<PAGE>


                                                                 Exhibit 4(g)(3)




                    AMENDED AND RESTATED DECLARATION OF TRUST


                                       OF


                             XEROX CAPITAL TRUST II


                          Dated as of November 27, 2001

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                                TABLE OF CONTENTS

                                                                            Page

                                    ARTICLE I
                         INTERPRETATION AND DEFINITIONS

SECTION 1.1    Definitions.                                                   1

                                   ARTICLE II
                               TRUST INDENTURE ACT

SECTION 2.1    Trust Indenture Act; Application.                              8
SECTION 2.2    Lists of Holders of Securities.                                9
SECTION 2.3    Reports by the Property Trustee.                               9
SECTION 2.4    Periodic Reports to Property Trustee.                          9
SECTION 2.5    Evidence of Compliance with Conditions Precedent.              9
SECTION 2.6    Events of Default; Waiver.                                    10
SECTION 2.7    Event of Default; Notice.                                     12

                                   ARTICLE III
                                  ORGANIZATION

SECTION 3.1    Name.                                                         12
SECTION 3.2    Office.                                                       13
SECTION 3.3    Purpose.                                                      13
SECTION 3.4    Authority.                                                    13
SECTION 3.5    Title to Property of the Trust.                               13
SECTION 3.6    Powers and Duties of the Administrative Trustees.             13
SECTION 3.7    Prohibition of Actions by the Trust and the Trustees.         16
SECTION 3.8    Powers and Duties of the Property Trustee.                    17
SECTION 3.9    Certain Duties and Responsibilities of the Property
                 Trustee.                                                    19
SECTION 3.10   Certain Rights of Property Trustee.                           20
SECTION 3.11   Delaware Trustee.                                             22
SECTION 3.12   Execution of Documents.                                       23
SECTION 3.13   Not Responsible for Recitals or Issuance of Securities.       23
SECTION 3.14   Duration of Trust.                                            23
SECTION 3.15   Mergers.                                                      23
SECTION 3.16   Compensation.                                                 25

                                   ARTICLE IV
                                     SPONSOR

SECTION 4.1    Sponsor's Purchase of Common Securities.                      25
SECTION 4.2    Responsibilities of the Sponsor.                              25
SECTION 4.3    Right to Proceed.                                             26

                                    ARTICLE V
                                    TRUSTEES

SECTION 5.1    Number of Trustees: Appointment of Co-Trustee.                26
SECTION 5.2    Delaware Trustee.                                             27
SECTION 5.3    Property Trustee; Eligibility.                                27
SECTION 5.4    Certain Qualifications of Administrative Trustees and
                 Delaware Trustee Generally.                                 28
SECTION 5.5    Administrative Trustees.                                      28
SECTION 5.6    Delaware Trustee.                                             29

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SECTION 5.7    Appointment, Removal and Resignation of Trustees.             29
SECTION 5.8    Vacancies among Trustees.                                     30
SECTION 5.9    Effect of Vacancies.                                          30
SECTION 5.10   Meetings.                                                     31
SECTION 5.11   Delegation of Power.                                          31
SECTION 5.12   Merger, Conversion, Consolidation or Succession to
                 Business.                                                   31

                                   ARTICLE VI
                                  DISTRIBUTIONS

SECTION 6.1    Distributions.                                                32

                                   ARTICLE VII
                             ISSUANCE OF SECURITIES

SECTION 7.1    General Provisions Regarding Securities.                      32
SECTION 7.2    Execution and Authentication.                                 33
SECTION 7.3    Form and Dating.                                              33
SECTION 7.4    Registrar, Paying Agent, Exchange Agent and the
                 Conversion Agent.                                           35
SECTION 7.5    Paying Agent to Hold Money in Trust.                          35
SECTION 7.6    Replacement Securities.                                       36
SECTION 7.7    Outstanding Trust Preferred Securities.                       36
SECTION 7.8    Trust Preferred Securities in Treasury.                       36
SECTION 7.9    Temporary Securities.                                         36
SECTION 7.10   Cancellation.                                                 37
SECTION 7.11   CUSIP Numbers.                                                38

                                  ARTICLE VIII
                              TERMINATION OF TRUST

SECTION 8.1    Termination of Trust.                                         38

                                   ARTICLE IX
                              TRANSFER OF INTERESTS

SECTION 9.1    Transfer of Securities.                                       39
SECTION 9.2    Transfer Procedures and Restrictions.                         39
SECTION 9.3    Deemed Security Holders.                                      45
SECTION 9.4    Book Entry Interests.                                         45
SECTION 9.5    Notices to Clearing Agency.                                   46
SECTION 9.6    Appointment of Successor Clearing Agency.                     46

                                    ARTICLE X
      LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, TRUSTEES AND OTHERS

SECTION 10.1   Liability.                                                    46
SECTION 10.2   Exculpation.                                                  46
SECTION 10.3   Fiduciary Duty.                                               47
SECTION 10.4   Indemnification.                                              48
SECTION 10.5   Outside Businesses.                                           50
SECTION 11.1   Fiscal Year.                                                  51

                                   ARTICLE XI
                                   ACCOUNTING

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SECTION 11.2   Certain Accounting Matters.                                   51
SECTION 11.3   Banking.                                                      51
SECTION 11.4   Withholding.                                                  51

                                   ARTICLE XII
                             AMENDMENTS AND MEETINGS

SECTION 12.1   Amendments.                                                   52
SECTION 12.2   Meetings of the Holders; Action by Written Consent.           54

                                  ARTICLE XIII
            REPRESENTATIONS OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE

SECTION 13.1   Representations and Warranties of Property Trustee.           55
SECTION 13.2   Representations and Warranties of Delaware Trustee.           56

                                   ARTICLE XIV
                                  MISCELLANEOUS

SECTION 14.1   Notices.                                                      56
SECTION 14.2   Governing Law.                                                57
SECTION 14.3   Intention of the Parties.                                     58
SECTION 14.4   Headings.                                                     58
SECTION 14.5   Successors and Assigns.                                       58
SECTION 14.6   Partial Enforceability.                                       58
SECTION 14.7   Counterparts.                                                 58

ANNEX I       TERMS OF SECURITIES                                           I-1
EXHIBIT A-1   FORM OF TRUST PREFERRED SECURITY CERTIFICATE                 A1-1
EXHIBIT A-2   FORM OF COMMON SECURITY CERTIFICATE                          A2-1
EXHIBIT B     SPECIMEN OF XEROX FUNDING DEBENTURE                           B-1
EXHIBIT C     SPECIMEN OF XEROX DEBENTURE                                   C-1
EXHIBIT D     PURCHASE AGREEMENT                                            D-1

<PAGE>


                              AMENDED AND RESTATED
                             DECLARATION OF TRUST OF
                             XEROX CAPITAL TRUST II

                                November 27, 2001

     AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration") dated and
effective as of November 27, 2001, by the Trustees (as defined herein), the
Sponsor (as defined herein) and by the holders, from time to time, of undivided
beneficial interests in the Trust to be issued pursuant to this Declaration;

     WHEREAS, certain of the Trustees and the Sponsor established Xerox Capital
Trust II (the "Trust"), a trust formed under the Delaware Business Trust Act
pursuant to a Declaration of Trust dated as of November 19, 2001 (the "Original
Declaration"), and a Certificate of Trust filed with the Secretary of State of
the State of Delaware on November 19, 2001, for the sole purpose of issuing and
selling certain securities representing undivided beneficial interests in the
assets of the Trust and investing the proceeds thereof in certain Debentures of
the Debenture Issuer (each as hereinafter defined);

     WHEREAS, as of the date hereof, no interests in the Trust have been issued;
and

     WHEREAS, all of the Trustees and the Sponsor, by this Declaration, amend
and restate each and every term and provision of the Original Declaration.

     NOW, THEREFORE, it being the intention of the parties hereto to continue
the Trust as a business trust under the Business Trust Act and that this
Declaration constitute the governing instrument of such business trust, the
Trustees declare that all assets contributed to the Trust will be held in trust
for the benefit of the holders, from time to time, of the securities
representing undivided beneficial interests in the assets of the Trust issued
hereunder, subject to the provisions of this Declaration.

                                    ARTICLE I
                         INTERPRETATION AND DEFINITIONS

     SECTION 1.1 Definitions.

     Unless the context otherwise requires:

     (a) each capitalized terms used in this Declaration but not defined in the
Preamble above has the meaning assigned to it in this Section 1.1;

     (b) a term defined anywhere in this Declaration has the same meaning
throughout;

     (c) all references to "the Declaration" or "this Declaration" are to this
Declaration and each Annex and Exhibit hereto, as modified, supplemented or
amended from time to time;

     (d) all references in this Declaration to Articles and Sections and Annexes
and Exhibits are to Articles and Sections of and Annexes and Exhibits to this
Declaration unless otherwise specified;

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     (e) a term defined in the Trust Indenture Act has the same meaning when
used in this Declaration unless otherwise defined in this Declaration or unless
the context otherwise requires; and

     (f) a reference to the singular includes the plural and vice versa.

     "Administrative Action" has the meaning set forth in Annex I.

     "Administrative Trustee" has the meaning set forth in Section 5.1.

     "Affiliate" has the same meaning as given to that term in Rule 405 under
the Securities Act or any successor rule thereunder.

     "Agent" means any Paying Agent, Registrar, Conversion Agent or Exchange
Agent.

     "Authorized Officer" of a Person means any other Person that is authorized
to legally bind such former Person.

     "Book Entry Interest" means a beneficial interest in a Global Certificate
registered in the name of a Clearing Agency or its nominee, ownership and
transfers of which shall be maintained and made through book entries by a
Clearing Agency as described in Section 9.4.

     "Business Day" means any day other than a Saturday or a Sunday or a day on
which banking institutions in The City of New York are permitted or required by
applicable law or executive order to close.

     "Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code, 12
Del. C. Section 3801 et seq., as it may be amended from time to time, or any
successor legislation.

     "cash" has the meaning set forth in Annex I.

     "Change in Control Purchase Date" has the meaning set forth in Annex I.

     "Change in Control Purchase Notice" has the meaning set forth in Annex I.

     "Change in Control Purchase Price" has the meaning set forth in Annex I.

     "Change in Control Sponsor Notice" has the meaning set forth in Annex I.

     "Clearing Agency" means an organization registered as a "Clearing Agency"
pursuant to Section 17A of the Exchange Act that is acting as depositary for the
Trust Preferred Securities and in whose name or in the name of a nominee of that
organization shall be registered a Global Certificate and which shall undertake
to effect book entry transfers and pledges of the Trust Preferred Securities.

     "Clearing Agency Participant" means a broker, dealer, bank, other financial
institution or other Person for whom from time to time the Clearing Agency
effects book entry transfers and pledges of securities deposited with the
Clearing Agency.

     "Closing Time" has the meaning specified under the Purchase Agreement.

<PAGE>

     "Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor legislation.

     "Commission" means the United States Securities and Exchange Commission as
from time to time constituted, or if at any time after the execution of this
Declaration such Commission is not existing and performing the duties now
assigned to it under applicable Federal securities laws, then the body
performing such duties at such time.

     "Common Securities" has the meaning specified in Section 7.1(a).

     "Company Indemnified Person" means (a) any Administrative Trustee; (b) any
Affiliate of any Administrative Trustee; (c) any officers, directors,
shareholders, members, partners, employees, representatives or agents of any
Administrative Trustee; or (d) any officer, employee or agent of the Trust or
its Affiliates.

     "Conversion Agent" has the meaning set forth in Section 7.4.

     "Conversion Date" has the meaning set forth in Annex I.

     "Conversion Rate" has the meaning set forth in Annex I.

     "Corporate Trust Office" means the principal corporate trust office of the
Property Trustee at which at any particular time, its corporate trust business
shall be administered, which office at the date hereof is located at Sixth and
Marquette, MAC N9303-120, Minneapolis, Minnesota 55479, Attention: Corporate
Trust Services, except where such office is required to be located in the State
of New York, then such term shall mean the office or agency of the Property
Trustee in the Borough of Manhattan, The City of New York, which office at the
date hereof is located at c/o The Depository Trust Company, 1st Floor - TADS
Department, 55 Water Street, New York, New York 10041.

