4,918 common shares through the
Deferred Compensation Plan
Options/Rights/Restricted Shares: 2,500
Occupation: Managing Director, William Blair Capital
Partners, LLC.
Education: AB, College of the Holy Cross; MBA, Harvard
University Graduate School of Business Administration.
Other Directorships: Anixter International; Enron Global
Power & Pipelines; LaSalle Income and Growth Fund; Mutual
of New York; Peregrine Asia Pacific Growth Fund; Stein Roe
Funds.
Other Background: Began career with Citibank in 1960,
appointed Vice Chairman and elected a Director of Citicorp in 1982. Chairman,
Continental Bank Corporation, 1987 to 1995. Director of the Associates of the
Harvard Business School, The MacArthur Foundation and the Chicago Council on
Foreign Relations. Trustee, Northwestern University. Member of the Committee on
Architecture of the Art Institute of Chicago. Member of the Audit and Finance
Committees of Xerox.
11
Ownership of Company Securities
The Company knows of no person who, or group which, owns beneficially more than
5% of any class of its equity securities as of December 31, 1996, except as set
forth below (1).
- -----------------------------------------------------------------------------------------------------------------------
Amount
Beneficially Percent
Title of Class Name of Address of Beneficial Owner Owned of Class
- -----------------------------------------------------------------------------------------------------------------------
Series B Convertible Preferred State Street Bank and Trust Company, 9,212,074 100%
Stock(2) as Trustee,
225 Franklin Street, Boston, MA(3)
Common Stock State Street Bank and Trust Company, 7,292,309(4) 9.9%(5)
as Trustee under other plans and accounts
225 Franklin Street, Boston, MA
(1) The words "group" and "beneficial" are as defined in regulations issued by
the Securities and Exchange Commission (SEC). Beneficial ownership under
such definition means possession of sole voting power, shared voting power,
sole dispositive power or shared dispositive power. The information
provided in this table is based solely upon the information contained in
the Form 13G filed by the named entity with the SEC.
(2) These shares have equal voting rights with the Common Stock.
(3) Held as Trustee under the Xerox Employee Stock Ownership Plan. Each
participant may direct the Trustee as to the manner in which shares
allocated to his or her account shall be voted. The Trust Agreement
provides that the Trustee shall vote any shares allocated to participants'
accounts as to which it has not received voting instructions and any shares
which have not been so allocated, in the same proportions as shares in
participants' accounts as to which voting instructions are received. The
power to dispose of shares is governed by the terms of the Plan and
elections made by participants.
(4) Withinthis total as to certain of the shares, State Street Bank and Trust
Company has sole voting power 2,932,435 shares, shared voting power
4,046,766 shares, sole dispositive power 3,229,343 shares and shared
dispositive power 4,062,966 shares.
(5) Percentage based upon assumption that all Series B Convertible Preferred
Stock were converted into 27,636,227 shares of Common Stock.
12
Shares of Common Stock and Series B Convertible Preferred Stock of the Company
owned beneficially by its directors and nominees for director, each of the
executive officers named in the Summary Compensation Table below and directors
and all officers as a group, as of March 27, 1997, were as follows:
- --------------------------------------------------------------------------------
Amount Total
Name of Beneficially Stock
Beneficial Owner Owned Interest
- --------------------------------------------------------------------------------
Paul A. Allaire ........................... 761,884 1,115,754
William F. Buehler ........................ 86,910 161,751
Allan E. Dugan ........................... 134,947 210,287
B.R. Inman .............................. 4,704 10,406
Antonia Ax:son Johnson .................. 1,100 3,521
Vernon E. Jordan, Jr. ..................... 12,722 17,684
Yotaro Kobayashi ........................ 8,240 9,915
Hilmar Kopper ........................... 7,705 9,380
Ralph S. Larsen ........................... 10,042 21,013
John D. Macomber ........................ 17,526 23,891
George J. Mitchell ........................ 2,025 3,885
N.J. Nicholas, Jr. ........................ 10,398 20,007
John E. Pepper ........................... 19,962 24,493
A. Barry Rand ........................... 131,958 241,658
Barry D. Romeril ........................ 117,651 216,656
Martha R. Seger ........................... 4,761 10,955
Thomas C. Theobald ........................ 5,304 11,897
Directors and All Officers as a group ... 2,599,150 5,318,662
The shares of Common Stock, and Series B Stock owned by each director and
officer named and by all directors and officers as a group represent less than
1% of the aggregate number of shares of Common Stock and Series B Stock
outstanding at March 27, 1997. The numbers shown in the Amount Beneficially
Owned column are the shares of Common Stock considered owned by the directors
and officers in accordance with SEC rules, including shares of Common Stock
which officers and directors had a right, within 60 days, to acquire upon the
exercise of options or rights, all of which shares were deemed outstanding for
purposes of computing the percentage of Common Stock and Series B Stock
outstanding and beneficially owned. The numbers shown in the Total Stock
Interest column include the amount shown in the Amount Beneficially Owned column
plus options held by officers not exercisable within 60 days, incentive stock
units and restricted shares, as well as the interests of officers and directors
in the Xerox Stock Fund under the Profit Sharing and Savings Plan and the
Deferred Compensation Plans.
13
Executive Compensation
Report of the Executive Compensation and Benefits
Committee of the Board of Directors
Executive Officer Compensation
The compensation paid to the Company's executive officers is determined by the
Executive Compensation and Benefits Committee (Committee) of the Board of
Directors. The Committee's members are each independent, non-employee directors
of the Company who establish the policies that govern the compensation paid to
Xerox executive officers, determine overall and individual compensation goals
and objectives, grant awards and certify achievement of performance under the
Company's various annual and long-term incentive plans and approve actual
compensation payments.
The compensation policy established by the Committee provides that target levels
of compensation as well as the benefits provided executive officers are intended
to be equal to or better than the compensation paid by other companies in the
marketplace in which Xerox operates and competes for equivalent skills and
competencies for positions of similar responsibilities and desired levels of
performance. The Company's executive compensation policies, plans and programs
are designed to provide competitive levels of compensation that align pay with
the Company's annual and long-term performance objectives and that recognize
corporate and individual achievement while supporting the Company objectives of
attracting, motivating and retaining high performing executives. In order to
determine appropriately competitive levels of compensation, the Committee
annually reviews, evaluates and compares Xerox executive officer compensation to
relevant external, competitive compensation data. At its meeting on December 9,
1996, the Committee reviewed the reported compensation data of firms which were
part of the Business Week Computers and Peripherals Industry Group (which are
included in the data shown on the performance graph on page 23 below), as well
as a broader group of organizations with which the Company is likely to compete
for executive expertise and which are of similar size and scope. The latter
group includes large capitalization, multinational companies in technology,
office equipment and other industries.
Base salaries are determined by the Committee, in its judgment, taking into
account the competitive data referenced above. In addition, a substantial
portion, generally two-thirds or more of targeted total compensation, of each
executive officer's total compensation is at risk and variable from year to year
because it is linked to specific performance measures of the business.
The three principal variable pay programs that were utilized in 1996 to align
executive officer pay with Company and individual performance as reported in
this Proxy Statement are briefly described below:
Executive Performance Incentive Plan (EPIP): This plan, approved by
Shareholders at the Company's Annual Meeting on May 18, 1995, provides the
Committee with an incentive vehicle to compensate eligible executives for
significant contributions to the performance of the Company while preserving
the tax deductibility of payments made under the Plan even if an executive's
compensation exceeds $1,000,000 in any year as described in Section 162(m) of
the Internal Revenue Code of 1986, as amended. Awards under the Plan are made
from incentive payment pools created by applying pre-determined percentages
to appropriately relevant performance measures as described in the Plan.
These measures and percentages for awards made by the Committee during 1996
were 2% of the Company's Document Processing profit before tax (PBT) for the
1996 one-year performance period, 1-1/2% of
14
cumulative PBT for the three-year performance period commencing in 1995, 3%
of reduction in Financial Services debt for the 1996 one-year performance
period and 2.5% of such reduction for the three-year performance period
commencing in 1995. Ten percent (10%) of the resulting incentive payment PBT
pool is payable to the Chief Executive Officer of the Company and five
percent (5%) of the pool is payable to every other participant in the Plan.
Five percent (5%) of the Financial Service debt reduction pool is payable to
Stuart B. Ross, its chief executive officer. The Plan provides the Committee
with discretion to reduce the amount otherwise payable under an award to any
participant to any amount, including zero, except in the case of a change in
control as defined. The amount determined by the above formula cannot be
increased. For the full year 1996, the CEO and ten (10) other executive
officers participated in the Plan.
