(As Amended Through 10/12/06)

EXHIBIT 10(d)(1)

XEROX CORPORATION

2004 EQUITY COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS

1. Purpose

The purpose of the Xerox 2004 Equity Compensation Plan for Non-Employee
Directors (the “Plan”) is to provide the means whereby Xerox Corporation (the
“Company”) may include the Company’s equity in the total compensation of
non-employee members of the Company’s Board of Directors (“Board”).

2. Effective Date and Term of Plan

This Plan shall be effective as of May 20 2004, subject to the approval of the
Company’s shareholders at the 2004 annual meeting and remain in effect until the
earlier of: (i) the date when no additional shares are available for issuance
under the Plan; or (ii) the date when the Board terminates the Plan in
accordance with Section 10.

3. Eligibility

Any person who is a Non-Employee Director of the Company shall be eligible to
receive an Award under the Plan (each a “Participant”). For purposes of the
Plan, Non-Employee Director shall mean a member of the Board who is not at the
time also an employee of the Company or any of its direct or indirect
majority-owned subsidiaries (regardless of whether such subsidiary is organized
as a corporation, partnership or other entity).

4. Administration of the Plan

The Plan shall be administered by the Board of Directors of the Company upon
advice of the Board’s Governance Committee. Subject to the express provisions of
the Plan, the Board shall have full and exclusive power to do all things
necessary or desirable in connection with the administration of the Plan,
including, without limitation:

(a) to prescribe, amend and rescind rules relating to the Plan and to define
terms not otherwise defined herein;

(b) to approve the form of documentation used to evidence any grant awarded
hereunder, including providing for such terms as it considers necessary or
desirable;

(c) to establish and verify the extent of satisfaction of any conditions to
exercisability applicable to stock options and stock appreciation rights
(“SARs”) or to receipt or vesting of stock grants;

(d) to determine whether, and the extent to which, adjustments are required
pursuant to Section 8 hereof; and

(e) to interpret and construe the Plan, any rules and regulations under the Plan
and the terms and conditions of any stock option or stock grant awarded
hereunder, and to make exceptions to any procedural provisions in good faith and
for the benefit of the Company.

All determinations, interpretations, and other decisions under or with respect
to the Plan shall be final, conclusive and binding upon the Company, all
Participants and any holder or beneficiary of any Award, as hereinafter defined,
under the Plan. The Board may consider such factors as it deems relevant, in its
sole and absolute discretion, in making such decisions, determinations and
interpretations including, without limitation, the recommendations or advice of
any officer or other employee of the Company and such attorneys, consultants and
accountants as it may select.

All questions pertaining to the construction, regulation, validity and effect of
the Plan shall be determined in accordance with the laws of the state of New
York and applicable Federal law and the relevant rules of the New York Stock
Exchange, Inc. (“NYSE”).

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5. Shares Subject to the Plan

A total number of 1,000,000 shares of Common Stock1, par value $1.00, as
presently constituted, subject to adjustment as provided in Section 8, of the
Company shall become available for issuance under the Plan. Provided, however,
that any shares issued in connection with options or SARs shall be counted
against this limit as 0.6 shares for each one (1) share issued.

For purposes of the preceding paragraph, the following shall not be counted
against shares available for issuance under the Plan: (i) settlement of SARs in
cash or any form other than shares and (ii) payment in shares of dividends and
dividend equivalents in conjunction with outstanding awards.

In determining shares available for issuance under the Plan, any Awards that are
cancelled, forfeited or lapse shall become eligible again for issuance under the
Plan. Upon exercise of SARs, only the shares issued shall be counted against the
available share limit.

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. Awards

The Board shall determine the type of award(s) to be made to each Non-Employee
Director under the Plan and shall approve the terms and conditions governing
such awards through the issuance of an award agreement. Awards may be granted
singly, in combination, or in tandem so that the settlement or payment of one
automatically reduces or cancels the other. 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, including, without
limitation, “reload options.”

The following is a list of awards that may be granted, either individually or
collectively, to Participants pursuant to the provisions of the Plan (“Awards”).

(a) Deferred Stock Unit (“DSU”) is a bookkeeping entry that represents the right
to receive one share of Common Stock at a future date, such as termination of
Board service. Outright grants may be made as part of the Non-Employee
Director’s annual compensation for services rendered or as a result of a
voluntary election by the Non-Employee Director to defer cash compensation
otherwise payable to him or her. DSUs will include the right to receive dividend
equivalents which are credited in the form of additional DSUs payable in Common
Stock following termination of Board service.