     "Covered Person" means: (a) any officer, director, shareholder, partner,
member, representative, employee or agent of (i) the Trust or (ii) the Trust's
Affiliates; and (b) any Holder of Securities.

     "Debenture Issuer" means either Xerox Funding or the Sponsor, as the case
may be, or any successor entity resulting from any consolidation, amalgamation,
merger or other business combination, in its respective capacity as issuer of
the related Debentures under the related Indenture.

     "Debenture Trustee" means Wells Fargo Bank Minnesota, National Association,
a national banking association, as trustee under the Indentures until a
successor is appointed thereunder, and thereafter means such successor trustee.

     "Debentures" means, collectively, the Xerox Funding Debentures and the
Xerox Debentures.

     "Default" means an event, act or condition that with notice of lapse of
time, or both, would constitute an Event of Default.

     "Definitive Trust Preferred Securities" shall have the meaning set forth in
Section 7.3(c).

<PAGE>

     "Delaware Trustee" has the meaning set forth in Section 5.2.

     "Direct Action" shall have the meaning set forth in Section 3.8(e).

     "Distribution" means a distribution payable to Holders in accordance with
Section 6.1.

     "DTC" means The Depository Trust Company, the initial Clearing Agency.

     "Event of Default" in respect of the Securities means an Event of Default
(as defined in each of the Indentures) that has occurred and is continuing in
respect of the Debentures.

     "Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, or any successor legislation.

     "Fiduciary Indemnified Person" has the meaning set forth in Section
10.4(b).

     "Fiscal Year" has the meaning set forth in Section 11.1.

     "Global Trust Preferred Security" has the meaning set forth in Section
7.3(a).

     "Holder" means a Person in whose name a Security is registered, such Person
being a beneficial owner within the meaning of the Business Trust Act.

     "Indemnified Person" means a Company Indemnified Person or a Fiduciary
Indemnified Person.

     "Indentures" means the Xerox Funding Indenture and the Xerox Indenture.

     "Investment Company" means an investment company as defined in the
Investment Company Act.

     "Investment Company Act" has the meaning set forth in Annex I.

     "Legal Action" has the meaning set forth in Section 3.6(g).

     "Liquidation Amount" means an amount with respect to the assets of the
Trust equal to $50 per Trust Security.

     "Majority in liquidation amount" means, with respect to the Trust
Securities, except as provided in the terms of the Trust Preferred Securities or
by the Trust Indenture Act, Holder(s) of outstanding Trust Securities voting
together as a single class or, as the context may require, Holders of
outstanding Trust Preferred Securities or Holders of outstanding Common
Securities voting separately as a class, who are the record owners of more than
50% of the aggregate liquidation amount (including the stated amount that would
be paid on redemption, liquidation or otherwise, plus accrued and unpaid
Distributions to the date upon which the voting percentages are determined) of
all outstanding Securities of the relevant class.

     "Ministerial Action" has the meaning set forth in Annex I hereto.

     "Notice of Conversion" means the notice given by a Holder of Trust
Securities to the Conversion Agent directing the Conversion Agent to instruct

<PAGE>

Xerox Funding to convert immediately an equivalent principal amount of Xerox
Debentures into Common Stock of the Sponsor on behalf of such Holder. The form
of such notice is included in the Trust Common Securities Certificate and Trust
Preferred Securities Certificate.

     "Offering Memorandum" has the meaning set forth in Section 3.6(b).

     "Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chairman, a Vice Chairman, the Chief Executive Officer, the
President, the Chief Financial Officer, a Vice President, the Controller, an
Assistant Controller, the Treasurer, an Assistant Treasurer, the Secretary or an
Assistant Secretary of such Person. Any Officers' Certificate delivered with
respect to compliance with a condition or covenant provided for in this
Declaration shall include:

     (a) a statement that each officer signing the Certificate has read the
covenant or condition and the definitions relating thereto;

     (b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Certificate;

     (c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and

     (d) a statement as to whether, in the opinion of each such officer, such
condition or covenant has been complied with.

     "Opinion of Counsel" shall mean a written opinion of counsel, who may be an
employee of the Sponsor, and who shall be acceptable to the Property Trustee.

     "Paying Agent" has the meaning specified in Section 7.4.

     "Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.

     "Property Trustee" has the meaning set forth in Section 5.3(a).

     "Property Trustee Account" has the meaning set forth in Section 3.8(c).

     "Purchase Agreement" means the Purchase Agreement for the initial offering
and sale of Trust Preferred Securities in the form of Exhibit E.

     "Purchase Date" has the meaning set forth in Annex I.

     "Purchase Notice" has the meaning set forth in Annex I.

     "Purchase Price" has the meaning set forth in Annex I.

     "QIBs" shall mean qualified institutional buyers as defined in Rule 144A.

<PAGE>

     "Quorum" means a majority of the Administrative Trustees or, if there are
only two Administrative Trustees, both of them.

     "Redemption Price" has the meaning set forth in Annex I.

     "Registrar" has the meaning set forth in Section 7.4.

     "Regular Redemption Price" has the meaning set forth in Annex I.

     "Related Party" means, with respect to the Sponsor, any direct or indirect
wholly owned subsidiary of the Sponsor or any other Person that owns, directly
or indirectly, 100% of the outstanding voting securities of the Sponsor.

     "Responsible Officer" means, with respect to the Property Trustee, any
officer within the Corporate Trust Office of the Property Trustee, including any
vice-president, any assistant vice-president, any assistant secretary, the
treasurer, any assistant treasurer or other officer of the Corporate Trust
Office of the Property Trustee customarily performing functions similar to those
performed by any of the above designated officers and also means, with respect
to a particular corporate trust matter, any other officer to whom such matter is
referred because of that officer's knowledge of and familiarity with the
particular subject.

     "Restricted Definitive Trust Preferred Securities" has the meaning set
forth in Section 7.3(c).

     "Restricted Global Trust Preferred Security" has the meaning set forth in
Section 7.3(a).

     "Restricted Securities Legend" has the meaning set forth in Section 7.3.

     "Restricted Trust Preferred Security" means a Trust Preferred Security
required by Section 9.2 to contain a Restricted Securities Legend.

     "Rule 3a-5" means Rule 3a-5 under the Investment Company Act, or any
successor rule or regulation.

     "Rule 144" means Rule 144 under the Securities Act, as such rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the Commission.

     "Rule 144A" means Rule 144A under the Securities Act, as such rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the Commission.

     "Securities" or "Trust Securities" means the Common Securities and the
Trust Preferred Securities.

     "Securities Act" means the Securities Act of 1933, as amended from time to
time, or any successor legislation.

     "Special Event" has the meaning set forth in Annex I.

     "Special Redemption Price" has the meaning set forth in Annex I.

     "Sponsor" means Xerox Corporation, a New York corporation, or any

<PAGE>

successor entity resulting from any merger, consolidation, amalgamation or other
business combination, in its capacity as sponsor of the Trust.

     "Sponsor Notice Date" has the meaning set forth in Annex I.

     "Super Majority" has the meaning set forth in Section 2.6(b)(ii).

     "Tax Event" has the meaning set forth in Annex I.

     "10% in liquidation amount" means, with respect to the Trust Securities,
except as provided in the terms of the Trust Preferred Securities or by the
Trust Indenture Act, Holder(s) of outstanding Trust Securities voting together
as a single class or, as the context may require, Holders of outstanding Trust
Preferred Securities or Holders of outstanding Common Securities voting
separately as a class, who are the record owners of 10% or more of the aggregate
liquidation amount (including the stated amount that would be paid on
redemption, liquidation or otherwise, plus accrued and unpaid Distributions to
the date upon which the voting percentages are determined) of all outstanding
Securities of the relevant class.

     "Treasury Regulations" means the income tax regulations, including
temporary and proposed regulations, promulgated under the Code by the United
States Treasury, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).

     "Trustee" or "Trustees" means each Person who has signed this Declaration
as a trustee, so long as such Person shall continue in office in accordance with
the terms hereof, and all other Persons who may from time to time be duly
appointed, qualified and serving as Trustees in accordance with the provisions
hereof, and references herein to a Trustee or the Trustees shall refer to such
Person or Persons solely in their capacity as trustees hereunder.

     "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended
from time to time, or any successor legislation.

     "Trust Preferred Securities" has the meaning specified in Section 7.1(a).

     "Trust Preferred Security Beneficial Owner" means, with respect to a Book
Entry Interest, a Person who is the beneficial owner of such Book Entry
Interest, as reflected on the books of the Clearing Agency, or on the books of a
Person maintaining an account with such Clearing Agency (directly as a Clearing
Agency Participant or as an indirect participant, in each case in accordance
with the rules of such Clearing Agency).

     "Trust Securities Guarantee" means the guarantee agreement, dated as of
November 27, 2001, between the Sponsor and Wells Fargo Bank Minnesota, National
Association, as guarantee trustee, in respect of the Trust Securities.

     "Xerox Debentures" means the 7 1/2% Convertible Junior Subordinated
Debentures due 2021 of the Sponsor issued pursuant to the Xerox Indenture.

     "Xerox Funding" means Xerox Funding LLC II, a Delaware limited liability
company, and issuer of the Xerox Funding Debentures, and any successor thereto.

<PAGE>

     "Xerox Funding Debentures" means the 7 1/2% Convertible Junior Subordinated
Debentures due 2021 of Xerox Funding issued pursuant to the Xerox Funding
Indenture.

     "Xerox Funding Indenture" means the Indenture, dated as of November 27,
2001, between Xerox Funding and the Debenture Trustee, as amended from time to
time.

     "Xerox Indenture" means the Indenture, dated as of November 27, 2001,
between the Sponsor and the Debenture Trustee, as amended from time to time.

                                   ARTICLE II
                               TRUST INDENTURE ACT

     SECTION 2.1 Trust Indenture Act; Application.

     (a) This Declaration is subject to the provisions of the Trust Indenture
Act that are required to be part of this Declaration and shall, to the extent
applicable, be governed by such provisions.

     (b) The Property Trustee shall be the only Trustee which is a Trustee for
the purposes of the Trust Indenture Act.

     (c) If and to the extent that any provision of this Declaration limits,
qualifies or conflicts with the duties imposed by Section 310 to 317, inclusive,
of the Trust Indenture Act, such imposed duties shall control.

     (d) The application of the Trust Indenture Act to this Declaration shall
not affect the nature of the Securities as equity securities representing
undivided beneficial interests in the assets of the Trust.

     SECTION 2.2 Lists of Holders of Securities.

     (a) The Sponsor and the Administrative Trustees on behalf of the Trust
shall provide the Property Trustee, unless the Property Trustee is Registrar for
the Securities (i) within 14 days after each record date for payment of
Distributions, a list, in such form as the Property Trustee may reasonably
require, of the names and addresses of the Holders ("List of Holders") as of
such record date, provided that neither the Sponsor nor the Administrative
Trustees on behalf of the Trust shall be obligated to provide such List of
Holders at any time the List of Holders does not differ from the most recent
List of Holders given to the Property Trustee by the Sponsor and the
Administrative Trustees on behalf of the Trust, and (ii) at any other time,
within 30 days of receipt by the Trust of a written request for a List of
Holders as of a date no more than 14 days before such List of Holders is given
to the Property Trustee. The Property Trustee shall preserve, in as current a
form as is reasonably practicable, all information contained in Lists of Holders
given to it or which it receives in the capacity as Paying Agent (if acting in
such capacity), provided that the Property Trustee may destroy any List of
Holders previously given to it on receipt of a new List of Holders.

     (b) The Property Trustee shall comply with its obligations under Sections
311(a), 311(b) and 312(b) of the Trust Indenture Act.

     SECTION 2.3 Reports by the Property Trustee.

<PAGE>

     Within 60 days after December 15 of each year, commencing December 15,
2002, the Property Trustee shall provide to the Holders of the Trust Preferred
Securities such reports as are required by Section 313 of the Trust Indenture
Act, if any, in the form and in the manner provided by Section 313 of the Trust
Indenture Act. The Property Trustee shall also comply with the requirements of
Section 313(d) of the Trust Indenture Act.

     SECTION 2.4 Periodic Reports to Property Trustee.