For 1996, the PBT pool amounted to $41,340,000 and the Committee exercised
its discretion by reducing total payments to the executive officers from the
pool from $22,737,000 to $2,926,677.
Annual Performance Incentive Plan (APIP): Under the APIP, executive
officers of the Company may be entitled to receive performance related cash
payments provided that annual, Committee-established performance objectives
are met. At its February 5, 1996 meeting, the Committee approved for each
officer not participating in EPIP, an annual incentive target and maximum
opportunity expressed as a percentage of their March 1, 1996 base salary. The
Committee also established overall Document Processing threshold, target and
maximum measures of performance and associated payment schedules. The
performance measures for 1996 were profit before tax (35%), revenue growth
(20%), cash generation (15%), customer satisfaction and loyalty (15%) and
employee satisfaction (15%). Additional goals were subsequently 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 10 percent to 55 percent of the total.
For 1996, the performance against the established measures was mixed.
Threshold performance was exceeded for PBT. Revenue Growth performance was
below minimum performance levels, but cash generation goals were met. Both
satisfaction indices, customer satisfaction and loyalty and employment
motivation and satisfaction, exceeded maximum performance measures under the
plan. Overall, executive officers received payments that were substantially
below those made for 1995 performance. The payments ranged from 81.4% to
188.2 % of target bonus opportunity.
Leveraged Executive Equity Plan (LEEP): Under the terms of the 1991
Long-Term Incentive Plan, the Committee has implemented a three-year plan
beginning in 1995 for key management executives, including most executive
officers, that focuses on the achievement of performance objectives of the
Document Processing business of the Company. When the objectives of the plan
are achieved, shareholder value is enhanced and the plan provides for an
opportunity to realize long-term financial rewards. LEEP requires that each
executive participant must directly or indirectly maintain an investment in
shares of common stock of the Company having a value as of March 1, 1995 of
either 100%, 200% or 300% of a participant's annual base salary. A 1995 award
was made under LEEP to approximately 50 key executives that provided for
non-qualified stock options for shares of common stock and restricted shares
of common stock or incentive stock units, based upon the ratio of five option
shares and two restricted shares of common stock or incentive stock units for
each share of common stock in which the executive had invested, as described
above. The options become exercisable in three annual cumulative installments
beginning in the year following the award. The incentive stock rights are
payable in shares of common stock and the restricted shares become
unrestricted in three annual installments beginning in
15
the year following the award, provided specific Document Processing earnings
per share goals are achieved for each preceding year. Thirty-three percent
(33%) of the non-qualified stock options granted under the 1995 cycle became
exercisable on January 1, 1997.
For 1996, the earnings per share goal was achieved and thirty-three percent
(33%) of the restricted shares and restricted dividends thereon became
unrestricted and thirty-three percent (33%) of the incentive stock units
vested.
Chief Executive Officer Compensation
The compensation paid to Paul A. Allaire, Chairman of the Board of Directors and
Chief Executive Officer for the performance year 1996 was established by the
Committee at its February 6, 1995 and February 5, 1996 meetings. The Committee's
actions are described below as they relate to each component of Mr. Allaire's
1996 compensation as reported in the charts and tables that accompany this
report.
Base Salary: Mr. Allaire's base salary was recommended for increase by
the full Board of Directors by the Committee to $975,000 from $875,000
effective March 1, 1996. This action was based on the Committee's review of
competitive data which indicated his base salary was below that reported as
paid to his peers in companies of similar size, scope and complexity.
1996 Bonus: The Committee authorized a payment under the EPIP program,
described above, in the amount of $910,000. The amount of bonus determined
utilizing the formula of the EPIP was reduced at the Committee's discretion
to align the payment with the same Company, organizational and individual
performance unit performance measures utilized by the Committee in
determining the payments to other Company executives paid under the Company's
APIP also described above. A portion of the bonus awarded was approved by the
Committee based on its subjective assessment of Mr. Allaire's performance
against organizational governance, productivity improvement and Financial
Services goals which the Committee had established for Mr. Allaire early in
1996. Mr. Allaire's 1996 bonus was approximately 76% of the bonus he received
for 1995.
Long-Term Incentive: Under the provisions of the LEEP described above,
Mr. Allaire vested in the right to exercise thirty-three percent (33%) of the
non-qualified stock options granted in 1995. Additionally, thirty-three
percent (33%) of the restricted shares and dividends thereon awarded under
the LEEP with respect to the 1996 performance year became unrestricted on
March 1, 1997 resulting from previously established EPS goals being achieved.
Detailed information concerning Mr. Allaire's compensation as well as that of
other highly compensated executives is displayed on the accompanying charts and
tables.
Ralph S. Larsen, Chairman
B. R. Inman
Antonia Ax:son Johnson
John D. Macomber
John E. Pepper
February 3, 1997
16
Summary Compensation Table
The Summary Compensation Table below provides certain compensation information
for the Chief Executive Officer and the four most highly compensated key
executive officers (Named Officers) serving at the end of the fiscal year ended
December 31, 1996 for services rendered in all capacities during the fiscal year
ended December 31, 1996, 1995 and 1994. The table includes the dollar value of
base salary, bonus earned, option awards (shown in number of shares) and certain
other compensation, whether paid or deferred.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation Awards
------------------------------------------------------------ ----------------------
Annual Bonus Securities
---------------------------------- Underlying
Total Other Annual Restricted Options/ All Other
Name and EPIP 91 Plan Annual Compensation Stock SARs Compensation
Principal Position Year Salary ($) (A) ($) (B) ($) Bonus ($) ($) (C) ($) (D) (#) (E) ($) (F)
- ------------------------------------------------------------------------------------------------------------------------------------
Paul A. Allaire ......... 1996 958,333 910,000 3,054,900 3,964,900 177,580 0 0 243,857
Chief Executive Officer 1995 858,333 1,200,000 2,108,499 3,308,499 184,606 0 358,965 244,678
1994 775,000 1,275,000 1,244,284 2,519,284 98,000 1,898,750 300,000 154,800
Barry D. Romeril ......... 1996 436,841 300,000 968,119 1,268,119 45,152 659,300 0 112,014
Executive Vice President 1995 413,341 336,912 668,168 1,005,080 44,600 0 113,760 130,395
1994 400,000 650,341 870,563 1,520,904 37,100 266,406 0 59,507
A. Barry Rand ............ 1996 436,833 160,000 968,119 1,128,119 54,896 659,300 0 88,309
Executive Vice President 1995 413,333 329,851 668,168 998,019 111,154 0 113,760 101,315
1994 400,000 477,230 661,825 1,139,055 51,800 0 0 57,476
William F. Buehler ...... 1996 413,333 350,000 907,107 1,257,107 52,880 0 0 92,956
Executive Vice President 1995 350,833 295,077 625,359 920,436 44,500 0 106,800 100,466
1994 315,000 411,126 727,937 1,139,063 38,500 426,250 0 65,466
Allan E. Dugan ......... 1996 346,167 249,810 779,730 1,029,540 47,560 347,211 0 75,625
Senior Vice President 1995 332,500 297,843 538,139 835,982 44,500 0 91,620 87,673
1994 320,000 423,934 529,437 953,371 44,500 0 0 53,972
- ------------------------------------------------------------------------------------------------------------------------------------
(A) This column reflects annual cash bonuses earned during 1996 under EPIP.
(B) This column reflects amounts earned under the Company's 1991 Long-Term
Incentive Plan (1991 Plan). Under the 1991 Plan, awards of Restricted Stock
were made in 1995 to each of the Named Officers which become
non-forfeitable as to one-third of the total if the Company's Document
Processing earnings per share reach a specified level in each of the years
1995, 1996 and 1997. The 1996 level was reached and one-third of the
shares, together with the restricted dividends thereon, became non-
forfeitable. Accordingly, the value of one-third of the shares of the
Restricted Stock, and the amount of the restricted dividends thereon, is
reported in the column above for the year in which the earnings per share
objective is reached. The Company and the Executive Compensation and
Benefits Committee view these amounts as long-term incentive compensation.
(C) Other Annual Compensation includes executive expense allowance, perquisite
income and dividend equivalents paid on outstanding incentive stock rights.
The amount of perquisite income for Mr. Allaire includes $37,991 for
personal use of Company aircraft and $8,070 for personal financial
planning.
17
(D) This column reflects incentive stock unit rights awarded under the 1991
Plan or a predecessor plan where each unit represents one share of stock to
be issued upon vesting at the attainment of a specific retention period.
Each unit is entitled to the payment of dividend equivalents at the same
time and in the same amount declared on one share of the Company's common
stock. The number of units held by the Named Officers and their value as of
December 31, 1996 (based upon the closing market price on that date of
$52.625) was as follows: P.A. Allaire--81,000 ($4,262,625), B.D.
