Exhibit 10(e)(1)

 

Amended and Restated

as of December 6, 2005

 

RESTATEMENT

OF

XEROX CORPORATION

2004 PERFORMANCE INCENTIVE PLAN

 

1. Purpose

 

The purpose of the Xerox Corporation 2004 Performance Incentive Plan (the “2004
Plan” or the “Plan”) is to advance the interests of Xerox Corporation (the
“Company”) and to increase shareholder value by providing officers and employees
of the Company, its subsidiaries and its Affiliates (as hereinafter defined)
with a proprietary interest in the growth and performance of the Company and
with incentives for current or future service with the Company, its subsidiaries
and Affiliates. The Plan is a successor plan to (i) the Xerox Corporation 1991
Long-Term Incentive Plan, (ii) the Xerox Corporation 1998 Employee Stock Option
Plan, (iii) the Xerox Executive Performance Incentive Insurance Plan, (iv) the
Xerox Mexicana, S.A. de C.V. Executive Rights Plan and (v) the Xerox Canada Inc.
Executive Rights Plan, any or all of which may be referred to as a “Predecessor
Plan”.

 

2. Effective Date and Term

 

The Plan shall be effective as of May 20, 2004, subject to the approval of the
Company’s shareholders at the 2004 annual meeting. No awards or grants can be
made after January 1, 2008 unless terminated sooner pursuant to Section 13 by
the Company’s Board of Directors (the “Board”). Effective May 20, 2004, no
further awards shall be made under a Predecessor Plan, but outstanding awards
under any Predecessor Plan shall remain outstanding in accordance with their
applicable terms and conditions.

 

3. Plan Administration

 

(a) The independent Compensation Committee of the Board, or such other
independent 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 administrative responsibilities to a subcommittee
of the Compensation Committee comprised of not less than three members (the
Compensation Committee, such subcommittee, and any individual to whom powers are
delegated pursuant to subsection (c), being hereinafter referred to as the
“Committee”). The Committee shall be qualified to administer the Plan as
contemplated by (i) Rule 16b-3 under the Securities Exchange Act of 1934 (the
“1934 Act”) or any successor rule, (ii) Section 162(m) of the Internal Revenue
Code of 1986, as amended (the “Code”), and the regulations thereunder, and
(c) any rules and regulations of a stock exchange on which Common Stock (as
defined in Section 5) of the Company is listed.

 

(b) 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 cancelled, forfeited or
suspended; (iv) adoption of such modifications, amendments, procedures, subplans
and the like as are necessary to enable participants employed in other countries
in which the Company may operate to receive advantages and benefits under the
Plan consistent with the laws of such countries, and consistent with the rules
of the Plan; (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

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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 any employee of the Company.

 

(c) Except for the power to amend the 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 Code Section 162(m) compensation deductibility limit
(the “Covered Employees”), and except as may otherwise be required under
applicable New York Stock Exchange rules, 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. The term “Committee” herein shall include any individual exercising
powers to the extent delegated pursuant to the preceding sentence.

 

4. Eligibility

 

Any employee of the Company shall be eligible to receive an award under the
Plan. For purposes of this Section 4, “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
(“Affiliate”). If a participant who is an employee or former employee of the
Company is deemed by the Committee, in the Committee’s sole discretion, to have
engaged in detrimental activity against the Company, any awards granted to such
employee or former employee on or after January 1, 2006, shall be canceled and
be of no further force or effect and any payment or delivery of an award within
six months prior to such detrimental activity may be rescinded. In the event of
any such rescission, the participant shall pay to the Company the amount of any
gain realized or payment received as a result of the rescinded exercise, payment
or delivery, in such manner and on such terms and conditions as may be required
by the Committee.

 

5. Shares of Stock Subject to the Plan

 

(a) A total number of 10.0 million (10,000,000) shares of common stock1, par
value $1.00 per share, of the Company (“Common Stock”) shall become available
for issuance under the Plan, provided 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. Any shares available for grant under any Predecessor Plan on
the Effective Date not subject to outstanding awards shall become available for
issuance under the Plan. (As of May 20, 2004, approximately 15.7 million shares2
are expected to be available for issuance under Predecessor Plans.) Thus, the
total number available for grant under the 2004 Plan is expected to be
25.7 million (25,700,000)3. In addition, any shares underlying awards
outstanding on May 20, 2004 under any Predecessor Plan that are cancelled, are
forfeited, or lapse shall become available for issuance under the Plan.