     Each of the Sponsor and the Administrative Trustees on behalf of the Trust
shall provide to the Property Trustee such documents, reports and information as
are required by Section 314 (if any) and the compliance certificate required by
Section 314 of the Trust Indenture Act in the form, in the manner and at the
times required by Section 314(a)(4) of the Trust Indenture Act.

     SECTION 2.5 Evidence of Compliance with Conditions Precedent.

     Each of the Sponsor and the Administrative Trustees on behalf of the Trust
shall provide to the Property Trustee such evidence of compliance with any
conditions precedent provided for in this Declaration that relate to any of the
matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate
or opinion required to be given by an officer pursuant to Section 314(c)(1) of
the Trust Indenture Act may be given in the form of an Officers' Certificate.

     SECTION 2.6 Events of Default; Waiver.

     (a) An Event of Default under either of the Indentures shall constitute an
Event of Default under this Declaration. As described below, so long as any
Trust Preferred Securities are outstanding, Holders of a Majority in liquidation
amount of the Trust Preferred Securities may direct the Property Trustee (i) to
exercise the remedies available to it as the sole holder of the Xerox Funding
Debentures and (ii) to direct Xerox Funding to exercise remedies available to
Xerox Funding as the sole holder of the Xerox Debentures.

     (b) The Holders of a Majority in liquidation amount of Trust Preferred
Securities may, by vote, on behalf of the Holders of all of the Trust Preferred
Securities, waive any past Event of Default in respect of the Trust Preferred
Securities and its consequences, provided that, if the underlying Event of
Default under the applicable Indenture:

          (i) is not waivable under such Indenture, the Event of Default under
     the Declaration shall also not be waivable; or

          (ii) requires the consent or vote of greater than a majority in
     aggregate principal amount of the holders of the Debentures (a "Super
     Majority") to be waived under such Indenture, the Event of Default under
     the Declaration may only be waived by the vote of the Holders of at least
     the proportion in aggregate liquidation amount of the Trust Preferred
     Securities that the relevant Super Majority represents of the aggregate
     principal amount of the Xerox Funding Debentures or Xerox Debentures as the
     case may be, outstanding.

The foregoing provisions of this Section 2.6(b) shall be in lieu of Section

<PAGE>

316(a)(1)(B) of the Trust Indenture Act and such Section 316(a)(1)(B) of the
Trust Indenture Act is hereby expressly excluded from this Declaration and the
Securities, as permitted by the Trust Indenture Act. Upon such waiver, any such
default shall cease to exist, and any Event of Default with respect to the Trust
Preferred Securities arising therefrom shall be deemed to have been cured, for
every purpose of this Declaration, but no such waiver shall extend to any
subsequent or other default or an Event of Default with respect to the Trust
Preferred Securities or impair any right consequent thereon. Any waiver by the
Holders of the Trust Preferred Securities of an Event of Default with respect to
the Trust Preferred Securities shall also be deemed to constitute a waiver by
the Holders of the Common Securities of any such Event of Default with respect
to the Common Securities for all purposes of this Declaration without any
further act, vote, or consent of the Holders of the Common Securities.

     The Holders of a Majority in liquidation amount of the Trust Preferred
Securities shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Property Trustee or to
direct the exercise of any trust or power conferred upon the Property Trustee,
including (x) the right to direct the Property Trustee to exercise the remedies
available to it as holder of the Xerox Funding Debentures and (y) the right to
direct the Property Trustee to direct Xerox Funding to exercise the remedies
available to Xerox Funding as a holder of the Xerox Debentures and, in each
case, the Property Trustee shall be protected in acting in accordance with such
directions; provided, however, that (subject to the provisions of Section 3.9)
the Property Trustee shall have the right to decline to follow any such
direction if the Property Trustee shall determine that the action so directed
would be unjustly prejudicial to the Holders not taking part in such direction
or if the Property Trustee, being advised by counsel, determines that the action
or proceeding so directed may not lawfully be taken or if the Property Trustee,
in good faith, by its board of directors or trustees, executive committee, or a
trust committee of directors or trustees and/or Responsible Officers, shall
determine that the action or proceedings so directed would involve the Property
Trustee in personal liability.

     (c) The Holders of a Majority in liquidation amount of the Common
Securities may, by vote, on behalf of the Holders of all of the Common
Securities, waive any past Event of Default with respect to the Common
Securities and its consequences, provided that, if the underlying Event of
Default under the applicable Indenture:

          (i) is not waivable under such Indenture, except where the Holders of
     the Common Securities are deemed to have waived such Event of Default under
     the Declaration as provided below in this Section 2.6(c), the Event of
     Default under the Declaration shall also not be waivable; or

          (ii) requires the consent or vote of a Super Majority to be waived,
     except where the Holders of the Common Securities are deemed to have waived
     such Event of Default under the Declaration as provided below in this
     Section 2.6(c), the Event of Default under the Declaration may only be
     waived by the vote of the Holders of at least the proportion in aggregate
     liquidation amount of the Common Securities that the relevant Super
     Majority represents of the aggregate principal amount of the Xerox Funding
     Debentures or Xerox Debentures, as the case may be, outstanding;

provided further, each Holder of Common Securities will be deemed to have

<PAGE>

waived any such Event of Default and all Events of Default with respect to the
Common Securities and its consequences if all Events of Default with respect to
the Trust Preferred Securities have been cured, waived or otherwise eliminated,
and until such Events of Default have been so cured, waived or otherwise
eliminated, the Property Trustee will be deemed to be acting solely on behalf of
the Holders of the Trust Preferred Securities and only the Holders of the Trust
Preferred Securities will have the right to direct the Property Trustee in
accordance with the terms of the Securities. The foregoing provisions of this
Section 2.6(c) shall be in lieu of Sections 316(a)(1)(A) and 316(a)(1)(B) of the
Trust Indenture Act and such Sections 316(a)(1)(A) and 316(a)(1)(B) of the Trust
Indenture Act are hereby expressly excluded from this Declaration and the
Securities, as permitted by the Trust Indenture Act. Subject to the foregoing
provisions of this Section 2.6(c), upon such waiver, any such default shall
cease to exist and any Event of Default with respect to the Common Securities
arising therefrom shall be deemed to have been cured for every purpose of this
Declaration, but no such waiver shall extend to any subsequent or other default
or Event of Default with respect to the Common Securities or impair any right
consequent thereon.

     (d) A waiver of an Event of Default under the Xerox Funding Indenture by
the Property Trustee and under the Xerox Indenture, by Xerox Funding, acting at
the direction of the Property Trustee, in each case, at the direction of the
Holders of the Trust Preferred Securities, constitutes a waiver of the
corresponding Event of Default under this Declaration. The foregoing provisions
of this Section 2.6(d) shall be in lieu of Section 316(a)(1)(B) of the Trust
Indenture Act and such Section 316(a)(1)(B) of the Trust Indenture Act is hereby
expressly excluded from this Declaration and the Securities, as permitted by the
Trust Indenture Act.

     SECTION 2.7 Event of Default; Notice.

     (a) The Property Trustee shall, within 90 days after the occurrence of an
Event of Default actually known to a Responsible Officer of the Property
Trustee, transmit by mail, first class postage prepaid, to the Holders a notice
of such default with respect to the Securities, unless such default has been
cured before the giving of such notice (the term "defaults" for the purposes of
this Section 2.7(a) being hereby defined to be an Event of Default as defined in
each of the Indentures, not including any periods of grace provided for therein
and irrespective of the giving of any notice provided therein); provided that,
except for a default in the payment or delivery of amounts due on or in respect
of any of the Debentures, the Property Trustee shall be protected in withholding
such notice if and so long as a Responsible Officer of the Property Trustee in
good faith determines that the withholding of such notice is in the interests of
the Holders.

     (b) The Property Trustee shall not be deemed to have knowledge of any
default except:

          (i) a default under Sections 5.01(a), 5.01(b) or 5.01(c) of each of
     the Indentures; or

          (ii) any default as to which the Property Trustee shall have received
     written notice or of which a Responsible Officer of the Property Trustee
     charged with the administration of the Declaration shall have actual
     knowledge.

     (c) Within five Business Days after the occurrence of any Event of

<PAGE>

Default actually known to the Property Trustee, the Property Trustee shall
transmit notice of such Event of Default to the holders of the Trust Preferred
Securities, the Administrative Trustees and the Sponsor, unless such Event of
Default shall have been cured or waived. The Sponsor and the Administrative
Trustees shall file annually with the Property Trustee a certification as to
whether or not they are in compliance with all the conditions and covenants
applicable to them under this Declaration.

                                   ARTICLE III
                                  ORGANIZATION

     SECTION 3.1 Name.

     The Trust is named "Xerox Capital Trust II" as such name may be modified
from time to time by the Administrative Trustees following written notice to the
Holders of Securities. The Trust's activities may be conducted under the name of
the Trust or any other name deemed advisable by the Administrative Trustees.

     SECTION 3.2 Office.

     The address of the principal office of the Trust is c/o Xerox Corporation,
P.O. Box 1600, 800 Long Ridge Road, Stamford, Connecticut 06904. On 10 Business
Days written notice to the Holders of Securities, the Administrative Trustees
may designate another principal office.

     SECTION 3.3 Purpose.

     The exclusive purposes and functions of the Trust are (a) to issue and sell
Securities, (b) use the proceeds from the sale of the Securities to acquire the
Xerox Funding Debentures, and (c) except as otherwise limited herein, to engage
in only those other activities necessary, advisable or incidental thereto. The
Trust shall not borrow money, issue debt or reinvest proceeds derived from
investments, mortgage or pledge any of its assets, or otherwise undertake (or
permit to be undertaken) any activity that would cause the Trust not to be
classified as a grantor trust, or in a manner that would have the same
consequences as classification as a grantor trust, for United States federal
income tax purposes.

     SECTION 3.4 Authority.

     Subject to the limitations provided in this Declaration and to the specific
duties of the Property Trustee, the Administrative Trustees shall have exclusive
and complete authority to carry out the purposes of the Trust. An action taken
by the Administrative Trustees in accordance with their powers shall constitute
the act of and serve to bind the Trust and an action taken by the Property
Trustee on behalf of the Trust in accordance with its powers shall constitute
the act of and serve to bind the Trust. In dealing with the Trustees acting on
behalf of the Trust, no person shall be required to inquire into the authority
of the Trustees to bind the Trust. Persons dealing with the Trust are entitled
to rely conclusively on the power and authority of the Trustees as set forth in
this Declaration.

     SECTION 3.5 Title to Property of the Trust.

     Except as provided in Section 3.8 with respect to the Xerox Funding
Debentures and the Property Trustee Account or as otherwise provided in this

<PAGE>

Declaration, legal title to all assets of the Trust shall be vested in the
Trust. The Holders shall not have legal title to any part of the assets of the
Trust, but shall have an undivided beneficial interest in the assets of the
Trust.

     SECTION 3.6 Powers and Duties of the Administrative Trustees.