Romeril--28,926 ($1,522,231), A.B. Rand--37,626 ($1,980,068), W.F.
Buehler--24,000 ($1,263,000) and A.E. Dugan--31,728 ($1,669,686).
Restricted Stock awards made under the 1991 Plan described in note (B) are
reported as bonuses and are not reflected in the Restricted Stock column
above.
(E) The Company no longer issues stock appreciation rights (SARs) in tandem
with options. All of the options granted were awarded under LEEP. As
discussed under the Report of the Executive Compensation and Benefits
Committee above, LEEP is a three-year program.
(F) The total amounts shown in this column for the last fiscal year consist of
the Company's profit sharing contribution, whether under the Profit Sharing
and Savings Plan or its policy of paying directly to the officer the amount
which cannot be made by the Plan under the Employee Retirement Income
Security Act of 1974, and the estimated dollar value of the benefit to the
officer from the Company's portion of insurance premium payments under the
Company's Contributory Life Insurance Plan on an actuarial basis. The
Company will recover all of its premium payments at the end of the term of
the policy, generally at age 65. The amounts were: P.A. Allaire: $215,833
profit sharing; $28,024 life insurance; B.D. Romeril: $77,375 profit
sharing; $34,638 life insurance; A.B. Rand: $76,668 profit sharing; $11,641
life insurance; W.F. Buehler: $70,841 profit sharing; $22,115 life
insurance and A.E. Dugan: $64,401 profit sharing; $11,224 life insurance.
18
Option Exercises/Year-End Values
The following table sets forth for each of the Named Officers the number of
shares underlying options and SARs exercised during the fiscal year ended
December 31, 1996, the value realized upon exercise, the number of options/SARs
unexercised at year-end and the value of unexercised in-the-money options/SARs
at year-end.
AGGREGATE OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUE
Number of Shares
Number of Underlying Unexercised Value of Unexercised In-the-
Shares Options/SARs at Money Options/SARs at
Underlying FY-End (#) FY-End ($) (B)
-----------------------------------------------------------
Options/SARs Value
Name Exercised (#) Realized($)(A) Exercisable Unexercisable Exercisable Unexercisable
- --------------------- ------------- -------------- ----------- ------------- ----------- -------------
Paul A. Allaire ......... 75,000 $2,645,303 501,213 441,507 $10,872,422 $7,301,082
Barry D. Romeril ......... 0 $ 0 37,540 76,220 $ 602,986 $1,224,284
A. Barry Rand ............ 11,145 $ 250,516 49,540 76,220 $ 918,238 $1,224,284
William F. Buehler ...... 48,680 $ 930,100 4,563 71,557 $ 27,948 $1,057,294
Allan E. Dugan ......... 0 $ 0 78,144 61,386 $ 1,744,277 $ 986,013
(A) The value realized is based upon the difference between the exercise price
and the average of the high and low prices on the date of exercise.
(B) The value of unexercised options\SARs is based upon the difference between
the exercise price and the average of the high and low prices on December
31, 1996 of $52.625. Option\SARs may be accelerated as a result of a change
in control as described below.
19
Retirement Plans
Retirement benefits are provided to the executive officers of the Company
including the Named Officers under both a funded company-wide plan and unfunded
executive supplemental plans. The table below shows, under the plans, the
approximate annual retirement benefit which would accrue for the number of years
of participation at the respective salary rates. The earliest retirement age for
benefit commencement is age 55 for certain participants and for all of the other
participants would be at varying ages starting no earlier than at age 60. In the
event of a change in control (as defined in the plans) there is no age
requirement for eligibility. The benefit accrues generally at the rate of 1-2/3%
per year of participation, but for certain key executives the rate is
accelerated to 2-1/2% or 3-1/3%. No additional benefits are payable for
participation in excess of 30 years.
Annual benefits for years of
participation indicated
---------------------------------------------
Average annual compensation for five highest years 15 years 20 years 25 years 30 years
- --------------------------------------------------- -------- -------- ---------- ----------
500,000 ....................................... 121,000 162,000 202,000 243,000
600,000 ....................................... 146,000 195,000 244,000 293,000
700,000 ....................................... 171,000 228,000 285,000 343,000
800,000 ....................................... 196,000 262,000 327,000 393,000
900,000 ....................................... 221,000 295,000 369,000 443,000
1,000,000 ....................................... 246,000 328,000 410,000 493,000
1,100,000 ....................................... 271,000 362,000 452,000 543,000
1,200,000 ....................................... 296,000 395,000 494,000 593,000
1,300,000 ....................................... 321,000 428,000 535,000 643,000
1,400,000 ....................................... 346,000 462,000 577,000 693,000
1,500,000 ....................................... 371,000 495,000 619,000 743,000
1,600,000 ....................................... 396,000 528,000 660,000 793,000
1,700,000 ....................................... 421,000 562,000 702,000 843,000
1,800,000 ....................................... 446,000 595,000 744,000 893,000
1,900,000 ....................................... 471,000 628,000 785,000 943,000
2,000,000 ....................................... 496,000 662,000 827,000 993,000
2,100,000 ....................................... 521,000 695,000 869,000 1,043,000
2,200,000 ....................................... 546,000 728,000 910,000 1,093,000
2,300,000 ....................................... 571,000 762,000 952,000 1,143,000
2,400,000 ....................................... 596,000 795,000 994,000 1,193,000
2,500,000 ....................................... 621,000 828,000 1,035,000 1,243,000
2,600,000 ....................................... 646,000 862,000 1,077,000 1,293,000
2,700,000 ....................................... 671,000 895,000 1,119,000 1,343,000
The maximum benefit is 50% of the five highest years' annual compensation
reduced by 50% of the primary social security benefit payable at age 65. The
benefits shown are payable on the basis of a straight life annuity and a 50%
survivor annuity for a surviving spouse. The plans provide a minimum benefit of
25% of defined compensation reduced by such social security benefit other than
for the key executives accruing benefits at the accelerated rate.
20
The following individuals have the indicated years of participation in the
plans:
Years of
Name Participation
-----------------------------------------------------------
Paul A. Allaire ............................ 30
Barry D. Romeril ........................... 3
A. Barry Rand .............................. 28
William F. Buehler ......................... 5
Allan E. Dugan ............................. 6
-----------------------------------------------------------
Compensation under the plans includes the amounts shown in the salary and bonus
columns under the Summary Compensation Table other than payments under the 1991
Plan to the extent included in the bonus column. The current compensation
covered by the plans for the Named Officers is as follows:
Covered
Name Current Compensation
-----------------------------------------------------------
Paul A. Allaire ....................... $2,190,333
Barry D. Romeril ...................... $773,754
A. Barry Rand ......................... $766,684
William F. Buehler .................... $708,410
Allan E. Dugan ........................ $644,010
-----------------------------------------------------------
Certain Transactions
There are agreements between the Company and five of its present executive
officers, including Paul A. Allaire and Addision B. Rand, which provide
severance benefits in the event of termination of employment under certain
circumstances following a change in control of the Company (as defined). The
circumstances are termination by the Company, other than because of death or
disability, commencing prior to a potential change in control (as defined), or
for cause (as defined), or by the officers for good reason (as defined).
Following any such termination, in addition to compensation and benefits already
earned, the officer will be entitled to receive a lump sum severance payment
equal to three times the sum of (A) the greater of (1) the officer's annual rate
of base salary on the date notice of termination is given and (2) his/her annual
rate of base salary in effect immediately prior to the change in control and (B)
the greater of (1) the annual target bonus applicable to such officer for the
year in which such notice is given and (2) the annual target bonus applicable to
such officer for the year in which the change in control occurs.
Cause for termination by the Company is the: (i) willful and continued failure
of the officer to substantially perform his/her duties, (ii) willful engagement
by the officer in materially injurious conduct to the Company, or (iii)
conviction of any crime which constitutes a felony. Good reason for termination
by the officer includes, among other things: (i) the assignment of duties
inconsistent with the individual's status as an officer or a substantial
alteration in responsibilities, (ii) a reduction in base salary and/or annual
bonus, (iii) the relocation of the officer's principal place of business, (iv)
the failure of the Company to maintain compensation plans in which the officer
participates or to continue providing certain other existing employment
benefits, or (v) disability commencing after a potential change in control. The
agreements also provide that in the event of a potential change in control (as
defined) each officer, subject to the terms of the agreements, will remain in
the employ of the Company for nine months following the occurrence of any such
21
potential change in control. The agreements are automatically renewed annually
unless the Company gives notice that it does not wish to extend them. In
addition, the agreements will continue in effect for three years after a change
in control of the Company.