 

(b) 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

 

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1 10.0 million reflects the number of shares if all grants were made in “whole
value” shares (e.g., restricted stock or performance shares). If all grants were
made in the form of options or SARs, the number available is 16.7 million.

2 15.7 million reflects the number of shares if all grants were made in “whole
value” shares (e.g., restricted stock or performance shares). If all grants were
made in the form of options or SARs, the number available is 26.1 million.

3 25.7 million reflects the number of shares if all grants were made in “whole
value” shares (e.g., restricted stock or performance shares). If all grants were
made in the form of options or SARs, the number available is 42.8 million.

 

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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.

 

(c) In determining shares available for issuance under the Plan, any awards
granted under the Plan that are cancelled, are forfeited, or lapse shall become
eligible again for issuance under the Plan. In addition, shares withheld to pay
taxes pursuant to Section 14, and shares tendered to exercise stock options,
shall be treated as shares again eligible for issuance under the Plan.

 

(d) In no event, however, except as subject to adjustment as provided in
Section 6, shall more than (i) 10.0 million (10,000,000) shares of Common Stock
be available for issuance pursuant to the exercise of incentive stock options
(“ISOs”) awarded under the Plan; and (ii) 15.0 million (15,000,000) shares of
Common Stock be made the subject of awards under any combination of awards under
Sections 7(b), 7(c) or 7(d) of the Plan to any single individual, of which no
more than 10.0 million (10,000,000) may be shares of restricted stock. SARs
whether settled in cash or shares of Common Stock shall be counted against the
limit set forth in(ii).

 

(e) 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

 

(a) 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.

 

(b) 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.

 

(c) Notwithstanding anything to the contrary in this Section 6 or any other
provision of the Plan, the Committee may increase the maximum aggregate number
of shares that may be issued under the Plan only to the extent necessary to
reflect a change in the number of outstanding shares of Common Stock, such as a
stock dividend or stock split.

 

7. Awards

 

(a) 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, including, without
limitation, “reload options”.

 

(b) 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

 

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in Section 10) on the effective date of grant. 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
constructively or by attestation) Common Stock, surrendering a stock award
valued at market value at the time of surrender, surrendering a cash award, or
any combination thereof. Notwithstanding any provision of the Plan, a repricing
of a Stock Option shall be allowed by the Committee only with the approval of
the Company’s shareholders to the extent required under the rules of the New
York Stock Exchange. For this purpose, a “repricing” shall be defined as
described in the New York Stock Exchange rules.

 

(c) A Stock Appreciation Right (“SAR”) is a right to receive a payment, in cash
and/or Common Stock, as determined by the Committee, equal to the excess of the
market value of a specified number of shares of Common Stock at the time 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.

 

(d) 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. A restricted stock award made pursuant to this Section 7(d)
shall be subject to a vesting schedule of no less than three (3) years unless
such award is performance based, in which case vesting shall be no less than one
(1) year.

 

(e) Cash Award may be any of the following:

 

(i) an annual incentive award in connection with which the Committee will
establish specific performance periods (not to exceed twelve months) to provide
cash awards for the purpose of motivating participants to achieve goals for the
performance period. An annual incentive award shall specify the minimum, target
and maximum amounts of awards for a performance period for a participant or any
groups of participants, and, to the extent applicable to Covered Employees,
comply with the requirements of Section 23; or

 

(ii) a long-term 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; or

 

(iii) Cash Awards under this Section 7(e) 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
$10,000,000 in the case of the Chief Executive Officer and $5,000,000 in the
case of any other participant, such limits being applicable to each twelve-month
performance period established by the Committee under this Section 7(e) or under
Section 23.

 

(f) The Committee shall have the discretion with respect to any award granted
under the Plan to establish upon its grant conditions under which (i) the award
may be later forfeited, cancelled, rescinded, suspended, withheld or otherwise
limited or restricted; or (ii) gains realized by the grantee in connection with
an award or an award’s exercise may be recovered; provided that such conditions
and their consequences are clearly set forth in the grant agreement or other
grant document and fully comply with applicable laws. These conditions may
include, without limitation, actions by the participant which constitute a
conflict of interest with the Company, are prejudicial to the Company’s
interests, or are in violation of any non-compete agreement or obligation, any
confidentiality agreement or obligation, the Company’s applicable policies, its
Code of Business Conduct and Ethics, or the participant’s terms and conditions
of employment.