     The Administrative Trustees shall have the exclusive power, duty and
authority to cause the Trust to engage in the following activities:

     (a) to execute, issue, deliver and sell the Securities in accordance with
this Declaration; provided, however, that (i) the Trust may issue no more than
one series of Trust Preferred Securities and no more than one series of Common
Securities, (ii) there shall be no interests in the Trust other than the
Securities, and (iii) the issuance of Securities shall be limited to a
simultaneous issuance of both Trust Preferred Securities and Common Securities
at the Closing Time;

     (b) in connection with the issue and sale of the Trust Preferred
Securities, at the direction of the Sponsor, to:

          (i) prepare and execute, if necessary, an offering memorandum (the
     "Offering Memorandum") in preliminary and final form prepared by the
     Sponsor, in relation to the offering and sale of Trust Preferred Securities
     to qualified institutional buyers in reliance on Rule 144A under the
     Securities Act;

          (ii) execute and file any documents prepared by the Sponsor, or take
     any acts as determined by the Sponsor to be necessary in order to qualify
     or register all or part of the Trust Preferred Securities in any State in
     which the Sponsor has determined to qualify or register such Trust
     Preferred Securities for sale;

          (iii) execute and deliver letters, documents, or instruments with DTC
     and other Clearing Agencies relating to the Trust Preferred Securities;

          (iv) execute and enter into the Purchase Agreement providing for the
     sale of the Trust Preferred Securities;

          (v) execute and enter into one or more purchase agreements providing
     for the sale of the Common Securities; and

          (vi) execute and enter into one or more purchase agreements providing
     for the purchase of the Xerox Funding Debentures;

     (c) to acquire the Xerox Funding Debentures with the proceeds of the sale
of the Securities; provided, however, that the Administrative Trustees shall
cause legal title to the Xerox Funding Debentures to be held of record in the
name of the Property Trustee for the benefit of the Holders;

     (d) to give the Sponsor and the Property Trustee prompt written notice of
the occurrence of a Special Event; provided, that the Administrative Trustees
shall consult with the Sponsor before taking or refraining from taking any
Ministerial Act in relation to a Special Event;

     (e) to establish a record date with respect to all actions to be taken

<PAGE>

hereunder that require a record date to be established, including and with
respect to, for the purposes of Section 316(c) of the Trust Indenture Act,
Distributions, voting rights, redemptions, exchanges, and to issue relevant
notices to the Holders of Trust Preferred Securities and Holders of Common
Securities as to such actions and applicable record dates;

     (f) to take all actions and perform such duties as may be required of the
Administrative Trustees pursuant to the terms of the Securities;

     (g) to bring or defend, pay, collect, compromise, arbitrate, resort to
legal action, or otherwise adjust claims or demands of or against the Trust
("Legal Action"), unless pursuant to Section 3.8(e), the Property Trustee has
the exclusive power to bring such Legal Action;

     (h) to employ or otherwise engage employees and agents (who may be
designated as officers with titles) and managers, contractors, advisors, and
consultants and pay reasonable compensation for such services;

     (i) to cause the Trust, consistent with the provisions hereof, to comply
with the Trust's obligations under the Trust Indenture Act;

     (j) to give the certificate required by Section 314(a)(4) of the Trust
Indenture Act to the Property Trustee, which certificate may be executed by any
Administrative Trustee;

     (k) to incur expenses that are necessary or incidental to carry out any of
the purposes of the Trust;

     (l) to act as, or appoint another Person to act as, Registrar, Exchange
Agent and Conversion Agent for the Securities or to appoint a Paying Agent for
the Securities as provided in Section 7.4 except for such time as such power to
appoint a Paying Agent is vested in the Property Trustee;

     (m)  to execute all documents or instruments, perform all duties and
powers, and do all things for and on behalf of the Trust in all matters
necessary or incidental to the foregoing;

     (n) to take all action that may be necessary or appropriate for the
preservation and the continuation of the Trust's valid existence, rights,
franchises and privileges as a statutory business trust under the laws of the
State of Delaware and of each other jurisdiction in which such existence is
necessary to protect the limited liability of the Holders of the Trust Preferred
Securities or to enable the Trust to effect the purposes for which the Trust was
created;

     (o) to take any action, not inconsistent with this Declaration or with
applicable law, that the Administrative Trustees determine in their discretion
to be necessary or desirable in carrying out the activities of the Trust as set
out in this Section 3.6, including, but not limited to:

          (i) causing the Trust not to be deemed to be an Investment Company
     required to be registered under the Investment Company Act;

          (ii) causing the Trust to be classified for United States federal
     income tax purposes as a grantor trust or in a manner that will have the
     same consequences as classification as a grantor trust; and

<PAGE>

          (iii) cooperating with the Debenture Issuers to ensure that the Xerox
     Funding Debentures will be treated as indebtedness of Xerox Funding and the
     Xerox Debentures will be treated as indebtedness of the Sponsor for United
     States federal income tax purposes; and

     (p) to take all action necessary to cause all applicable tax returns and
tax information reports that are required to be filed with respect to the Trust
to be duly prepared and filed by the Administrative Trustees, on behalf of the
Trust.

     The Administrative Trustees must exercise the powers set forth in this
Section 3.6 in a manner that is consistent with the purposes and functions of
the Trust set out in Section 3.3, and the Administrative Trustees shall not take
any action that is inconsistent with the purposes and functions of the Trust set
forth in Section 3.3.

     Subject to this Section 3.6, the Administrative Trustees shall have none of
the powers or the authority of the Property Trustee set forth in Section 3.8.

     Any expenses incurred by the Administrative Trustees pursuant to this
Section 3.6 shall be paid by the Sponsor.

     SECTION 3.7 Prohibition of Actions by the Trust and the Trustees.

     The Trust shall not, and the Trustees (including the Property Trustee)
shall cause the Trust not to engage in any activity other than as required or
authorized by this Declaration. The Trust shall not:

     (i) invest any proceeds received by the Trust from holding the Xerox
Funding Debentures, but shall distribute all such proceeds to Holders pursuant
to the terms of this Declaration and of the Securities;

     (ii) acquire any assets other than as expressly provided herein;

     (iii) possess Trust property for other than a Trust purpose;

     (iv) make any loans or incur any indebtedness other than loans represented
by the Xerox Funding Debentures;

     (v) possess any power or otherwise act in such a way as to vary the Trust
assets or the terms of the Securities in any way whatsoever;

     (vi) issue any securities or other evidences of beneficial ownership of, or
beneficial interest in, the Trust other than the Securities;

     (vii) other than as provided in this Declaration or Annex I, (A) direct the
time, method and place of conducting any proceeding with respect to any remedy
available to the Debenture Trustee under the Indentures, or exercising any trust
or power conferred upon the Debenture Trustee with respect to the respective
Debentures, (B) waive any past default that is waivable under the Indentures,
(C) exercise any right to rescind or annul any declaration that the principal of
all the Debentures shall be due and payable;

     (viii) consent to any amendment, modification or termination of the
Indentures or the Debentures where such consent shall be required unless the
Trust shall have received an opinion of a nationally recognized independent

<PAGE>

tax counsel experienced in such matters to the effect that, under then current
law and assuming full compliance with the terms of this Declaration and the
Indentures, the Trust will, for United States federal income tax purposes, be
classified as a grantor trust, or in a manner that will have the same
consequences as classification as a grantor trust, and will not be classified as
an association taxable as a corporation; or

     (ix) other than in connection with the liquidation of the Trust pursuant to
a Special Event or upon conversion, redemption or purchase of all outstanding
Trust Securities, file a certificate of cancellation of the Trust.

     SECTION 3.8 Powers and Duties of the Property Trustee.

     (a) The legal title to the Xerox Funding Debentures shall be owned by and
held of record in the name of the Property Trustee in trust for the benefit of
the Trust and the Holders. The right, title and interest of the Property Trustee
to the Xerox Funding Debentures shall vest automatically in each Person who may
hereafter be appointed as Property Trustee in accordance with Section 5.7. Such
vesting and cessation of title shall be effective whether or not conveyancing
documents with regard to the Xerox Funding Debentures have been executed and
delivered.

     (b) The Property Trustee shall not transfer its right, title and interest
in the Xerox Funding Debentures to the Administrative Trustees or to the
Delaware Trustee (if the Property Trustee does not also act as Delaware
Trustee).

     (c) The Property Trustee shall:

          (i) establish and maintain a segregated non-interest bearing trust
     account (the "Property Trustee Account") in the name of and under the
     exclusive control of the Property Trustee on behalf of the Holders and,
     upon the receipt of payments of funds made on or in respect of the Xerox
     Funding Debentures held by the Property Trustee, deposit such funds into
     the Property Trustee Account and make payments to the Holders of the Trust
     Preferred Securities and Holders of the Common Securities from the Property
     Trustee Account in accordance with Section 6.1. Funds in the Property
     Trustee Account shall be held uninvested until disbursed in accordance with
     this Declaration;

          (ii) engage in such ministerial activities as shall be necessary or
     appropriate to effect the redemption or repurchase of the Securities to the
     extent the Xerox Funding Debentures are redeemed, are repurchased or
     mature; and

          (iii) upon written notice of distribution issued by the Administrative
     Trustees in accordance with the terms of the Securities, engage in such
     ministerial activities as shall be necessary or appropriate to effect the
     distribution of the Debentures to Holders of Securities upon the occurrence
     of certain events.

     (d) The Property Trustee shall take all actions and perform such duties as
may be specifically required of the Property Trustee pursuant to the terms of
the Securities.

     (e) Subject to Section 3.9(a), the Property Trustee shall take any

<PAGE>

Legal Action which arises out of or in connection with an Event of Default of
which a Responsible Officer of the Property Trustee has actual knowledge or the
Property Trustee's duties and obligations under this Declaration or the Trust
Indenture Act and if such Property Trustee shall have failed to take such Legal
Action, the Holders of the Trust Preferred Securities may take such Legal
Action, to the same extent as if such Holders of Trust Preferred Securities held
an aggregate principal amount of Xerox Funding Debentures or Xerox Debentures
equal to the aggregate liquidation amount of such Trust Preferred Securities,
without first proceeding against the Property Trustee or the Trust; provided
however, that if an Event of Default has occurred and is continuing and such
event is attributable to the failure of either Debenture Issuer to pay or
deliver any amounts due on or in respect of the related Debentures on the date
such amounts are otherwise payable or deliverable (or in the case of redemption,
on the redemption date, or in the case of any purchase by the Trust, the
purchase date), then a Holder of Trust Preferred Securities may directly
institute a proceeding against such Debenture Issuer for enforcement of such
payment or delivery to such Holder on or in respect of such Debentures having a
principal amount equal to the aggregate liquidation amount of the Trust
Preferred Securities of such Holder (a "Direct Action") on or after the
respective due date specified in the respective Debentures. In connection with
such Direct Action, the rights of the Holders of the Common Securities will be
subrogated to the rights of such Holder of Trust Preferred Securities to the
extent of any payment made by a Debenture Issuer to such Holder of Trust
Preferred Securities in such Direct Action. Except as provided in the preceding
sentences of this Section 3.8(e), the Holders of Trust Preferred Securities will
not be able to exercise directly any other remedy available to the holders of
the Debentures.

     (f) The Property Trustee shall continue to serve as a Trustee until either:

          (i) the Trust has been completely liquidated and the proceeds of the
     liquidation distributed to the Holders pursuant to the terms of the
     Securities; or

          (ii) a successor Property Trustee has been appointed and has accepted
     that appointment in accordance with Section 5.7 (a "Successor Property
     Trustee").

     (g) The Property Trustee shall have the legal power to (i) exercise all of
the rights, powers and privileges of a holder of Xerox Funding Debentures under
the Xerox Funding Indenture and (ii) direct Xerox Funding to exercise all of the
rights, powers and privileges of a holder of Xerox Debentures at the direction
and for the benefit of the Holders, and, in each case, if an Event of Default
actually known to a Responsible Officer of the Property Trustee occurs and is
continuing, the Property Trustee shall, for the benefit of Holders, enforce such
rights subject to the rights of the Holders pursuant to the terms of the
Securities.

     (h) The Property Trustee shall be authorized to undertake any actions set
forth in Section 317(a) of the Trust Indenture Act.

     (i) For such time as the Property Trustee is the Paying Agent, the Property
Trustee may authorize one or more Persons to act as additional Paying Agents and
to pay Distributions, redemption payments, payments in respect of Purchase Price
or Change in Control Purchase Price or liquidation payments on behalf of the
Trust with respect to all Securities and any such

<PAGE>

Paying Agent shall comply with Section 317(b) of the Trust Indenture Act. Any
such additional Paying Agent may be removed by the Property Trustee at any time
the Property Trustee remains as Paying Agent and a successor Paying Agent or
additional Paying Agents may be (but are not required to be) appointed at any
time by the Property Trustee while the Property Trustee is so acting as Paying
Agent.

     (j) Subject to this Section 3.8, the Property Trustee shall have none of
the duties, liabilities, powers or the authority of the Administrative Trustees
set forth in Section 3.6.

     The Property Trustee must exercise the powers set forth in this Section 3.8
in a manner that is consistent with the purposes and functions of the Trust set
out in Section 3.3, and the Property Trustee shall not take any action that is
inconsistent with the purposes and functions of the Trust set out in Section
3.3.

     SECTION 3.9 Certain Duties and Responsibilities of the Property Trustee.