All non-qualified options under the 1991 Plan are accompanied by option
surrender rights. Upon the occurrence of an event constituting a change in
control, as defined in the plan, all such rights become payable in cash based
upon a change in control price as defined in the plan. The 1991 Plan also
provides that upon the occurrence of such an event, all incentive stock rights
and performance unit rights become payable in cash. In the case of rights
payable in shares, the amount of cash is based upon such change in control price
and in the case of rights payable in cash, the cash value of such rights. Rights
payable in cash but which have not been valued at the time of such an event are
payable at the maximum value as determined by the Executive Compensation and
Benefits Committee at the time of the award. Upon accelerated payment, such
rights and any related non-qualified stock options will be canceled.
From time to time when the Company hires senior experienced executives, special
short-term severance arrangements may be made. Typically, these arrangements
provide for severance pay equal to one-year's compensation in the event of
involuntary termination during the first year of employment.
The Company has established grantor trusts with a bank for the purpose of paying
amounts due under the deferred compensation plan and the agreements with five
executive officers described above, and the unfunded supplemental retirement
plans described above. The trusts are presently unfunded but the Company would
be required to fund the trusts upon the occurrence of certain events.
22
Six-Year Performance Comparison
The graph below provides a comparison of Xerox cumulative total shareholder
return with the Standard & Poor's 500 Composite Stock Index and the Business
Week Computers and Peripherals Industry Group, excluding Xerox (Peer Group).
Comparison of Six-Year Cumulative Total Return
[Line Chart Plot Points]
1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ----
Xerox $100 $203 $245 $286 $327 $464 $547
S&P 500 100 130 140 154 156 215 264
Business Week Computers
& Peripherals 100 97 83 92 115 165 228
This graph assumes the investment of $100 on December 31, 1990 in Xerox Common
Stock, the S&P 500 Index and the Peer Group Common Stock, and reinvestment of
quarterly dividends at the monthly closing stock prices. The returns of each
company have been weighted annually for their respective stock market
capitalizations in computing the S&P 500 and Peer Group indices.
23
Directors and Officers Liability Insurance and Indemnity
In June 1996 the Company renewed its policies for directors and officers
liability insurance covering all directors and officers of the Company and its
subsidiaries. The policies are issued by Federal Insurance Company, National
Union Fire Insurance Company Of Pittsburgh P.A., Chubb Atlantic Ltd., Zurich--
American Insurance Company, Gulf Insurance Company and A.C.E. Insurance Company,
Ltd., have a three year term extending from June 25, 1996 to June 25, 1999 and a
total annual premium of $691,000. No claims have been paid under these policies.
Section 16(a) Beneficial Ownership Reporting Compliance
There was a failure to file one Form 4, Beneficial Ownership Report, on a timely
basis with the Securities and Exchange Commission (SEC) as required under
Section 16(a) of the Securities Exchange Act of 1934 on behalf of Mr. David R.
Myerscough, Senior Vice President, with respect to compensation deferred and
invested in the Xerox Stock Fund prior to the date he became subject to SEC
reporting requirements. The failure was the result of miscommunication within
the Company.
Proposal 2 -- Election of Independent Auditors
The Board of Directors recommends that KPMG Peat Marwick LLP, independent
certified public accountants, be elected independent auditors of the Company for
1997. The recommendation is made on the advice of the Audit Committee, composed
of B.R. Inman, Antonia Ax:son Johnson, John D. Macomber, John E. Pepper, Martha
R. Seger and Thomas C. Theobald, all directors but not officers of the Company.
KPMG Peat Marwick LLP is a member of the SEC Practice Section of the American
Institute of Certified Public Accountants. Total fees for services rendered in
1996 by KPMG Peat Marwick LLP to the Company and its subsidiaries worldwide and
certain of their employee benefit plans were approximately $13.5 million.
Representatives of the firm are expected to be at the meeting to respond to
appropriate questions and to make a statement, if they wish.
Proposal 3 -- Amendments to the 1991 Long-Term Incentive Plan
BACKGROUND
The Board of Directors has determined that it would be desirable to amend the
Company's 1991 Long-Term Incentive Plan principally to preserve the tax
deductibility of payments under such plan to certain executive officers, even if
such executives' compensation exceeds $1,000,000 in any year. The 1991 Long-Term
Incentive Plan was adopted by shareholders in May 1991 and was amended by the
Executive Compensation and Benefits Committee of the Board of Directors
("Compensation Committee") in July 1991 to correct typographical errors and in
May 1996 to make adjustments resulting from the three-for-one stock split in
June 1996 ("1991 Plan").
Under amendments adopted in 1993 to the Internal Revenue Code of 1986 as
previously amended (the "Code"), publicly traded corporations will not be
entitled to deduct, for federal income tax purposes, compensation paid to
"covered employees," as defined, to the extent that payments for any year to any
such employee exceed $1,000,000, unless the payments qualify for an exception to
the deductibility limit under Section 162(m) of the Code ("Section 162(m)").
Stock option plans existing at the time of the adoption of Section 162(m) were
"grandfathered" for a period of time. The grandfathering of the 1991 Plan
expires with the 1997
24
annual meeting. In addition, cash compensation payments to be exempt must be
made under a performance-based compensation arrangement approved by
shareholders to preserve deductibility.
Accordingly, the Board of Directors recommends that the shareholders approve the
proposed amendments to the 1991 Plan.
AMENDMENTS TO THE 1991 PLAN
Amendments to the 1991 Plan are principally to meet the requirements of Section
162(m) as follows:
(i) A limitation is added so that no individual can receive stock awards in any
form under the Plan for more than five million shares during the life of the
1991 Plan.
(ii) Another limitation is added so that certain key employees who are or may
become, as determined by the Compensation Committee or its subcommittee, subject
to the Section 162(m) compensation deductibility limits ("Covered Employees")
cannot be granted cash awards for more than $5 million in the aggregate for each
performance period established by the Committee under Section 23 of the 1991
Plan.
(iii) A new Section 23 is added with respect to performance-based awards to
Covered Employees, including the addition of performance measures which, under
Section 162(m), must be approved by shareholders.
In addition, to several non-substantive changes in wording to improve
readability, Section 3 relating to plan administration is being amended to
provide for delegation of the Compensation Committee's authority to a
subcommittee and Section 11 has been made clear that the Committee has authority
to make transferable awards.
SUMMARY OF 1991 PLAN
A summary description of the 1991 Plan as proposed to be amended follows. This
description is qualified in its entirety by reference to the specific provisions
of the amended 1991 Plan which is attached to this proxy statement as Exhibit A.
General
The 1991 Plan reserves for issuance one percent (1.0%) of the adjusted average
common shares outstanding of the Company used to calculate fully diluted
earnings per share as reported in the annual report to shareholders for the
preceding year for each year the 1991 Plan is in effect. In addition, the 1991
Plan reserves for issuance any shares which (1) had been reserved for issuance
under a prior plan, (2) are exchanged by a participant as payment to the Company
in connection with any award under the 1991 Plan and the prior plan and (3) were
available in any prior year under the 1991 Plan but not actually issued in such
years. As of March 31, 1997 a total of 7,397,853 shares were currently available
for awards under the 1991 Plan.
Awards made under the 1991 Plan which are settled in cash or any form other than
the issuance of shares are not counted in determining the shares available for
issuance under the 1991 Plan. Likewise, the payment of dividends or dividend
equivalents in shares in conjunction with any awards under the 1991 Plan are not
counted against the shares available for issuance.
25
Within the aggregate share issuance limitation set forth above, no more than (a)
15 million shares will be available for issuance of incentive stock options
("ISOs") and (b) 13,796,181 will be available for "stock awards" (see Types of
Awards for a description) granted under the 1991 Plan. What is more, no more
than five (5) million shares can be made subject to any form of stock-based
awards under the 1991 Plan to any single individual during the life of the 1991
Plan.
In the event of changes, such as a stock split or stock dividends, in the
outstanding Common Stock of the Company or other changes affecting such shares,
the 1991 Plan provides for appropriate adjustments in the number of shares
available for issuance and covered by outstanding awards and/or in the price per
share for outstanding awards.
The 1991 Plan is administered by the Compensation Committee as the administering
committee with the authority to make all decisions and determinations in
administering the 1991 Plan. The Compensation Committee is authorized to create
a subcommittee to administer the 1991 Plan to the extent provided by the
Compensation Committee (the Committee and such subcommittee are together
referred to as the "Committee"). The Compensation Committee, or such
subcommittee, must be comprised of not less than three non-employee members of
the Board of Directors qualified to serve under the criteria set forth in Rule
16b-3 of the Securities Exchange Act of 1934 ("1934 Act") and Section 162(m) of
the Code. Except for the power to amend, the Compensation Committee may delegate
to one or more officers of the Company certain or all of its powers under the
1991 Plan other than determinations regarding awards made to eligible employees
who are subject to Section 16 of the 1934 Act or who are Covered Employees.