(b) Stock Option is a grant of a right to purchase a specified number of shares
of Common Stock during a specified period no longer than seven years. The
purchase price of each option shall not be less than 100% of Fair Market Value
on the effective date 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 shares, including tendering (either actually or by attestation)
Common Stock or surrendering a Stock Award valued at Fair Market Value, as
defined herein, on the date of surrender. A Stock Option may be exercised in
whole or in installments on the earliest of: i) the vesting schedule established
by the Board; or ii) the death of the Non-Employee Director.

Notwithstanding any provision of the Plan, a repricing of a Stock Option shall
not be allowed by the Board.

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 report 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 circumstance shall Fair Market Value be less than the par value of the Common
Stock.

 

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1 1,000,000 reflects the number of shares if all grants were made in “whole
value” shares (e.g., deferred stock units). If all grants were made in the form
of options or SARs, the number available is 1,666,667.

(c) Stock Appreciation Right (SAR) is a right to receive a payment, in cash
and/or Common Stock, as determined by the Board, 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 effective date of grant of the
SAR as set forth in the applicable award agreement. The maximum term for SARs
under the Plan is seven years.

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(d) Stock Award is an Award made in stock. All or part of any Stock Award may be
subject to conditions established by the Board and set forth in the award
agreement which may include, but is not limited to, continuous service with the
Company.

7. Dividend and Dividend Equivalents

At the Board’s discretion, Awards denominated in Common Stock may earn dividends
or dividend equivalents paid currently in cash or shares of Common Stock or
credited to an account established by the Board in the name of the Non-Employee
Director and converted into additional DSUs. Any crediting of dividends or
dividend equivalents may be subject to such restrictions and conditions as the
Board may establish, including reinvestment in additional shares or share
equivalents.

8. Adjustments and Reorganizations

(a) If the Company shall at any time change the number of issued shares without
new consideration to the Company (such as by stock dividend, stock split,
recapitalization, reorganization, exchange of shares, liquidation, combination
or other change in corporate structure affecting the shares) or make a
distribution of cash or property which has a substantial impact on the value of
issued shares (other than by normal cash dividends), 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.

(b) Except as otherwise provided in subsection 8(a) above, notwithstanding any
other provision of the Plan, and without affecting the number of shares reserved
or available hereunder, the Committee shall authorize the issuance, continuation
or assumption of outstanding stock options, SARs and other awards under the Plan
or provide for other equitable adjustments after changes in the shares resulting
from any merger, consolidation, sale of all or substantially all assets,
acquisition of property or stock, recapitalization, reorganization or similar
occurrence in which the Company is the continuing or surviving corporation, upon
such terms and conditions as it may deem necessary to preserve the rights of the
holders of awards under the Plan.

(c) In the case of any sale of all or substantially all assets, merger,
consolidation or combination of the Company with or into another corporation
other than a transaction in which the Company is the continuing or surviving
corporation and which does not result in the outstanding shares being converted
into or exchanged for different securities, cash or other property, or any
combination thereof (an “Acquisition”), any individual holding an outstanding
award under the Plan, including any Optionee who holds an outstanding Option,
shall have the right (subject to the provisions of the Plan and any limitation
applicable to the award) thereafter, and for Optionees during the term of the
Option upon the exercise thereof, to receive the Acquisition Consideration (as
defined below) receivable upon the Acquisition by a holder of the number of
applicable shares which would have been obtained upon exercise of the Option or
portion thereof or obtained pursuant to the terms of the applicable award, as
the case may be, immediately prior to the Acquisition. The term “Acquisition
Consideration” shall mean the kind and amount of shares of the surviving or new
corporation, cash, securities, evidence of indebtedness, other property or any
combination thereof receivable in respect of one share of the Company upon
consummation of an Acquisition.

9. Transferabililty and Exercisability

Except as otherwise provided herein, all Awards under the Plan shall be
nontransferable and shall not be assignable, alienable, saleable or otherwise
transferable by the Non-Employee Director other than by will or the laws of
descent and distribution except pursuant to a domestic relations order entered
by a court of competent jurisdiction. Notwithstanding the preceding sentence,
the Board may provide that any Stock Option Award may be transferable by the
Participant to family members or family trusts established by the Participant.

Except as otherwise provided herein, during the life of the Non-Employee
Director, Awards under the Plan shall be exercisable only by him or her except
as otherwise determined by the Board. In addition, if so permitted by the Board,
Non-Employee Directors may designate a beneficiary to exercise the rights of the
Non-Employee Director and receive any distributions under the Plan upon the
death of the Non-Employee Director.

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10. Amendment and Termination of Plan

The Board may periodically amend the Plan as it deems appropriate, without
further action by the Company’s shareholders, except to the extent required by
applicable law. Notwithstanding the foregoing, and subject to adjustment
pursuant to Section 8, the Plan may not be amended to materially increase the
number of shares of Common Stock authorized for issuance under the Plan, unless
any such amendment is approved by the Company’s shareholders.