     (a) The Property Trustee, before the occurrence of any Event of Default and
after the curing of all Events of Default that may have occurred, shall
undertake to perform only such duties as are specifically set forth in this
Declaration and in the Securities and no implied covenants shall be read into
this Declaration against the Property Trustee. In case an Event of Default has
occurred (that has not been cured or waived pursuant to Section 2.6) of which a
Responsible Officer of the Property Trustee has actual knowledge, the Property
Trustee shall exercise such of the rights and powers vested in it by this
Declaration, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs.

     (b) No provision of this Declaration shall be construed to relieve the
Property Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that:

          (i) prior to the occurrence of an Event of Default and after the
     curing or waiving of all such Events of Default that may have occurred:

               (A) the duties and obligations of the Property Trustee shall be
          determined solely by the express provisions of this Declaration and in
          the Securities and the Property Trustee shall not be liable except for
          the performance of such duties and obligations as are specifically set
          forth in this Declaration and in the Securities, and no implied
          covenants or obligations shall be read into this Declaration or the
          Securities against the Property Trustee; and

               (B) in the absence of bad faith on the part of the Property
          Trustee, the Property Trustee may conclusively rely, as to the truth
          of the statements and the correctness of the opinions expressed
          therein, upon any certificates or opinions furnished to the Property
          Trustee and conforming to the requirements of this Declaration;
          provided, however, that in the case of any such certificates or
          opinions that by any provision hereof are Property Trustee shall be
          under a duty to examine the same to determine whether or not they
          conform to the requirements of this Declaration;

<PAGE>

          (ii) the Property Trustee shall not be liable for any error of
     judgment made in good faith by a Responsible Officer of the Property
     Trustee, unless it shall be proved that the Property Trustee was negligent
     in ascertaining the pertinent facts;

          (iii) the Property Trustee shall not be liable with respect to any
     action taken or omitted to be taken by it in good faith in accordance with
     the direction of the Holders of not less than a Majority in liquidation
     amount of the Trust Preferred Securities relating to the time, method and
     place of conducting any proceeding for any remedy available to the Property
     Trustee, or exercising any trust or power conferred upon the Property
     Trustee under this Declaration;

          (iv) no provision of this Declaration shall require the Property
     Trustee to expend or risk its own funds or otherwise incur personal
     financial liability in the performance of any of its duties or in the
     exercise of any of its rights or powers, if it shall have reasonable
     grounds for believing that the repayment of such funds or liability is not
     reasonably assured to it under the terms of this Declaration or indemnity
     reasonably satisfactory to the Property Trustee against such risk or
     liability is not reasonably assured to it;

          (v) the Property Trustee's sole duty with respect to the custody, safe
     keeping and physical preservation of the Xerox Funding Debentures and the
     Property Trustee Account shall be to deal with such property in a similar
     manner as the Property Trustee deals with similar property for its own
     account, subject to the protections and limitations on liability afforded
     to the Property Trustee under this Declaration and the Trust Indenture Act;

          (vi) the Property Trustee shall have no duty or liability for or with
     respect to the value, genuineness, existence or sufficiency of the Xerox
     Funding Debentures or the Xerox Debentures or the payment of any taxes or
     assessments levied thereon or in connection therewith;

          (vii) the Property Trustee shall not be liable for any interest on any
     money received by it except as it may otherwise agree in writing with the
     Sponsor. Money held by the Property Trustee need not be segregated from
     other funds held by it except in relation to the Property Trustee Account
     maintained by the Property Trustee pursuant to Section 3.8(c)(i) and except
     to the extent otherwise required by law; and

          (viii) the Property Trustee shall not be responsible for monitoring
     the compliance by the Administrative Trustees or the Sponsor with their
     respective duties under this Declaration, nor shall the Property Trustee be
     liable for any default or misconduct of the Administrative Trustees or the
     Sponsor.

     SECTION 3.10 Certain Rights of Property Trustee.

     (a) Subject to the provisions of Section 3.9:

          (i) the Property Trustee may conclusively rely on and shall be fully
     protected in acting or refraining from acting upon any resolution,
     certificate, statement, instrument, opinion, report, notice, request,

<PAGE>

     direction, consent, order, bond, debenture, note, other evidence of
     indebtedness or other paper or document believed by it to be genuine and to
     have been signed, sent or presented by the proper party or parties;

          (ii) any direction or act of the Sponsor or the Administrative
     Trustees contemplated by this Declaration may be sufficiently evidenced by
     an Officers' Certificate;

          (iii) whenever in the administration of this Declaration, the Property
     Trustee shall deem it desirable that a matter be proved or established
     before taking, suffering or omitting any action hereunder, the Property
     Trustee (unless other evidence is herein specifically prescribed) may, in
     the absence of bad faith on its part, request and conclusively rely upon an
     Officers' Certificate which, upon receipt of such request, shall be
     promptly delivered by the Sponsor or the Administrative Trustees;

          (iv) the Property Trustee shall have no duty to see to any recording,
     filing or registration of any instrument (including any financing or
     continuation statement or any filing under tax or securities laws) or any
     re-recording, refiling or registration thereof;

          (v) the Property Trustee may consult with counsel or other experts of
     its selection and the advice or opinion of such counsel and experts with
     respect to legal matters or advice within the scope of such experts' area
     of expertise shall be full and complete authorization and protection in
     respect of any action taken, suffered or omitted by it hereunder in good
     faith and in accordance with such advice or opinion, such counsel may be
     counsel to the Sponsor or any of its Affiliates, and may include any of its
     employees. The Property Trustee shall have the right at any time to seek
     instructions concerning the administration of this Declaration from any
     court of competent jurisdiction;

          (vi) the Property Trustee shall be under no obligation to exercise any
     of the rights or powers vested in it by this Declaration at the request or
     direction of any Holder, unless such Holder shall have provided to the
     Property Trustee security and indemnity, reasonably satisfactory to the
     Property Trustee, against the costs, expenses (including reasonable
     attorneys' fees and expenses and the expenses of the Property Trustee's
     agents, nominees or custodians) and liabilities that might be incurred by
     it in complying with such request or direction, including such reasonable
     advances as may be requested by the Property Trustee provided, that,
     nothing contained in this Section 3.10(a)(vi) shall be taken to relieve the
     Property Trustee, upon the occurrence of an Event of Default, of its
     obligation to exercise the rights and powers vested in it by this
     Declaration;

          (vii) the Property Trustee shall not be bound to make any
     investigation into the facts or matters stated in any resolution,
     certificate, statement, instrument, opinion, report, notice, request,
     direction, consent, order, bond, debenture, note, other evidence of
     indebtedness or other paper or document, but the Property Trustee, in its
     discretion, may make such further inquiry or investigation into such facts
     or matters as it may see fit;

          (viii) the Property Trustee may execute any of the trusts or powers
     hereunder or perform any duties hereunder either directly or by or

<PAGE>

     through agents, custodians, nominees or attorneys and the Property Trustee
     shall not be responsible for any misconduct or negligence on the part of
     any agent or attorney appointed with due care by it hereunder;

          (ix) any authorized or required action taken by the Property Trustee
     or its agents hereunder shall bind the Trust and the Holders of the
     Securities, and the signature of the Property Trustee or its agents alone
     shall be sufficient and effective to perform any such action and no third
     party shall be required to inquire as to the authority of the Property
     Trustee to so act or as to its compliance with any of the terms and
     provisions of this Declaration, both of which shall be conclusively
     evidenced by the Property Trustee's or its agent's taking such action;

          (x) whenever in the administration of this Declaration the Property
     Trustee shall deem it desirable to receive instructions with respect to
     enforcing any remedy or right or taking any other action hereunder, the
     Property Trustee (i) may request instructions from the Holders which '
     instructions may only be given by the Holders of the same proportion in
     liquidation amount of the Securities as would be entitled to direct the
     Property Trustee under the terms of the Securities in respect of such
     remedy, right or action, (ii) may refrain from enforcing such remedy or
     right or taking such other action until such instructions are received, and
     (iii) shall be protected in conclusively relying on or acting in or
     accordance with such instructions;

          (xi) except as otherwise expressly provided by this Declaration, the
     Property Trustee shall not be under any obligation to take any action that
     is discretionary under the provisions of this Declaration; and

          (xii) the Property Trustee shall not be liable for any action taken,
     suffered, or omitted to be taken by it in good faith, without negligence,
     and reasonably believed by it to be authorized or within the discretion or
     rights or powers conferred upon it by this Declaration.

     (b) No provision of this Declaration shall be deemed to impose any duty or
obligation on the Property Trustee to perform any act or acts or exercise any
right, power, duty or obligation conferred or imposed on it, in any jurisdiction
in which it shall be illegal, or in which the Property Trustee shall be
unqualified or incompetent in accordance with applicable law, to perform any
such act or acts, or to exercise any such right, power, duty or obligation. No
permissive power or authority available to the Property Trustee shall be
construed to be a duty.

     SECTION 3.11. Delaware Trustee.

     Notwithstanding any other provision of this Declaration other than Section
5.2, the Delaware Trustee shall not be entitled to exercise any powers, nor
shall the Delaware Trustee have any of the duties and responsibilities of the
Administrative Trustees, the Property Trustee or the Trustees generally (except
as may be required by the Business Trust Act) described in this Declaration.
Except as set forth in Section 5.2, the Delaware Trustee shall be a Trustee for
the sole and limited purpose of fulfilling the requirements of Section 3807 of
the Business Trust Act.

     SECTION 3.12 Execution of Documents.

     Unless otherwise required by applicable law, each Administrative Trustee

<PAGE>

is authorized to execute and deliver on behalf of the Trust any documents that
the Administrative Trustees have the power and authority to execute pursuant to
Section 3.6.

     SECTION 3.13 Not Responsible for Recitals or Issuance of Securities.

     The recitals contained in this Declaration and the Securities shall be
taken as the statements of the Sponsor, and the Trustees do not assume any
responsibility for their correctness. The Trustees make no representations as to
the value or condition of the property of the Trust or any part thereof. The
Trustees make no representations as to the validity or sufficiency of this
Declaration or the Securities.

     SECTION 3.14 Duration of Trust.

     The Trust, unless terminated pursuant to the provisions of Article VIII
hereof, shall have existence up to November 27, 2041.

     SECTION 3.15 Mergers.

     (a) The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, except as described in Section
3.15(b) and (c).

     (b) The Trust may, at the request of the Sponsor, with the consent of the
Administrative Trustees or, if there are more than two, a majority of the
Administrative Trustees and without the consent of the Holders, the Delaware
Trustee or the Property Trustee, merge with or into, consolidate, amalgamate, or
be replaced by, or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to, a trust organized as such under the
laws of any State; provided that:

          (i) such successor entity (the "Successor Entity") either:

               (A) expressly assumes all of the obligations of the Trust under
          the Securities; or

               (B) substitutes for the Securities other securities having
          substantially the same terms as the Securities (the "Successor
          Securities") so long as the Successor Securities rank the same as the
          Securities rank with respect to Distributions and payments upon
          liquidation, redemption and otherwise;

          (ii) the Sponsor expressly appoints a trustee of the Successor Entity
     that possesses the same powers and duties as the Property Trustee as the
     Holder of the Xerox Funding Debentures;

          (iii) the Successor Securities are listed, or any Successor Securities
     will be listed upon notification of issuance, on any national securities
     exchange or with another organization on which the Trust Preferred
     Securities are then listed or quoted;

          (iv) such merger, consolidation, amalgamation, replacement,
     conveyance, transfer or lease does not cause the Trust Preferred Securities
     (including any Successor Securities) to be downgraded by any nationally
     recognized statistical rating organization;

<PAGE>

          (v) such merger, consolidation, amalgamation, replacement, conveyance,
     transfer or lease does not adversely affect the rights, preferences and
     privileges of the Holders (including any Successor Securities) in any
     material respect (other than with respect to any dilution of such Holders'
     interests in the new entity);

          (vi) such Successor Entity has a purpose substantially identical to
     that of the Trust;

          (vii) prior to such merger, consolidation, amalgamation, replacement,
     conveyance, transfer or lease, the Sponsor has received an opinion of an
     independent counsel to the Trust experienced in such matters to the effect
     that:

               (A) such merger, consolidation, amalgamation, replacement,
          conveyance, transfer or lease does not adversely affect the rights,
          preferences and privileges of the Holders (including any Successor
          Securities) in any material respect (other than with respect to any
          dilution of the Holders' interest in the new entity);

               (B) following such merger, consolidation, amalgamation,
          replacement, conveyance, transfer or lease, neither the Trust nor the
          Successor Entity will be required to register as an Investment Company
          under the Investment Company Act; and

               (C) following such merger, consolidation, amalgamation,
          replacement, conveyance, transfer or lease, the Trust (or the
          Successor Entity, as the case may be) will be treated as a grantor
          trust for United States federal income tax purposes; and

          (viii) the Sponsor or any permitted successor or assignee owns all of
     the common securities of such Successor Entity and guarantees the
     obligations of such Successor Entity under the Successor Securities at
     least to the extent provided by the Trust Preferred Securities Guarantee
     and the Common Securities Guarantee.