The Compensation Committee may amend the 1991 Plan as it deems necessary,
provided that no amendment will be made without the approval of shareholders if
such amendment would increase the number of shares available for issuance under
the plan (other than adjustments for changes in shares) or otherwise cause the
plan to not comply with any legal requirement.
Eligibility
Any employee of the Company or of any entity which is controlled by the Company
or in which the Company has a significant equity interest will be eligible to
receive an award under the 1991 Plan.
Types of Awards
The 1991 Plan provides flexibility in structuring long-term incentive agreements
for various groups and levels of executives and other participants. With the
exception of cash awards, all awards under the 1991 Plan are denominated in
shares, or consist of actual shares, of Common Stock of the Company. Thus, the
most significant components of the 1991 Plan rewards participants directly as
shareholder value increases.
Stock Options -- Stock options constitute rights entitling their holders to
purchase shares of the Company's Common Stock during a specified period at a
purchase price that is not less than 100% of fair market value on the effective
date of grant, or, in the case of a stock option granted as a replacement for
another award, such price may be identical to (but not lower than) the fair
market value on the effective date of grant of such replaced award. Any stock
option granted in the form of an ISO will be intended to comply with the
requirements of Section 422 of the Code. Shares purchased upon exercise of stock
options must be paid for in full at the time of exercise in cash or such other
method as the Committee may permit from time to time. The 1991 Plan prohibits
issuance of "reload" options where upon exercise of an outstanding option new
options are automatically granted.
26
Stock Appreciation Rights -- Stock appreciation rights ("SARs") entitle their
recipients to receive payments in cash, shares or a combination as determined by
the Committee. Any such payments will represent the appreciation in the market
value of a specified number of shares from the date of grant until the date of
exercise. Such appreciation will be measured by the excess of the fair market
value on the exercise date over the fair market value of the Company's Common
Stock on the effective date of grant of SARs or the grant of an award which the
SAR replaced.
Stock Awards -- Stock awards may constitute actual shares of Common Stock or may
be denominated in stock units which entitle the recipients to receive future
payments in either shares, cash or a combination. Stock awards may include
incentive stock rights as well as grants of restricted stock. Stock awards may
be subject to restrictions and contingencies regarding vesting and eventual
payment that the Committee determines.
Cash Awards -- Cash awards are long-term incentive grants denominated in cash
with the eventual payment subject to the restrictions and contingencies that the
Committee establishes.
Any awards made under the 1991 Plan may be subject to vesting and payment
contingencies that require the attainment of specific future business objectives
or other goals, including individual or business unit measures of performance.
Awards may be granted singly, in tandem with or in replacement or as
alternatives for other awards, including awards made under other plans. Awards,
other than cash awards, may earn dividend equivalents.
Generally, all awards under the 1991 Plan are nontransferable except by will or
in accordance with the laws of descent and distribution or pursuant to a
domestic relations order unless the Committee provides otherwise. During the
life of the participant, awards can be exercised only by him or her unless the
Committee provides otherwise. The Committee may permit a participant to
designate a beneficiary to exercise or receive any rights that may exist under
the 1991 Plan upon the participant's death. Awards granted, and shares issued in
conjunction with the settlement of any award, under the 1991 Plan may be subject
to forfeiture back to the Company and/or restrictions on transferability for
such periods that the Committee determines.
Change In Control
Upon the occurrence of a change in control of the Company, as defined in the
1991 Plan, with certain exceptions, all awards outstanding under the 1991 Plan
become immediately vested and are settled or paid-out at change in control
prices or other amount as defined in the 1991 Plan.
Federal Tax Aspects of the 1991 Plan
The Company believes that, under the present law, the following are the federal
tax consequences generally arising with respect to awards granted under the 1991
Plan. The grant of an option or SAR will create no tax consequences for an
optionee or the Company. The optionee will have no taxable income upon
exercising an ISO (except that the alternative minimum tax may apply), and the
Company will receive no deduction when an ISO is exercised. Upon exercising an
option other than an ISO, the optionee must recognize ordinary income equal to
the difference between the exercise price and the fair market value of the stock
on the date of exercise; the Company will be entitled to a deduction for the
same amount. The treatment of an optionee on a disposition of shares acquired
through the exercise of an option depends on how long the shares have been held
and on whether such shares were acquired by exercising an ISO or by exercising
an option other than an
27
ISO. Generally, there will be no tax consequence to the Company in connection
with a disposition of shares acquired under an option except that the Company
may be entitled to a deduction in the case of a disposition of shares acquired
under an ISO before the applicable ISO holding periods have been satisfied.
With respect to other awards granted under the 1991 Plan that are settled either
in cash or in stock or other property that is either transferable or not subject
to substantial risk of forfeiture, the participant must recognize ordinary
income equal to the cash or the fair market value of shares or other property
received; the Company will be entitled to a deduction for the same amount. With
respect to awards that are settled in stock or other property that is restricted
as to transferability and subject to substantial risk of forfeiture, the
participant must recognize ordinary income equal to the fair market value of the
shares or other property received at the time the shares or other property
become transferable or not subject to substantial risk of forfeiture, whichever
occurs earlier; the Company will be entitled to a deduction for the same amount.
Different tax rules may apply with respect to participants who are subject to
Section 16 of the 1934 Act.
Awards to Covered Employees
Awards made to Covered Employees will be made by the Committee within the time
period required under Section 162(m) for the establishment of performance goals.
The award will specify, among other things, the performance period(s) for such
award, the performance criteria and the performance targets. The performance
criteria will be any one or more of the following as determined by the
Committee: earnings per share, total shareholder return, return on shareholders'
equity, economic value added measures, return on assets, revenue, profit before
tax, profit after tax, stock price and return on sales. Payment or vesting of
awards to Covered Employees will be contingent upon satisfaction of the
performance criteria and targets as certified by the Committee by resolution of
the Committee. To the extent provided at the time of an award, the Committee may
in its sole discretion reduce any award to any Covered Employee to any amount,
including zero.
ADDITIONAL INFORMATION
Since awards under the 1991 Plan are at the discretion of the Committee, the
kind and number of awards to any employee cannot now be determined. The number
of options granted during 1996 to Named Officers is set forth in column (E) of
the Summary Compensation Table. No options were issued to Executive Officers
during 1996 while 3,616,488 were issued to all other employees.
The closing price of the Company's Common Stock as reported on the New York
Stock Exchange Composite Transactions on March 31, 1997, was $56.875.
To be adopted, the proposed amendments must be approved by the holders of a
majority of all shares of Common Stock and Series B Convertible Preferred Stock
outstanding on March 27, 1997.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENTS TO THE 1991
LONG-TERM INCENTIVE PLAN.
28
Other Matters
As of the date of this proxy statement, the Board of Directors does not intend
to present, and has not been informed that any other person intends to present,
any other matter for action at this meeting. If any other matters properly come
before the meeting, it is intended that the holders of the proxies will act in
accordance with their best judgment.
In addition to the solicitation of proxies by mail, certain employees of the
Company, without extra remuneration, may solicit proxies. The Company also will
request brokerage houses, nominees, custodians and fiduciaries to forward
soliciting material to the beneficial owners of stock held of record and will
reimburse such person for the cost of forwarding the material. The Company has
engaged D.F. King & Co., Inc. to handle the distribution of soliciting material
to, and the collection of proxies from, such entities and will pay D.F. King &
Co. a fee of $14,000 plus reimbursement of out-of-pocket expenses. The cost of
all proxy solicitation will be borne by the Company.
As a matter of policy, proxies, ballots and voting tabulations that identify
individual shareholders are kept confidential by the Company. Such documents are
available for examination only by the inspectors of election and certain
employees of the Company and the Company's transfer agent who are associated
with processing proxy cards and tabulating the vote. The vote of any shareholder
is not disclosed except in a contested proxy solicitation or as may be necessary
to meet legal requirements.
Copies of the 1996 annual report of the Company have been mailed to
shareholders. Additional copies and additional information, including the annual
report (Form 10-K) filed with the SEC and the consolidated statistical data
contained in the EEO-1 annual report to the U.S. Equal Employment Opportunity
Commission are available without charge from Investor Relations, Xerox
Corporation, P.O. Box 1600, Stamford, Connecticut 06904.