 

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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. Except as provided in Section 24
herein, 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

 

Except as otherwise provided in this Section 11, all awards under the Plan shall
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 domestic relations order entered by a court of
competent jurisdiction. Notwithstanding the preceding sentence, the Committee
may provide that any award of non-qualified Stock Options may be transferable by
the recipient to family members or family trusts established by the recipient.
The Committee may also provide that, 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, a third party,
including but not limited to a “blind” trust, may be authorized by the Committee
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 the Plan upon the death of the participant.

 

12. Award Agreements; Notification of Award

 

Awards under the Plan (other than annual incentive awards described in
Section 7(e)(i)) 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 Stock Option 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. In the case of an annual incentive cash award, the participant
shall receive notification of such award in such form as the Committee may
determine.

 

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13. Plan Amendment and Termination

 

(a) 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) Code 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.

 

(b) Notwithstanding the foregoing, an amendment that constitutes a “material
revision”, as defined by the rules of the New York Stock Exchange, 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 7 prohibiting
repricing of options without shareholder approval will be considered a material
revision.

 

(c) The Board may terminate the Plan at any time. Upon 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 of the Plan.

 

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.

 

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.

 

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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. Unless otherwise defined by the Compensation Committee, the
following definitions shall apply to this Section 22:

 

(i) A “Change in Control” shall be deemed to have occurred if (aa) 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 (cc) 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; (bb) 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; (cc) 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 (dd) 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.

 

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(ii) “CIC Price” shall mean the higher of (aa) 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
(bb) 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.

 

(iii) An award is “Nonforfeitable” in whole or in part to the extent that, under
the terms of the Plan or the award agreement or summary under the Plan, (aa) the
award is vested in whole or part, or (bb) an entitlement to present or future
settlement of such award in whole or part has otherwise arisen. Notwithstanding
an award having become Nonforfeitable in whole or part, the award shall be
cancelled in its entirety, and no settlement shall be made, if a participant is
terminated by the Company for Cause (as defined in the award agreement), if the
participant refuses to sign any releases or waivers required for settlement of
the award, if the participant shall have engaged in detrimental activity against
the Company, or for any other reason set forth in the Plan or any award
agreement or award summary, or as determined by the Committee.

 

(iv) A “Key Employee” is identified in the following manner: There shall be
identified every employee who, at any time during a 12-month period ending
December 31, is one of the 50 highest paid officers of the Company (or any
member of its controlled group, as defined by Code Section 414(b)) having
compensation in excess of the amount specified in Code Section 416(i)(1)(A) as
indexed by Treasury guidance. Every individual so identified for any period
ending December 31 is a Key Employee for the 12-month period beginning on the
first April 1 following such December 31, and ending on the next March 31.

 

(v) A “Section 409A-Conforming Change in Control” is a change in control of the
Company that conforms to the definition under Code Section 409A of a change in
ownership or effective control of the Company, or in the ownership of a
substantial portion of the assets of the Company, as such definition is set
forth in Treasury guidance.

 

(vi) A “Termination for Good Reason” by a participant shall mean the Termination
of Employment of a participant upon any of the following circumstances, if such
circumstance occurs without the participant’s express written consent after a
Change in Control:

 

(aa) The assignment of any participant’s duties inconsistent with the
participant’s job status or a substantial adverse alteration in the nature or
status of a participant’s responsibilities from those in effect immediately
prior to a Change in Control of the Company (including, without limitation, if
the participant is an executive officer of the Company prior to a Change in
Control, ceasing to be an executive officer of a public company);

 

(bb) Any of the following: (1) A reduction in a participant’s annual base salary
and/or annual target bonus, (2) a failure by the Company to increase a
participant’s annual base salary following a Change in Control at such periodic
intervals consistent with the Company’s practice prior thereto by at least a
percentage equal to the average of the percentage increases in a participant’s
base salary for the three merit pay periods immediately preceding such Change in
Control, or (3) the failure to increase a participant’s salary as the same may
be increased from time to time for similarly situated individuals, except that
this clause (bb) shall not apply to across-the-board salary reductions similarly
affecting all similarly situated employees of the Company and all similarly
situated employees of any person in control of the Company;