     (c) Notwithstanding Section 3.15(b), the Trust shall not, except with the
consent of Holders of 100% in liquidation amount of the Securities, consolidate,
amalgamate, merge with or into, or be replaced by, or convey, transfer or lease
its properties and assets as an entirety or substantially as an entirety to, any
other entity or permit any other entity to consolidate, amalgamate, merge with
or into, or replace it if such consolidation, amalgamation, merger, replacement,
conveyance, transfer or lease would cause the Trust or the Successor Entity not
to be classified as a grantor trust or in a manner that has the same
consequences as classification as a grantor trust, for United States federal
income tax purposes.

     SECTION 3.16 Compensation.

     (a) The Sponsor agrees:

          (i) to pay each of the Trustees from time to time such compensation
     for all services rendered by such Trustee hereunder as the Sponsor and such
     Trustee may agree upon from time to time (which compensation shall not be
     limited by any provision of law in regard to the compensation of

<PAGE>

     a trustee of an express trust). To the fullest extent possible the parties
     intend that Section 3561 of Title 12 of the Delaware Code shall not apply
     to the Trust and that compensation paid pursuant to this Section 3.16(a)
     not be subject to review by any court under Section 3560 of Title 12 of the
     Delaware Code;

          (ii) except as otherwise expressly provided herein, to reimburse the
     Trustees upon request for all reasonable expenses, disbursements and
     advances incurred or made by the Trustees in accordance with any provision
     of this Declaration (including the reasonable compensation and the expenses
     and disbursements of its agents and counsel), except any such expenses,
     disbursement or advance as may be attributable to its gross negligence or
     bad faith; and

     (b) Each of the Trustees hereby agrees that it shall not claim any lien or
charge on any trust property as a result of any amount due pursuant to this
Section 3.16. The provisions of this Section 3.16 shall survive the dissolution
of the Trust and the termination of this Declaration and the removal or
resignation of any Trustee.

                                   ARTICLE IV
                                     SPONSOR

     SECTION 4.1. Sponsor's Purchase of Common Securities.

     At the Closing Time, the Sponsor will purchase all of the Common Securities
then issued by the Trust, in an amount at least equal to 3% of the capital of
the Trust (as determined as of the Closing Time), at the same time as the Trust
Preferred Securities are issued and sold.

     SECTION 4.2. Responsibilities of the Sponsor.

     In connection with the issue and sale of the Trust Preferred Securities,
the Sponsor shall have the exclusive right and responsibility to engage in the
following activities:

     (a) to prepare the Offering Memorandum;

     (b) to determine the States in which to take appropriate action to qualify
or register for sale all or part of the Trust Preferred Securities and to do any
and all such acts, other than actions which must be taken by the Trust, and
advise the Trust of actions it must take, and prepare for execution and filing
any documents to be executed and filed by the Trust, as the Sponsor deems
necessary or advisable in order to comply with the applicable laws of any such
States;

     (c) to negotiate the terms of the Purchase Agreement providing for the sale
of the Trust Preferred Securities;

     (d) to negotiate the terms of one or more purchase agreements providing for
the sale of the Common Securities; and

     (e) to negotiate the terms of one or more purchase agreements providing for
the purchase of the Xerox Funding Debentures.

     SECTION 4.3 Right to Proceed.

<PAGE>

     The Sponsor acknowledges the rights of the Holders of Trust Preferred
Securities, in the event that a failure of the Trust to pay Distributions on the
Trust Preferred Securities is attributable to the failure of the Sponsor to pay
interest or principal on the Xerox Debentures, to institute a proceeding
directly against the Sponsor for enforcement of its payment obligations on the
Xerox Debentures.

                                    ARTICLE V
                                    TRUSTEES

     Section 5.1 Number of Trustees: Appointment of Co-Trustee.

     The number of Trustees initially shall be five (5), and:

     (a) at any time before the issuance of any Securities, the Sponsor may, by
written instrument, increase or decrease the number of Trustees; and

     (b) after the issuance of any Securities, the number of Trustees may be
increased or decreased by vote of the Holders of a majority in liquidation
amount of the Common Securities voting as a class at a meeting of the Holders of
the Common Securities;

provided, however, that, the number of Trustees shall in no event be less than
two (2); provided further that (1) one Trustee, in the case of a natural person,
shall be a person who is a resident of the State of Delaware or that, if not a
natural person, is an entity which has its principal place of business in the
State of Delaware (the "Delaware Trustee"); (2) there shall be at least one
Trustee who is an employee or officer of, or is affiliated with the Sponsor (an
"Administrative Trustee"); and (3) one Trustee shall be the Property Trustee for
so long as this Declaration is required to qualify as an indenture under the
Trust Indenture Act, and such Trustee may also serve as Delaware Trustee if it
meets the applicable requirements. Notwithstanding the above, unless an Event of
Default shall have occurred and be continuing, at any time or times, for the
purpose of meeting the legal requirements of the Trust Indenture Act or of any
jurisdiction in which any part of the Trust's property may at the time be
located, the Holders of a Majority in liquidation amount of the Common
Securities acting as a class at a meeting of the Holders of the Common
Securities, and the Administrative Trustees shall have power to appoint one or
more persons either to act as a co-trustee, jointly with the Property Trustee,
of all or any part of the Trust's property, or to act as separate trustee of any
such property, in either case with such powers as may be provided in the
instrument of appointment, and to vest in such person or persons in such
capacity any property, title, right or power deemed necessary or desirable,
subject to the provisions of this Declaration. In case an Event of Default has
occurred and is continuing, the Property Trustee alone shall have power to make
any such appointment of a co-trustee.

     SECTION 5.2 Delaware Trustee.

     If required by the Business Trust Act, one Trustee (the "Delaware Trustee")
shall be:

     (a) a natural person who is a resident of the State of Delaware; or

     (b) if not a natural person, an entity which has its principal place of
business in the State of Delaware, and otherwise meets the requirements of

<PAGE>

applicable law, provided that, if the Property Trustee has its principal place
of business in the State of Delaware and otherwise meets the requirements of
applicable law, then the Property Trustee shall also be the Delaware Trustee and
Section 3.11 shall have no application.

     SECTION 5.3 Property Trustee; Eligibility.

     (a) There shall at all times be one Trustee (the "Property Trustee") which
shall act as Property Trustee which shall:

          (i) not be an Affiliate of the Sponsor; and

          (ii) be a corporation organized and doing business under the laws of
     the United States of America or any State or Territory thereof or of the
     District of Columbia, or a corporation or Person permitted by the
     Commission to act as an institutional trustee under the Trust Indenture
     Act, authorized under such laws to exercise corporate trust powers, having
     a combined capital and surplus of at least 50 million U.S. dollars
     ($50,000,000), and subject to supervision or examination by Federal, State,
     Territorial or District of Columbia authority. If such corporation
     publishes reports of condition at least annually, pursuant to law or to the
     requirements of the supervising or examining authority referred to above,
     then for the purposes of this Section 5.3(a)(ii), the combined capital and
     surplus of such corporation shall be deemed to be its combined capital and
     surplus as set forth in its most recent report of condition so published.

     (b) If at any time the Property Trustee shall cease to be eligible to so
act under Section 5.3(a), the Property Trustee shall immediately resign in the
manner and with the effect set forth in Section 5.7(c).

     (c) If the Property Trustee has or shall acquire any "conflicting interest"
within the meaning of Section 310(b) of the Trust Indenture Act, the Property
Trustee and the Holder of the Common Securities (as if it were the obligor
referred to in Section 310(b) of the Trust Indenture Act) shall in all respects
comply with the provisions of Section 310(b) of the Trust Indenture Act.

     (d) The Trust Securities Guarantee shall be deemed to be specifically
described in this Declaration for purposes of clause (i) of the first provision
contained in Section 310(b) of the Trust Indenture Act.

     (e) The initial Property Trustee shall be:

         Wells Fargo Bank Minnesota, National Association
         Sixth and Marquette
         MAC N9303-120
         Minneapolis, Minnesota 55479
         Attention: Corporate Trust Services

     SECTION 5.4 Certain Qualifications of Administrative Trustees and Delaware
Trustee Generally.

     Each Administrative Trustee and the Delaware Trustee (unless the Property
Trustee also acts as Delaware Trustee) shall be either a natural person who is
at least 21 years of age or a legal entity that shall act through one or more
Authorized Officers.

<PAGE>

     SECTION 5.5 Administrative Trustees.

The initial Administrative Trustees shall be:

                         Gregory B. Tayler
                         Timothy MacCarrick
                         Navin M. Chheda

     (a) Except as expressly set forth in this Declaration and except if a
meeting of the Administrative Trustees is called with respect to any matter over
which the Administrative Trustees have power to act, any power of the
Administrative Trustees may be exercised by, or with the consent of, any one
such Administrative Trustee.

     (b) Unless otherwise determined by the Administrative Trustees, and except
as otherwise required by the Business Trust Act or applicable law, any
Administrative Trustee is authorized to execute on behalf of the Trust any
documents which the Administrative Trustees have the power and authority to
cause the Trust to execute pursuant to Section 3.6; and

     (c) An Administrative Trustee may, by power of attorney consistent with
applicable law, delegate to any other natural person over the age of 21 his or
her power for the purposes of signing any documents which the Administrative
Trustees have power and authority to cause the Trust to execute pursuant to
Section 3.6.

     SECTION 5.6 Delaware Trustee.

     The initial Delaware Trustee shall be:

                         Wilmington Trust Company
                         Rodney Square North
                         1100 North Market Street
                         Wilmington, Delaware 19890
                         Attention: Corporate Trust Administration
                         Fax: (302) 651-8882

     SECTION 5.7 Appointment, Removal and Resignation of Trustees.

     (a) Subject to Section 5.7(b) of this Declaration and to Section 9(b) of
Annex I hereto, Trustees may be appointed or removed without cause at any time:

          (i) until the issuance of any Securities, by written instrument
     executed by the Sponsor;

          (ii) unless an Event of Default shall have occurred and be continuing
     after the issuance of any Securities, by vote of the Holders of a Majority
     in liquidation amount of the Common Securities voting as a class at a
     meeting of the Holders of the Common Securities; and

          (iii) if an Event of Default shall have occurred and be continuing
     after the issuance of the Securities, with respect to the Property Trustee
     or the Delaware Trustee, by vote of Holders of a Majority in liquidation
     amount of the Trust Preferred Securities voting as a class at a meeting of
     Holders of the Trust Preferred Securities.

<PAGE>

     (b)  (i) The Trustee that acts as Property Trustee shall not be removed
     in accordance with Section 5.7(a) until a Successor Property Trustee has
     been appointed and has accepted such appointment by written instrument
     executed by such Successor Property Trustee and delivered to the
     Administrative Trustees and the Sponsor; and

          (ii) the Trustee that acts as Delaware Trustee shall not be removed in
     accordance with this Section 5.7(a) until a successor Trustee possessing
     the qualifications to act as Delaware Trustee under Sections 5.2 and 5.4 (a
     "Successor Delaware Trustee") has been appointed and has accepted such
     appointment by written instrument executed by such Successor Delaware
     Trustee and delivered to the Administrative Trustees and the Sponsor.