Shareholder Proposals for 1998 Annual Meeting
In order for shareholder proposals to be included in the proxy statement and
form of proxy for the 1998 Annual Meeting of Shareholders, such proposals must
be received by the Company at its offices at P.O. Box 1600, Stamford,
Connecticut 06904, Attention: Secretary-no later than December 12, 1997.
By Order of the Board of Directors,
/s/ Eunice M. Filter
- --------------------
Eunice M. Filter
Secretary
April 11, 1997
29
EXHIBIT A
XEROX CORPORATION
1991 LONG-TERM INCENTIVE PLAN
[As Proposed to be Amended]
1. Purpose
The purpose of the Xerox Corporation 1991 Long-Term Incentive Plan (the "Plan")
is to advance the interests of Xerox Corporation (the "Company") and to increase
shareholder value by providing officers and employees with a proprietary
interest in the growth and performance of the Company and with incentives for
continued service with the Company, its subsidiaries and affiliates.
2. Term
The Plan shall be effective as of May 16, 1991 and shall remain in effect until
May 16, 2001 unless sooner terminated by the Company's Board of Directors (the
"Board"). After termination of the Plan, no future awards may be granted but
previously made awards shall remain outstanding in accordance with their
applicable terms and conditions and the terms and conditions of the Plan.
3. Plan Administration
The Executive Compensation and Benefits Committee of the Board, or such other
committee as the Board shall determine, comprised of not less than three members
shall be responsible for administering the Plan (the "Compensation Committee").
To the extent specified by the Compensation Committee it may delegate its
adminstrative responsibilities to a subcommittee of the Compensation Committee
comprised of not less than three members (the Compensation Committee and such
subcommittee being hereinafter referred to as the "Committee"). The Compensation
Committee or such subcommittee members, as appropriate, shall be qualified to
administer this Plan as contemplated by (a) Rule 16b-3 under the Securities and
Exchange Act of 1934 (the "1934 Act") or any successor rule and (b) Section
162(m) of the Internal Revenue Code of 1986, as amended, and the regulations
thereunder ("Section 162(m)"). The Committee, and such subcommittee to the
extent provided by the Committee, shall have full and exclusive power to
interpret, construe and implement the Plan and any rules, regulations,
guidelines or agreements adopted hereunder and to adopt such rules, regulations
and guidelines for carrying out the Plan as it may deem necessary or proper.
These powers shall include, but not be limited to, (i) determination of the type
or types of awards to be granted under the Plan; (ii) determination of the terms
and conditions of any awards under the Plan; (iii) determination of whether, to
what extent and under what circumstances awards may be settled, paid or
exercised in cash, shares, other securities, or other awards, or other property,
or canceled, forfeited or suspended; (iv) adoption of such modifications,
amendments, procedures, subplans and the like as are necessary to comply with
provisions of the laws of other countries in which the Company may operate in
order to assure the viability of awards granted under the Plan and to enable
participants employed in such other countries to receive advantages and benefits
under the Plan and such laws; (v) subject to the rights of participants,
modification, change, amendment or cancellation of any award to correct an
administrative error and (vi) taking any other action the Committee deems
necessary or desirable for the administration of the Plan. All determinations,
interpretations, and other decisions under or with respect to the Plan or any
award by the Committee shall be final, conclusive and binding upon the Company,
any participant, any holder or beneficiary of any award under the Plan and
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any employee of the Company. Except for the power to amend this Plan as provided
in Section 13 and except for determinations regarding employees who are subject
to Section 16 of the 1934 Act or certain key employees who are or may become, as
determined by the Committee, subject to the Section 162(m) compensation
deductibility limit (the "Covered Employees"), the Committee may delegate any or
all of its duties, powers and authority under the Plan pursuant to such
conditions or limitations as the Committee may establish to any officer or
officers of the Company.
4. Eligibility
Any employee of the Company shall be eligible to receive an award under the
Plan. "Employee" shall also include any former employee of the Company eligible
to receive a replacement award as contemplated in Sections 5 and 7, and
"Company" shall include any entity that is directly or indirectly controlled by
the Company or any entity in which the Company has a significant equity
interest, as determined by the Committee.
5. Shares of Stock Subject to the Plan
For each calendar year from and including 1991 a number of shares of Common
Stock, par value $1.00 per share, of the Company ("Common Stock") equal in
amount of up to one percent (1%) of the adjusted average common shares
outstanding of the Company used to calculate fully diluted earnings per share as
reported in the annual report to shareholders for the preceding year shall
become available for issuance under the Plan. In addition, (a) any shares of
Common Stock which as of the effective date of the Plan are reserved for
issuance under the company's 1976 Executive Long-Term Incentive Plan the "1976
Plan" and which are not thereafter issued and (b) any shares of Common Stock
available for issuance under the Plan in previous years but not actually issued,
shall be added to the aggregate number of shares of common Stock available for
issuance in that calendar year under the Plan.
For purposes of the preceding paragraph, the following shall not be counted
against shares available for issuance under the Plan: (i) settlement of stock
appreciation rights ("SAR") in cash or any form other than shares and (ii)
payment in shares of dividends and dividend equivalents in conjunction with
outstanding awards. Any shares that are issued by the Company, and any awards
that are granted by, or become obligations of, the Company, through the
assumption by the Company or an affiliate of, or in substitution for,
outstanding awards previously granted by an acquired company shall not be
counted against the shares available for issuance under the Plan.
In no event, however, except as subject to adjustment as provided in Section 6
shall more than (a) fifteen million (15,000,000) shares of Common Stock be
available for issuance pursuant to the exercise of incentive stock options
("ISOs") awarded under the Plan(1); (b) thirteen million seven hundred ninety
six thousand one hundred eighty-one (13,796,181) shares of Common Stock shall be
available for issuance pursuant to stock awards granted under Section 7(c) of
the Plan(1); and (c) five million (5,000,000) shares of Common Stock shall be
made the subject of awards under any combination of awards under Sections 7(a),
7(b) or 7(c) of the Plan to any single individual(2). SARs whether settled in
cash or shares of Common Stock shall be counted against the limit set forth in
(c).
(1) Effective May 23, 1996
(2) Effective May 15, 1997
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Any shares issued under the Plan may consist in whole or in part, of authorized
and unissued shares or of treasury shares, and no fractional shares shall be
issued under the Plan. Cash may be paid in lieu of any fractional shares in
settlements of awards under the Plan.
6. Adjustments and Reorganizations
The Committee may make such adjustments as it deems appropriate to meet the
intent of the Plan in the event of changes that impact the Company's share price
or share status, provided that any such actions are consistently and equitably
applicable to all affected participants.
In the event of any stock dividend, stock split, combination or exchange of
shares, merger, consolidation, spin-off or other distribution (other than normal
cash dividends) of Company assets to shareholders, or any other change affecting
shares, such adjustments, if any, as the Committee in its discretion may deem
appropriate to reflect such change shall be made with respect to (i) the
aggregate number of shares that may be issued under the Plan; (ii) the number of
shares subject to awards of a specified type or to any individual under the
Plan; and/or (iii) the price per share for any outstanding stock options, SARs
and other awards under the Plan.
7. Awards
The Committee shall determine the type or types of award(s) to be made to each
participant under the Plan and shall approve the terms and conditions governing
such awards in accordance with Section 12. Awards may include but are not
limited to those listed in this Section 7. Awards may be granted singly, in
combination or in tandem so that the settlement or payment of one automatically
reduces or cancels the other. Awards may also be made in combination or in
tandem with, in replacement of, as alternatives to, or as the payment form for,
grants or rights under any other employee or compensation plan of the Company,
including the plan of any acquired entity. However, under no circumstances may
stock option awards be made which provide by their terms for the automatic award
of additional stock options upon the exercise of such awards.
(a) Stock Option--is a grant of a right to purchase a specified number of
shares of Common Stock during a specified period. The purchase price of each
option shall be not less than 100% of Fair Market Value (as defined in
Section 10) on the effective date of grant, except that, in the case of a
stock option granted retroactively in tandem with or as a substitution for
another award, the exercise or designated price may be no lower than the Fair
Market Value of a share on the date such other award was granted. A stock
option may be exercised in whole or in installments, which may be cumulative.
A stock option may be in the form of an ISO which complies with Section 422
of the Internal Revenue Code of 1986, as amended, and the regulations
thereunder at the time of grant. The price at which shares of Common Stock
may be purchased under a stock option shall be paid in full at the time of
the exercise in cash or such other method as provided by the Committee at the
time of grant or as provided in the form of agreement approved in accordance
herewith, including tendering (either actually or by attestation) Common
Stock, surrendering a stock award valued at Fair Market Value on the date of
surrender, surrendering a cash award, or any combination thereof.