 

(cc) The Company’s requiring a participant to be based anywhere other than in
the metropolitan area in which a participant was based immediately before the
Change in Control, except for required travel on the Company’s business to an
extent substantially consistent with a participant’s present business travel
obligations;

 

(dd) The failure by the Company to continue in effect any compensation or
benefit plan, vacation policy or any material perquisites in which a participant
participates immediately before the Change in

 

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Control, (except to the extent such plan terminates in accordance with its
terms), unless an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan in connection with the
Change in Control, or the failure by the Company to continue a participant’s
participation therein (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of benefits provided and
the level of a participant’s participation relative to other participants, than
existed at the time of the Change in Control; or

 

(ee) The failure of the Company to obtain a satisfactory agreement from any
successor to assume responsibility to perform under this Plan.

 

(ff) A termination by a participant of employment shall not fail to be a
Termination For Good Reason by participant merely because of a participant’s
incapacity due to physical or mental illness, or because a participant’s
employment continued after the occurrence of any of the events listed in this
subsection.

 

(b) Acceleration of Nonforfeitability of SARs, Stock Awards, Cash Awards, and
Dividends and Dividend Equivalents. Upon the occurrence of a Change in Control
or a Section 409A-Conforming Change in Control, all SARs, stock awards, stock
options (to the extent the CIC Price exceeds the exercise price), cash awards,
dividends and dividend equivalents outstanding on such date shall become 100%
Nonforfeitable.

 

(c) Payment Schedule. In accordance with the uniform payment rule set forth in
subsection (c) of Section 24 hereof,

 

(i) Following a Change In Control that is not a Section 409A-Conforming Change
in Control, awards shall be settled on the Vesting Date specified in the award
summary, and

 

(ii) Following a Section 409A-Conforming Change in Control, awards shall be
settled on the earlier of (aa) termination of employment (in the case of a Key
Employee, to the extent required by Section 409A, the date that is 6 months
after termination of employment) or (bb) the Vesting Date specified in the award
summary.

 

(iii) If a participant has made a valid election under Code Section 409A to
defer settlement beyond the Vesting Date specified in the award summary, such
award shall be settled pursuant to clauses (i) and (ii) by substituting the date
so elected for the Vesting Date specified in the award summary.

 

(d) Alternate Payment Schedule for Post-2005 Grants in Lieu of Subsection (c) If
Allowed by Section 409A. In the case of any award granted after December 31,
2005, to the extent permitted by Section 409A,

 

(i) Following a Change in Control or a Section 409A-Conforming Change in
Control, awards shall not be settled in accordance with the foregoing subsection
(c) hereof, but shall be settled on the earlier of (aa) termination of
employment (in the case of a Key Employee, to the extent required by
Section 409A, the date that is 6 months after termination of employment), or
(bb) the Vesting Date specified in the award summary, except that

 

(ii) If such Change in Control or Section 409A-Conforming Change in Control is
effectuated other than by a cash purchase of the Company’s voting securities,
and is followed by a voluntary termination of employment by a participant that
is not a Termination for Good Reason, awards payable to such participant shall
be settled on the Vesting Date specified in the award summary.

 

(iii) If such Change in Control or Section 409A-Conforming Change in Control is
effectuated only in part by a cash purchase of the Company’s voting securities,
and is followed by a voluntary termination of employment by a participant that
is not a Termination for Good Reason, a fraction of each award shall be settled
pursuant to clause (i). The numerator of this fraction shall be the total amount
of such cash paid, and the denominator shall be the total consideration paid to
Company shareholders pursuant to the event constituting the Change in Control or
Section 409A-Conforming Change in Control. The remaining portion of each such
award shall be settled pursuant to clause (ii).

 

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(iv) If a participant has made a valid election under Code Section 409A to defer
settlement beyond the Vesting Date specified in the award summary, such award
shall be settled pursuant to clauses (i), (ii) and (iii) by substituting the
date so elected for the Vesting Date specified in the award summary.

 

(v) To the extent that clause (ii) of this subsection (d) is not permitted by
Section 409A, then awards shall be settled solely under clause (i). To the
extent that neither clause (ii) nor clause (i) of this subsection (d) is
permitted by Section 409A, then this subsection (d) is inapplicable and awards
shall be settled under subsection (c).