     (c) A Trustee appointed to office shall hold office until his successor
     shall have been appointed or until his death, removal or resignation. Any
Trustee may resign from office (without need for prior or subsequent accounting)
by an instrument in writing signed by the Trustee and delivered to the Sponsor
and the Trust, which resignation shall take effect upon such delivery or upon
such later date as is specified therein; provided, however, that:

          (i) No such resignation of the Trustee that acts as the Property
     Trustee shall be effective:

               (A) until a Successor Property Trustee has been appointed and has
          accepted such appointment by instrument executed by such Successor
          Property Trustee and delivered to the Trust, the Sponsor and the
          resigning Property Trustee; or

               (B) until the assets of the Trust have been completely liquidated
          and the proceeds thereof distributed to the holders of the Securities;
          and

          (ii) no such resignation of the Trustee that acts as the Delaware
     Trustee shall be effective until a Successor Delaware Trustee has been
     appointed and has accepted such appointment by instrument executed by such
     Successor Delaware Trustee and delivered to the Trust, the Sponsor and the
     resigning Delaware Trustee.

     (d) The Holders of the Common Securities shall use their best efforts to
promptly appoint a Successor Delaware Trustee or Successor Property Trustee, as
the case may be, if the Property Trustee or the Delaware Trustee delivers an
instrument of resignation in accordance with this Section 5.7.

     (e) If no Successor Property Trustee or Successor Delaware Trustee shall
have been appointed and accepted appointment as provided in this Section 5.7
within 60 days after delivery of an instrument of resignation or removal, the
Property Trustee or Delaware Trustee resigning or being removed, as applicable,
may petition any court of competent jurisdiction for appointment of a Successor
Property Trustee or Successor Delaware Trustee. Such court may thereupon, after
prescribing such notice, if any, as it may deem proper and prescribe, appoint a
Successor Property Trustee or Successor Delaware Trustee, as the case may be.

     (f) No Property Trustee or Delaware Trustee shall be liable for the

<PAGE>

acts or omissions to act of any Successor Property Trustee or successor Delaware
Trustee, as the case may be.

     SECTION 5.8 Vacancies among Trustees.

     If a Trustee ceases to hold office for any reason and the number of
Trustees is not reduced pursuant to Section 5.1, or if the number of Trustees is
increased pursuant to Section 5.1, a vacancy shall occur. A resolution
certifying the existence of such vacancy by the Administrative Trustees or, if
there are more than two, a majority of the Administrative Trustees shall be
conclusive evidence of the existence of such vacancy. The vacancy shall be
filled with a Trustee appointed in accordance with Section 5.7.

     SECTION 5.9 Effect of Vacancies.

     The death, resignation, retirement, removal, bankruptcy, dissolution,
liquidation, incompetence or incapacity to perform the duties of a Trustee shall
not operate to dissolve, terminate or annul the Trust. Whenever a vacancy in the
number of Administrative Trustees shall occur, until such vacancy is filled by
the appointment of an Administrative Trustee in accordance with Section 5.7, the
Administrative Trustees in office, regardless of their number, shall have all
the powers granted to the Administrative Trustees and shall discharge all the
duties imposed upon the Administrative Trustees by this Declaration.

     SECTION 5.10 Meetings.

     If there is more than one Administrative Trustee, meetings of the
Administrative Trustees shall be held from time to time upon the call of any
Administrative Trustee. Regular meetings of the Administrative Trustees may be
held at a time and place fixed by resolution of the Administrative Trustees.
Notice of any in-person meetings of the Administrative Trustees shall be hand
delivered or otherwise delivered in writing (including by facsimile, with a hard
copy by overnight courier) not less than 24 hours before such meeting. Notice of
any telephonic meetings of the Administrative Trustees or any committee thereof
shall be hand delivered or otherwise delivered in writing (including by
facsimile, with a hard copy by overnight courier) not less than 24 hours before
a meeting. Notices shall contain a brief statement of the time, place and
anticipated purposes of the meeting. The presence (whether in person or by
telephone) of an Administrative Trustee at a meeting shall constitute a waiver
of notice of such meeting except where an Administrative Trustee attends a
meeting for the express purpose of objecting to the transaction of any activity
on the ground that the meeting has not been lawfully called or convened. Unless
provided otherwise in this Declaration, any action of the Administrative
Trustees may be taken at a meeting by vote of a majority of the Administrative
Trustees present (whether in person or by telephone) and eligible to vote with
respect to such matter, provided that a Quorum is present, or without a meeting
by the unanimous written consent of the Administrative Trustees. In the event
there is only one Administrative Trustee, any and all action of such
Administrative Trustee shall be evidenced by a written consent of such
Administrative Trustee.

     SECTION 5.11 Delegation of Power.

     (a) Any Administrative Trustee may, by power of attorney consistent with
applicable law, delegate to any other natural person over the age of 21 his or
her power for the purpose of executing any documents contemplated in

<PAGE>

Section 3.6, or making any other governmental filing; and

     (b) the Administrative Trustees shall have power to delegate from time to
time to such of their number or to officers of the Trust the doing of such
things and the execution of such instruments either in the name of the Trust or
the names of the Administrative Trustees or otherwise as the Administrative
Trustees may deem expedient, to the extent such delegation is not prohibited by
applicable law or contrary to the provisions of the Trust, as set forth herein.

     SECTION 5.12 Merger, Conversion, Consolidation or Succession to Business.

     Any corporation into which the Property Trustee or the Delaware Trustee or
any Administrative Trustee that is not a natural person, as the case may be, may
be merged or converted or with which it may be consolidated, or any corporation
resulting from any merger, conversion or consolidation to which the Property
Trustee or the Delaware Trustee, as the case may be, shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Property Trustee, the Delaware Trustee, or the Administrative Trustee, as
the case may be, shall be the successor of the Property Trustee or the Delaware
Trustee, as the case may be, hereunder, provided such corporation shall be
otherwise qualified and eligible under this Article, without the execution or
filing of any paper or any further act on the part of any of the parties hereto.

                                   ARTICLE VI
                                  DISTRIBUTIONS

SECTION 6.1 Distributions.

     Holders shall receive Distributions in accordance with the applicable terms
of the relevant Holder's Securities. If and to the extent that Xerox Funding
makes a payment of interest (including Additional Interest (as defined in the
Xerox Funding Indenture)), premium and/or principal or delivers Common Stock
(and any payment of cash in respect of any fractional share thereof) on or in
respect of the Xerox Funding Debentures held by the Property Trustee (the amount
of any such payment being a "Payment Amount"), the Property Trustee shall and is
directed, to the extent funds or Common Stock are available for that purpose, to
make a distribution (a "Distribution") of the Payment Amount to Holders.

                                   ARTICLE VII
                             ISSUANCE OF SECURITIES

     SECTION 7.1 General Provisions Regarding Securities.

     (a) The Administrative Trustees shall on behalf of the Trust issue one
class of preferred securities representing undivided beneficial interests in the
assets of the Trust having such terms as are set forth in Annex I (the "Trust
Preferred Securities") and one class of common securities representing undivided
beneficial interests in the assets of the Trust having such terms as are set
forth in Annex I (the "Common Securities"). The Trust shall issue no securities
or other interests in the assets of the Trust other than the Securities.

     (b) The consideration received by the Trust for the issuance of the

<PAGE>

Securities shall constitute a contribution to the capital of the Trust and shall
not constitute a loan to the Trust.

     (c) Upon issuance of the Securities as provided in this Declaration, the
Securities so issued shall be deemed to be validly issued, fully paid and
non-assessable undivided beneficial interests in the assets of the Trust.

     (d) Every Person, by virtue of having become a Holder or a Trust Preferred
Security Beneficial Owner in accordance with the terms of this Declaration,
shall be deemed to have expressly assented and agreed to the terms of, and shall
be bound by, this Declaration.

     SECTION 7.2 Execution and Authentication.

     (a) The Securities shall be signed on behalf of the Trust by an
Administrative Trustee. In case any Administrative Trustee of the Trust who
shall have signed any of the Securities shall cease to be such Administrative
Trustee before the Securities so signed shall be delivered by the Trust, such
Securities nevertheless may be delivered as though the person who signed such
Securities had not ceased to be such Administrative Trustee; and any Securities
may be signed on behalf of the Trust by such persons who, at the actual date of
execution of such Security, shall be the Administrative Trustees of the Trust,
although at the date of the execution and delivery of the Declaration any such
person was not such a Administrative Trustee.

     (b) One Administrative Trustee shall sign the Trust Preferred Securities
for the Trust by manual or facsimile signature. Unless otherwise determined by
the Trust, such signature shall, in the case of Common Securities, be a manual
signature.

     A Trust Preferred Security shall not be valid until authenticated by the
manual signature of an authorized signatory of the Property Trustee. The
signature shall be conclusive evidence that the Trust Preferred Security has
been authenticated under this Declaration.

     Upon a written order of the Trust signed by one Administrative Trustee, the
Property Trustee shall authenticate the Trust Preferred Securities for original
issue. The aggregate number of Trust Preferred Securities outstanding at any
time shall not exceed the number set forth in the terms in Annex I hereto except
as provided in Section 7.6.

     The Property Trustee may appoint an authenticating agent acceptable to the
Trust to authenticate Trust Preferred Securities. An authenticating agent may
authenticate Trust Preferred Securities whenever the Property Trustee may do so.
Each reference in this Declaration to authentication by the Property Trustee
includes authentication by such agent. An authenticating agent has the same
rights as the Property Trustee to deal with the Sponsor or an Affiliate.

     SECTION 7.3 Form and Dating.

     The Trust Preferred Securities and the Property Trustee's certificate of
authentication shall be substantially in the form of Exhibit A-1 and the Common
Securities shall be substantially in the form of Exhibit A-2, each of which is
hereby incorporated in and expressly made a part of this Declaration.
Certificates representing the Securities may be printed, lithographed or
engraved or may be produced in any other manner as is

<PAGE>

reasonably acceptable to the Administrative Trustees, as evidenced by their
execution thereof. The Securities may have letters, CUSIP or other numbers,
notations or other marks of identification or designation and such legends or
endorsements required by law, stock exchange rule, agreements to which the Trust
is subject, if any, or usage (provided that any such notation, legend or
endorsement is in a form acceptable to the Trust). The Trust at the direction of
the Sponsor shall furnish any such legend not contained in Exhibit A-1 to the
Property Trustee in writing. Each Trust Preferred Security shall be dated the
date of its authentication. The terms and provisions of the Securities set forth
in Annex I and the forms of Securities set forth in Exhibits A-1 and A-2 are
part of the terms of this Declaration and to the extent applicable, the Property
Trustee and the Sponsor, by their execution and delivery of this Declaration,
expressly agree to such terms and provisions and to be bound thereby.

     (a) Global Securities. The Securities shall be issued in the form of one or
more, permanent global Securities in definitive, fully registered form without
distribution coupons, with the global legend and the Restricted Securities
Legend set forth in Exhibit A-1 hereto (a "Restricted Global Trust Preferred
Security") unless removed in accordance with Section 9.2, and shall be deposited
on behalf of the purchasers of the Trust Preferred Securities represented
thereby with the Property Trustee, as custodian for the Clearing Agency, and
registered in the name of the Clearing Agency or a nominee of the Clearing
Agency, duly executed by the Trust and authenticated by the Property Trustee as
hereinafter provided. The number of Trust Preferred Securities represented by
the Global Trust Preferred Security may from time to time be increased or
decreased by adjustments made on the records of the Property Trustee and the
Clearing Agency or its nominee as hereinafter provided.

     (b) Book-Entry Provisions. This Section 7.3(b) shall apply only to the
Global Trust Preferred Security and such other Trust Preferred Securities in
global form as may be authorized by the Trust to be deposited with or on behalf
of the Clearing Agency.

     The Trust shall execute and the Property Trustee shall, in accordance with
this Section 7.3, authenticate and make available for delivery initially one or
more Global Trust Preferred Securities that (i) shall be registered in the name
of Cede & Co. or other nominee of such Clearing Agency and (ii) shall be
delivered by the Trustee to such Clearing Agency or pursuant to such Clearing
Agency's written instructions or held by the Property Trustee as custodian for
the Clearing Agency.