(b) Stock Appreciation Right--is a right to receive a payment, in cash and/or
Common Stock, as determined by the Committee, equal to the excess of the Fair
Market Value of a specified number of shares of Common Stock on the date the
SAR is exercised over the Fair Market Value on the date of grant of the SAR
as set forth in the applicable award agreement, except that, in the case of a
SAR
A-3
granted retroactively in tandem with or as a substitution for another award,
the exercise or designated price may be no lower than the Fair Market Value
of a share on the date such other award was granted.
(c) Stock Award--is an award made in stock or denominated in units of stock.
All or part of any stock award may be subject to conditions established by
the Committee, and set forth in the award agreement, which may include, but
are not limited to, continuous service with the Company, achievement of
specific business objectives, and other measurements of individual, business
unit or Company performance.
(d) Cash Award--is an award denominated in cash with the eventual payment
amount subject to future service and such other restrictions and conditions
as may be established by the Committee, and as set forth in the award
agreement, including, but not limited to, continuous service with the
Company, achievement of specific business objectives, and other measurement
of individual, business unit or Company performance. Cash Awards to any
single Covered Employee, including dividend equivalents in cash or shares of
Common Stock payable based upon attainment of specific performance goals, may
not exceed in the aggregate $5,000,000 for each performance period
established by the Committee under Section 23 of the Plan.
8. Dividends and Dividend Equivalents
The Committee may provide that awards denominated in stock earn dividends or
dividend equivalents. Such dividend equivalents may be paid currently in cash or
shares of Common Stock or may be credited to an account established by the
Committee under the Plan in the name of the participant. In addition, dividends
or dividend equivalents paid on outstanding awards or issued shares may be
credited to such account rather than paid currently. Any crediting of dividends
or dividend equivalents may be subject to such restrictions and conditions as
the Committee may establish, including reinvestment in additional shares or
share equivalents.
9. Deferrals and Settlements
Payment of awards may be in the form of cash, stock, other awards, or in such
combinations thereof as the Committee shall determine at the time of grant, and
with such restrictions as it may impose. The Committee may also require or
permit participants to elect to defer the issuance of shares or the settlement
of awards in cash under such rules and procedures as it may establish under the
Plan. It may also provide that deferred settlements include the payment or
crediting of interest on the deferral amounts or the payment or crediting of
dividend equivalents on deferred settlements denominated in shares.
10. Fair Market Value
Fair Market Value for all purposes under the Plan shall mean the average of the
high and low prices of Common Stock as reported in The Wall Street Journal in
the New York Stock Exchange composite transactions or similar successor
consolidated transactions reports for the relevant date, or if no sales of
Common Stock were made on said exchange on that date, the average of the high
and low prices of Common Stock as reported in said composite transaction report
for the preceding day on which sales of Common Stock were made on said Exchange.
Under no circumstances shall Fair Market Value be less than the par value of the
Common Stock.
11. Transferability and Exercisability
All awards under the Plan will be nontransferable and shall not be assignable,
alienable, saleable or otherwise transferable by the participant other than by
will or the laws of descent and distribution except pursuant to a
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domestic relations order entered by a court of competent jurisdiction or as
otherwise determined by the Committee. In the event that a participant
terminates employment with the Company to assume a position with a governmental,
charitable, educational or similar non-profit institution, the Committee may
authorize a third party, including but not limited to a "blind" trust, to act on
behalf of and for the benefit of the respective participant with respect to any
outstanding awards. Except as otherwise provided in this Section 11, during the
life of the participant, awards under the Plan shall be exercisable only by him
or her except as otherwise determined by the Committee. In addition, if so
permitted by the Committee, a participant may designate a beneficiary or
beneficiaries to exercise the rights of the participant and receive any
distributions under this Plan upon the death of the participant.
12. Award Agreements
Awards under the Plan shall be evidenced by one or more agreements approved by
the Committee that set forth the terms and conditions of and limitations on an
award, except that in no event shall the term of any ISO exceed a period of ten
years from the date of its grant. The Committee need not require the execution
of any such agreement by a participant in which case acceptance of the award by
the respective participant will constitute agreement to the terms of the award.
13. Plan Amendment
The Compensation Committee may amend the Plan as it deems necessary or
appropriate, except that no such amendment which would cause the Plan not to
comply with the requirements of (i) Section 162(m) with respect to
performance-based compensation, (ii) the Code with respect to ISOs or (iii) the
New York Business Corporation Law as in effect at the time of such amendment
shall be made without the approval of the Company's shareholders. No such
amendment shall adversely affect any outstanding awards under the Plan without
the consent of all of the holders thereof.
14. Tax Withholding
The Company shall have the right to deduct from any settlement of an award made
under the Plan, including the delivery or vesting of shares, an amount
sufficient to cover withholding required by law for any federal, state or local
taxes or to take such other action as may be necessary to satisfy any such
withholding obligations. The Committee may permit shares to be used to satisfy
required tax withholding and such shares shall be valued at the Fair Market
Value as of the settlement date of the applicable award.
15. Other Company Benefit and Compensation Programs
Unless otherwise determined by the Committee, settlements of awards received by
participants under the Plan shall not be deemed a part of a participant's
regular, recurring compensation for purposes of calculating payments or benefits
from any Company benefit plan, severance program or severance pay law of any
country.
16. Unfunded Plan
Unless otherwise determined by the Committee, the Plan shall be unfunded and
shall not create (or be construed to create) a trust or a separate fund or
funds. The Plan shall not establish any fiduciary relationship between the
Company and any participant or other person. To the extent any person holds any
rights by virtue of a grant awarded under the Plan, such right (unless otherwise
determined by the Committee) shall be no greater than the right of an unsecured
general creditor of the Company.
A-5
17. Future Rights
No person shall have any claim or right to be granted an award under the Plan,
and no participant shall have any right by reason of the grant of any award
under the Plan to continued employment by the Company or any subsidiary of the
Company.
18. General Restriction
Each award shall be subject to the requirement that, if at any time the
Committee shall determine, in its sole discretion, that the listing,
registration or qualification of any award under the Plan upon any securities
exchange or under any state or federal law, or the consent or approval of any
government regulatory body, is necessary or desirable as a condition of, or in
connection with, the granting of such award or the exercise settlement thereof,
such award may not be granted, exercised or settled in whole or in part unless
such listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Committee.
19. Governing Law
The validity, construction and effect of the Plan and any actions taken or
relating to the Plan shall be determined in accordance with the laws of the
state of New York and applicable Federal law.
20. Successors and Assigns
The Plan shall be binding on all successors and permitted assigns of a
participant, including, without limitation, the estate of such participant and
the executor, administrator or trustee of such estate, or any receiver or
trustee in bankruptcy or representative of such participant's creditors.
21. Rights as a Shareholder
A participant shall have no rights as a shareholder until he or she becomes the
holder of record of Common Stock.
22. Change in Control
Notwithstanding anything to the contrary in the Plan, the following shall apply
to all awards granted and outstanding under the Plan:
(a) Definitions. The following definitions shall apply to this Section 22:
A "Change in Control", unless otherwise defined by the Compensation
Committee, shall be deemed to have occurred if (a) any "person," as such term
is used in Sections 13(d) and 14(d) of the 1934 Act, other than the Company,
any trustee or other fiduciary holding securities under an employee benefit
plan of the Company, or any company owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions as their
ownership of stock of the Company, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of
securities of the Company representing 20 percent or more of the combined
voting power of the Company's then outstanding voting securities; or (b)
during any period of two consecutive years, individuals who at the beginning
of such period constitute the Board, including for this purpose any new
director (other than a director designated by a person who has entered into
an agreement with the Company to effect a transaction described in this
Section 22) whose election or nomination for election by the Company's
shareholders was approved by a vote of at least two-thirds of the directors
then still in office who were
A-6
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority thereof.
"CIC Price" shall mean the higher of (a) the highest price paid for a share
of the Company's Common Stock in the transaction or series of transactions
pursuant to which a Change in Control of the Company shall have occurred, or
(b) the highest price paid for a share of the Company's Common Stock during
the 60 day period immediately preceding the date upon which the event
constituting a Change in Control shall have occurred as reported in The Wall
Street Journal in the New York Stock Exchange Composite Transactions or
similar successor consolidated transactions reports.
(b) Acceleration of Vesting and Payment of SARs, Stock Awards, Cash Awards,
and Dividends and Dividend Equivalents.
(1) Upon the occurrence of an event constituting a Change in Control, all
SARs, stock awards, cash awards, dividends and dividend equivalents
outstanding on such date shall become 100% vested and shall be paid in
cash as soon as may be practicable. Upon such payment, such awards and
any related stock options shall be cancelled.