Notwithstanding the foregoing, an amendment that constitutes a “material
revision”, as defined by the rules of the NYSE, shall be submitted to the
Company’s shareholders for approval. In addition, any revision that deletes or
limits the scope of the provision in Section 6 prohibiting repricing of options
will be considered a material revision.

The Plan may be terminated at such time as the Board may determine. Amendments
or termination of the Plan will not affect the rights and obligations arising
under Stock Options or other Stock Awards theretofore granted and then in effect
without the Participant’s consent.

11. Term of Award

The term of each Award is determined by the Board; provided, however, that the
term of any Stock Option or SAR shall not be greater than seven years from the
effective date of grant.

12. Cancellation or Suspension of an Award

The Board shall have the full power and authority to determine under what
circumstances any Award shall be canceled or suspended (e.g., activity by
Non-Employee Directors which constitutes a conflict of interest with the Company
or is in violation of Company policies).

13. Deferred Settlement

The Board may 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.

14. Unfunded Plan

Unless otherwise determined by the Board, 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 Board) shall be no greater than the right of an unsecured general creditor
of the Company.

15. General Restriction

Each award shall be subject to the requirement that, if at any time the Board
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 Board.

16. 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.

17. 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.

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18. 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.

19. 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 19:

A “Change in Control”, unless otherwise defined by the Board, shall be deemed to
have occurred if

(a) any “person”, as such term is used in Section 13(d) and 14(d) of the 1934
Act, other than (1) the Company, (2) any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, (3) 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, or (4) any person
who becomes a “beneficial owner” (as defined below) in connection with a
transaction described in clause (1) of subparagraph (c) below, is or becomes the
“beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or
indirectly, of securities of the Company (not including in the securities
beneficially owned by such person any securities acquired directly from the
Company or its affiliates) representing 20 percent or more of the combined
voting power of the Company’s then outstanding voting securities;

(b) the following individuals cease for any reason to constitute a majority of
the directors then serving; individuals who on May 20, 2004 constitute the Board
and any new director (other than a director whose initial assumption of office
is in connection with an actual or threatened election contest, including but
not limited to a consent solicitation, relating to the election of directors of
the Company) whose appointment or election by the Board or nomination for
election by the Company’s shareholders was approved or recommended by a vote of
at least two-thirds of the directors then still in office who were directors on
May 20, 2004, or whose appointment, election or nomination for election was
previously so approved or recommended;

(c) there is consummated a merger or consolidation of the Company or any direct
or indirect subsidiary of the Company with any other corporation, other than
(1) a merger or consolidation which results in the directors of the Company
immediately prior to such merger or consolidation continuing to constitute at
least a majority of the board of directors of the Company, the surviving entity
or any parent thereof or (2) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no person is
or becomes the beneficial owner, directly or indirectly, of securities of the
Company (not including in the securities beneficially owned by such person any
securities acquired directly from the Company or its affiliates) representing
20% or more of the combined voting power of the Company’s then outstanding
securities; or

(d) the shareholders of the Company approve a plan of complete liquidation or
dissolution of the Company or there is consummated an agreement for the sale or
disposition by the Company of all or substantially all of the Company’s assets,
other than a sale or disposition by the Company of all or substantially all of
the Company’s assets to an entity, at least 50% of the combined voting power of
the voting securities of which are owned by stockholders of the Company in
substantially the same proportions as their ownership of the Company immediately
prior to such sale.

“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 report.

B. Acceleration of Vesting and Payment of Stock Options, SARs, DSUs and Dividend
Equivalents

Upon the occurrence of an event constituting a Change in Control, all stock
options and SARs (to the extent the CIC Price exceeds the exercise price), DSUs
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.

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The amount of cash to be paid shall be determined (i) in the case of stock
options by multiplying the number of stock options by the difference between the
exercise price and the CIC Price, (ii) in the case of DSUs by multiplying the
number of DSUs by the CIC Price and (iii) in the case of SARs, the difference
between the exercise price of the related option per share and the CIC Price.

C. Notwithstanding the foregoing, any stock option and SARs held by a director
subject to Section 16 of the Securities Exchange Act of 1934, as amended (“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 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, stock options, or
unexercised shares under such stock options, as the case may be, 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.

Section 409A of the Internal Revenue Code.

Notwithstanding any other provision of the Plan, no election by any participant
or beneficiary, and no payment to any individual, shall be permitted under the
Plan if such election or payment would cause any amount to be taxable under
section 409A of the Internal Revenue Code with respect to any individual.