 

(e) Cancellation. Upon settlement under this Section, such awards and any
related stock options shall be cancelled.

 

(f) Discretionary Awards. Upon or in anticipation of the occurrence of a Change
in Control, the Committee may grant additional awards (e.g., above-target awards
for performance-based Stock Awards) at its sole discretion. Any such
discretionary grants shall be settled on the date specified by the terms of such
grant.

 

(g) 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 pro-rata target value of such awards or such higher
amount as determined by the Committee, without regard to the performance
criteria, if any, applicable to such award; (iv) in the case of stock options,
the difference between the exercise price of the option and the CIC Price; and
(v) 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.

 

(h) Notwithstanding the foregoing, any SARs 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 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 awards, 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.

 

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, cash flow, document processing profit, cost reduction, days sales
outstanding, cash conversion cycle, cash management (including, without
limitation, inventory and/or capital expenditures), total shareholder return,
return on shareholders’ equity, economic value added measures, return on assets,
pre-or post-currency revenue, pre-or post-currency performance profit, profit
before tax, profit after tax, revenues, 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. Any performance-based awards made pursuant to this
Section 23 may include annual incentive awards and long-term awards.

 

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24. Section 409A Compliance

 

(a) No Taxation Under Code Section 409A. It is intended that no awards under the
Plan shall cause any amount to be taxable under Code Section 409A with respect
to any individual. All provisions of this Plan and of any agreement, award or
award summary thereunder shall be construed in a manner consistent with this
intent. Any provision of and amendment to this Plan, or of any agreement, award
or award summary thereunder, that would cause any amount to be taxable under
Section 409A of the Internal Revenue Code with respect to any individual is void
and without effect. Any election by any participant, and any administrative
action by the Committee that would cause any amount to be taxable under
Section 409A of the Code with respect to any individual is void and without
effect under the Plan.

 

(b) Election Rule. A participant may elect to defer awards under the Plan only
if the election is made not later than December 31 of the year preceding the
year in which related service is performed, except to the extent otherwise
permitted by Section 409A and Treasury guidance thereunder (where such
exceptions include but are not limited to initial deferral elections with
respect to Nonforfeitable rights, deferral elections in the first year in which
an employee becomes eligible to participate, and deferral elections with respect
to performance-based compensation).

 

(c) Uniform Payment Rule

 

(i) All awards shall be settled on the date that is the earlier of (1) or
(2) below, where

 

(1) is the later of (A) a Section 409A-Conforming Change in Control or
(B) termination of employment (in the case of a Key Employee, to the extent
required by Section 409A, the date that is 6 months after termination of
employment); and

 

(2) is the Vesting Date specified in the award summary.

 

(ii) If a participant has made a valid election under Code Section 409A to defer
settlement beyond the Vesting Date specified in the award summary, such award
shall be settled pursuant to clause (i) by substituting the date so elected for
the Vesting Date specified in the award summary.

 

(iii) To the extent permitted by Code Section 409A, following a Change in
Control or a Section 409A-Conforming Change in Control, settlement of awards
shall be governed by subsection (d) of Section 22 herein, rather than by clauses
(i) and (ii) of this subsection (c).

 

(iv) Settlement pursuant to the death or disability of a participant is governed
by the award agreement.

 

(d) Accelerations. In the case of an award that is deferred compensation for
purposes of Code Section 409A, acceleration of settlement is not permitted,
except that, if permitted by the Committee, acceleration of settlement is
permitted in order to (i) allow the participant to comply with a certificate of
divestiture (within the meaning of Code Section 1043); (ii) pay payroll and
withholding taxes with respect to amounts deferred, to the extent permitted by
Treasury guidance; or (iii) effect any other purpose that is a permitted Code
Section 409A acceleration event under Treasury guidance.

 

(e) Permitted Payment Delays. At the Committee’s sole discretion, settlement of
awards may be delayed beyond the date specified in subsection (c) under the
following circumstance. The Committee reserves the right to amend an award
granted on or after January 1, 2006 if the Committee determines that the
deduction for such settlement would be limited by Code Section 162(m), except
that such settlement will be made on the earliest date on which the Committee
determines that such limitation no longer exists.

 

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IN WITNESS WHEREOF, the Company has caused this Restatement to be signed as of
the 8th day of December, 2005.

 

XEROX CORPORATION

By:

 

/PATRICIA M. NAZEMETZ/

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