(2) The amount of cash to be paid shall be determined by multiplying the
number of such awards, as the case may be, by: (i) in the case of stock
awards, the CIC Price; (ii) in the case of SARs, the difference between
the exercise price of the related option per share and the CIC Price;
(iii) in the case of cash awards where the award period, if any, has not
been completed upon the occurrence of a Change in Control, the maximum
value of such awards as determined by the Committee at the time of grant,
without regard to the performance criteria, if any, applicable to such
award; and (iv) in the case of cash awards where the award period, if
any, has been completed on or prior to the occurrence of a Change in
Control: (aa) where the cash award is payable in cash, the value of such
award as determined in accordance with the award agreement, and (bb)
where the cash award is payable in shares of Common Stock, the CIC Price.
(c) Option Surrender Rights.
(1) All stock options granted under the plan shall be accompanied by
option surrender rights ("OSRs"). OSRs shall be evidenced by OSR
agreements in such form and not inconsistent with the Plan as the
Committee shall approve from time to time. Upon the occurrence of an
event constituting a Change in Control, all OSRs shall be paid in cash as
soon as may be practicable. Upon such payment, such rights and any
related stock options shall be cancelled.
(2) The amount of cash payable in respect of an OSR shall be determined
by multiplying the number of unexercised shares as to which the right
then relates by the difference between the option price of such shares
and the CIC Price.
(3) Upon the grant of SARs, with respect to the same shares covered by
then outstanding OSRs the OSRs relating to such shares shall be
automatically cancelled.
(d) Notwithstanding the foregoing subsections (a), (b) and (c), SARs, OSRs
and any stock-based award held by an officer or director subject to Section
16 of the 1934 Act which have been outstanding less than six months (or such
other period as may be required by the 1934 Act) upon the occurrence of an
A-7
event constituting a Change in Control shall not be paid in cash until the
expiration of such period, if any, as shall be required pursuant to such
Section, and the amount to be paid shall be determined by multiplying the
number of SARs, OSRs or stock awards by the CIC Price determined as though
the event constituting the Change in Control had occurred on the first day
following the end of such period.
23. Certain Provisions Applicable to Awards to Covered Employees
Performance-based awards made to Covered Employees shall be made by the
Committee within the time period required under Section 162(m) for the
establishment of performance goals and shall specify, among other things, the
performance period(s) for such award (which shall be not less than one year),
the performance criteria and the performance targets. The performance criteria
shall be any one or more of the following as determined by the Committee and may
differ as to type of award and from one performance period to another: earnings
per share, total shareholder return, return on shareholders' equity, economic
value added measures, return on assets, revenue, profit before tax, profit after
tax, stock price and return on sales. Payment or vesting of awards to Covered
Employees shall be contingent upon satisfaction of the performance criteria and
targets as certified by the Committee by resolution of the Committee. To the
extent provided at the time of an award, the Committee may in its sole
discretion reduce any award to any Covered Employee to any amount, including
zero.
A-8
XEROX CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
10:00 A.M. THURSDAY, MAY 15, 1997
THE SUTTON PLACE HOTEL, 955 BAY STREET, TORONTO, ONTARIO, CANADA
P
R
O THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
X
Y
The undersigned appoints PAUL A. ALLAIRE, VERNON E. JORDAN, JR., GEORGE
J. MITCHELL and each of them (or, if more than one are present, a majority of
those present), as proxies for the undersigned, with full power of substitution,
to represent the undersigned and to vote the shares of Common Stock of the
Company which the undersigned is entitled to vote at the above annual meeting
and at all adjournments thereof, (a) in accordance with the following ballot,
and (b) in accordance with their best judgment in connection with such other
business as may come before the meeting.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE
Please mark
[X] votes as in
this example
Unless marked otherwise, this proxy will be voted FOR the election of Directors,
FOR election of Auditors, and FOR amendments to the 1991 Long-Term Incentive
Plan.
1. ELECTION OF DIRECTORS NOMINATED BY THE BOARD (Pages 5 to 24) 2. ELECTION OF INDEPENDENT FOR AGAINST ABSTAIN
AUDITORS (Page 24) [ ] [ ] [ ]
Nominees: Paul A. Allaire, B.R. Inman, Antonia Ax:son Johnson,
Vernon E. Jordan, Jr., Yotaro Kobayashi, Hilmar Kopper, Ralph S. 3. AMENDMENTS TO THE 1991 FOR AGAINST ABSTAIN
Larsen, John D. Macomber, George J. Mitchell, N.J. Nicholas, Jr., LONG-TERM INCENTIVE [ ] [ ] [ ]
John E. Pepper, Martha R. Seger and Thomas C. Theobald. PLAN (Pages 24 to 28)
[ ] FOR ALL [ ] WITHHELD Check here to discontinue duplicate Annual Report mailing(s)
NOMINEES FROM ALL NOMINEES to your household. [ ]
[ ] ________________________________________________ Check here if you have comments to the Company.
For all nominees except as noted above. (Please write your comments in the space below.) [ ]
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW. [ ]
PLEASE SIGN AS IMPRINTED HEREON AND RETURN PROMPTLY.
Signature: ______________________________ Date ____________ Signature: ______________________________ Date _____________
VOTING INSTRUCTIONS
XEROX CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
10:00 A.M. THURSDAY, MAY 15, 1997
THE SUTTON PLACE HOTEL, 955 BAY STREET, TORONTO, ONTARIO, CANADA
To State Street Bank & Trust Company, Trustee:
As a participant in the Xerox Corporation Employee Stock Ownership
Plan, I hereby instruct the Trustee to vote the shares of Stock allocated to my
Stock Account and a proportion of the shares held in the Trust which have not
yet been allocated as well as shares for which no instructions have been
received (a) in accordance with the following direction and (b) to grant a proxy
to the proxies nominated by the Board of Directors of the Company giving them
discretion in connection with such other business as may come before the
meeting.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE
Please mark
[X] votes as in
this example
Unless marked otherwise, this voting instruction will be voted FOR the
election of Directors, FOR election of Auditors, and FOR amendments to the
1991 Long-Term Incentive Plan.
1. ELECTION OF DIRECTORS NOMINATED BY THE BOARD (Pages 5 to 24) 2. ELECTION OF INDEPENDENT FOR AGAINST ABSTAIN
Nominees: Paul A. Allaire, B.R. Inman, Antonia Ax:son Johnson, AUDITORS (Page 24) [ ] [ ] [ ]
Vernon E. Jordan, Jr., Yotaro Kobayashi, Hilmar Kopper, Ralph S.
Larsen, John D. Macomber, George J. Mitchell, N.J. Nicholas, Jr.,
John E. Pepper, Martha R. Seger and Thomas C. Theobald. 3. AMENDMENTS TO THE 1991 FOR AGAINST ABSTAIN
[ ] FOR ALL [ ] WITHHELD LONG-TERM INCENTIVE [ ] [ ] [ ]
NOMINEES FROM ALL NOMINEES PLAN (Pages 24 to 28)
[ ] ________________________________________________ Check here if you have comments to the Company.
For all nominees except as noted above. (Please write your comments in the space below). [ ]
PLEASE SIGN AS IMPRINTED HEREON AND RETURN PROMPTLY.
Signature: _____________________________ Date ____________
THE DOCUMENT COMPANY
XEROX
Vote Your ESOP Shares Now!
As a participant in the Employee Stock Ownership Plan you have the right to vote
the shares allocated to your account!
The enclosed proxy statement provides the background on the proposals being
considered at this year's Annual Meeting to be held May 15, 1997. Read it
carefully and decide how you want to vote. Mark the boxes on the card, date and
sign it and return it in the enclosed postage paid envelope.
Your vote is important.
As an ESOP participant you may direct the Trustee how to vote the shares
allocated to your ESOP account. Based upon this direction the Trustee will vote
a proportion of the shares held in Trust which have not been allocated as well
as shares for which no instructions have been received.
Your vote is confidential.
Xerox has a confidential voting policy. Voting tabulations that identify
individual shareholders--including ESOP participants--are kept confidential. See
the section entitled Other Matters in the proxy statement for additional
information on the confidential voting policy.
Sometimes shareholders write comments on their cards. If you choose to write a
comment on your voting card and if it would be appropriate to forward it to a
Xerox executive, the Trustee will transcribe your comment. No one at Xerox will
see your vote.
Make your vote count!
Fill in your card, sign and date it, then mail it in the return envelope as soon
as possible to be sure it's received prior to the Annual Meeting in time to be
counted.
[XEROX LOGO]