     Members of, or participants in, the Clearing Agency ("Participants") shall
have no rights under this Declaration with respect to any Global Trust Preferred
Security held on their behalf by the Clearing Agency or by the Property Trustee
as the custodian of the Clearing Agency or under such Global Trust Preferred
Security, and the Clearing Agency may be treated by the Trust, the Property
Trustee and any agent of the Trust or the Property Trustee as the absolute owner
of such Global Trust Preferred Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Trust, the
Property Trustee or any agent of the Trust or the Property Trustee from giving
effect to any written certification, proxy or other authorization furnished by
the Clearing Agency or impair, as between the Clearing Agency and its
Participants, the operation of customary practices of such Clearing Agency
governing the exercise of the rights of a holder of a beneficial interest in any
Global Trust Preferred Security.

<PAGE>

     (c) Definitive Trust Preferred Securities. Except as provided in Section
7.9, owners of beneficial interests in a Global Trust Preferred Security will
not be entitled to receive physical delivery of certificated Trust Preferred
Securities ("Definitive Trust Preferred Securities"). Definitive Trust Preferred
Securities will bear the Restricted Securities Legend ("Restricted Definitive
Trust Preferred Securities") set forth on Exhibit A-1 unless removed in
accordance with Section 9.2.

     (d) Authorized Denominations. The Trust Preferred Securities are issuable
only in denominations of $50 and any integral multiple in excess thereof.

     SECTION 7.4 Registrar, Paying Agent, Exchange Agent and the Conversion
Agent.

     The Trust shall maintain in the Borough of Manhattan, The City of New York,
(i) an office or agency where Trust Preferred Securities may be presented for
registration of transfer ("Registrar"), (ii) an office or agency where Trust
Preferred Securities may be presented for payment ("Paying Agent"), (iii) an
office or agency where Securities may be presented for exchange ("Exchange
Agent") and (iv) an office or agency where Securities may be presented for
conversion (the "Conversion Agent"). The Registrar shall keep a register of the
Trust Preferred Securities and of their transfer. The Trust may appoint the
Registrar, the Paying Agent, the Exchange Agent and the Conversion Agent and may
appoint one or more co-registrars, one or more additional paying agents, one or
more additional exchange agents and one or more additional conversion agents in
such other locations as it shall determine. The term "Registrar" includes any
additional registrar, "Paying Agent" includes any additional paying agent, the
term "Exchange Agent" includes any additional exchange agent and the term
"Conversion Agent" includes any additional conversion agent. The Trust may
change any Paying Agent, Registrar, co-registrar, Exchange Agent or Conversion
Agent without prior notice to any Holder. The Paying Agent shall be permitted to
resign as Paying Agent upon 30 days' written notice to the Administrative
Trustees. The Trust shall notify the Property Trustee of the name and address of
any Agent not a party to this Declaration. If the Trust fails to appoint or
maintain another entity as Registrar, Paying Agent, Exchange Agent or Conversion
Agent, the Property Trustee or any Affiliate thereof designated by the Property
Trustee which meets the requirements of Section 5.3 hereof shall act as such.
The Trust or any of its Affiliates may act as Paying Agent, Registrar, Exchange
Agent or Conversion Agent. The Trust shall act as Paying Agent, Registrar,
co-registrar, Exchange Agent and Conversion Agent for the Common Securities.

     The Trust initially appoints Wells Fargo Bank Minnesota, National
Association as Registrar, Paying Agent, Exchange Agent and Conversion Agent for
the Trust Preferred Securities.

     SECTION 7.5 Paying Agent to Hold Money in Trust.

     The Trust shall require each Paying Agent other than the Property Trustee
to agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Property Trustee all money held by the Paying Agent for the
payment of liquidation amounts or Distributions on the Securities, and will
notify the Property Trustee if there are insufficient funds for such purpose.
While any such insufficiency continues, the Property Trustee may require a
Paying Agent to pay all money held by it to the Property Trustee.

<PAGE>

The Trust at any time may require a Paying Agent to pay all money held by it to
the Property Trustee and to account for any money disbursed by it. Upon payment
over to the Property Trustee, the Paying Agent (if other than the Trust or an
Affiliate of the Trust) shall have no further liability for the money. If the
Trust or the Sponsor or an Affiliate of the Trust or the Sponsor acts as Paying
Agent, it shall segregate and hold in a separate trust fund for the benefit of
the Holders all money held by it as Paying Agent.

     SECTION 7.6 Replacement Securities.

     If a Holder claims that a Security owned by it has been lost, destroyed or
wrongfully taken or if such Security is mutilated and is surrendered to the
Trust or in the case of the Trust Preferred Securities to the Property Trustee,
the Trust shall issue and the Property Trustee shall authenticate a replacement
Security if the Property Trustee's and the Trust's requirements, as the case may
be, are met. An indemnity bond must be provided by the Holder which, in the
judgment of the Property Trustee, is sufficient to protect the Trustees, the
Sponsor or any authenticating agent from any loss which any of them may suffer
if a Security is replaced. The Trust may charge such Holder for its expenses in
replacing a Security.

     Every replacement Security is an additional beneficial interest in the
Trust.

     SECTION 7.7 Outstanding Trust Preferred Securities.

     The Trust Preferred Securities outstanding at any time are all the Trust
Preferred Securities authenticated by the Property Trustee except for those
cancelled by it, those delivered to it for cancellation, and those described in
this Section as not outstanding.

     If a Trust Preferred Security is replaced, paid or purchased pursuant to
Section 7.6 hereof, it ceases to be outstanding unless the Property Trustee
receives proof satisfactory to it that the replaced, paid or purchased Trust
Preferred Security is held by a bona fide purchaser.

     If Trust Preferred Securities are considered paid in accordance with the
terms of this Declaration, they cease to be outstanding and Distributions on
them shall cease to accumulate.

     A Trust Preferred Security does not cease to be outstanding because one of
the Trust, the Sponsor or an Affiliate of the Sponsor holds the Security.

     SECTION 7.8 Trust Preferred Securities in Treasury.

     In determining whether the Holders of the required amount of Securities
have concurred in any direction, waiver or consent, Trust Preferred Securities
owned by the Trust, the Sponsor or an Affiliate of the Sponsor, as the case may
be, shall be disregarded and deemed not to be outstanding, except that for the
purposes of determining whether the Property Trustee shall be fully protected in
relying on any such direction, waiver or consent, only Securities which the
Property Trustee actually knows are so owned shall be so disregarded.

     SECTION 7.9 Temporary Securities.

     (a) Until Definitive Securities are ready for delivery, the Trust may

<PAGE>

prepare and, in the case of the Trust Preferred Securities, the Property Trustee
shall authenticate temporary Securities. Temporary Securities shall be
substantially in the form of Definitive Securities but may have variations that
the Trust considers appropriate for temporary Securities. Without unreasonable
delay, the Trust shall prepare and, in the case of the Trust Preferred
Securities, the Property Trustee shall authenticate Definitive Securities in
exchange for temporary Securities.

     (b) A Global Trust Preferred Security deposited with the Clearing Agency or
with the Property Trustee as custodian for the Clearing Agency pursuant to
Section 7.3 shall be transferred to the beneficial owners thereof in the form of
Definitive Trust Preferred Securities only if such transfer complies with
Section 9.2 and (i) the Clearing Agency notifies the Sponsor or the Trust that
it is unwilling or unable to continue as Clearing Agency for such Global Trust
Preferred Security or if at any time such Clearing Agency ceases to be a
"clearing agency" registered under the Exchange Act and a clearing agency is not
appointed by the Sponsor within 90 days of such notice, (ii) a Default or an
Event of Default has occurred and is continuing or (iii) the Trust at its sole
discretion elects to cause the issuance of certificated Trust Preferred
Securities.

     (c) Any Global Trust Preferred Security that is transferable to the
beneficial owners thereof in the form of Definitive Trust Preferred Securities
pursuant to this Section 7.9 shall be surrendered by the Clearing Agency to the
Registrar located in the Borough of Manhattan, The City of New York, to be so
transferred, in whole or from time to time in part, without charge, and the
Property Trustee shall authenticate and make available for delivery, upon such
transfer of each portion of such Global Trust Preferred Security, an equal
aggregate liquidation amount of Securities of authorized denominations in the
form of Definitive Trust Preferred Securities. Any portion of a Global Trust
Preferred Security transferred pursuant to this Section shall be registered in
such names as the Clearing Agency shall direct. Any Trust Preferred Security in
the form of Definitive Trust Preferred Securities delivered in exchange for an
interest in the Restricted Global Trust Preferred Security shall, except as
otherwise provided by Section 9.1, bear the Restricted Securities Legend set
forth in Exhibit A-1 hereto.

     (d) The Holder of a Global Trust Preferred Security may grant proxies and
otherwise authorize any person, including Participants and persons that may hold
interests through Participants, to take any action which such Holder is entitled
to take under this Declaration or the Securities.

     (e) In the event of the occurrence of any of the events specified in
Section 7.9(b), the Trust will promptly make available to the Property Trustee a
reasonable supply of Definitive Trust Preferred Securities in fully registered
form without distribution coupons.

     SECTION 7.10 Cancellation.

     The Trust at any time may deliver Trust Preferred Securities to the
Property Trustee for cancellation. The Registrar, Paying Agent, Conversion Agent
and Exchange Agent shall forward to the Property Trustee any Trust Preferred
Securities surrendered to them for registration of transfer, redemption,
exchange, repurchase, conversion or payment. The Property Trustee shall promptly
cancel all Trust Preferred Securities, surrendered for registration of transfer,
redemption, exchange, repurchase, conversion,

<PAGE>

payment, replacement or cancellation and shall dispose of cancelled Trust
Preferred Securities as the Trust directs, provided that the Property Trustee
shall not be obligated to destroy Trust Preferred Securities. The Trust may not
issue new Trust Preferred Securities to replace Trust Preferred Securities that
it has paid or that have been delivered to the Property Trustee for cancellation
or that any holder has exchanged or converted.

     SECTION 7.11 CUSIP Numbers.

     The Trust in issuing the Trust Preferred Securities may use "CUSIP" numbers
(if then generally in use), and, if so, the Property Trustee shall use "CUSIP"
numbers in notices of redemption or repurchase as a convenience to Holders of
Trust Preferred Securities; provided that any such notice may state that no
representation is made as to the correctness of such numbers either as printed
on the Trust Preferred Securities or as contained in any notice of a redemption
or repurchase and that reliance may be placed only on the other identification
numbers printed on the Trust Preferred Securities, and any such redemption shall
not be affected by any defect in or omission of such numbers. The Sponsor will
promptly notify the Property Trustee of any change in the CUSIP numbers.

                                  ARTICLE VIII
                              TERMINATION OF TRUST

     SECTION 8.1 Termination of Trust.

     (a) The Trust shall automatically terminate:

          (i) upon the insolvency or bankruptcy of the Sponsor;

          (ii) upon the filing of a certificate of dissolution or liquidation or
     its equivalent with respect to the Sponsor; or the revocation of the
     Sponsor's charter and the expiration of 90 days after the date of
     revocation without a reinstatement thereof;

          (iii) following the distribution of a Like Amount of the Xerox Funding
     Debentures (or, in the case of an exchange by Xerox Funding, Xerox
     Debentures) to the Holders, provided that, the Sponsor has given written
     direction to the Property Trustee to terminate the Trust (which direction
     is optional, and except as otherwise expressly provided below, within the
     discretion of the Sponsor);

          (iv) upon the entry of a decree of dissolution of the Trust by a court
     of competent jurisdiction;

          (v) upon obtaining the consent of at least a Majority in liquidation
     amount of the Trust Securities, voting together as a single class, to
     dissolve the Trust;

          (vi) when all of the Securities shall have been called for redemption
     and the amounts necessary for redemption thereof shall have been paid to
     the Holders in accordance with the terms of the Securities;

          (vii) before the issuance of any Trust Securities, with the consent of
     all the Administrative Trustees and the Sponsor;

          (viii) upon the conversion of all the Trust Securities in accordance

<PAGE>

     with Annex I;

          (ix) upon the repayment or purchase of all of the Debentures by the
     related Debenture Issuer thereof or at such time as no Debentures are
     outstanding; or

          (x) the expiration of the term of the Trust provided in Section 3.14.

     (b) As soon as is practicable after the occurrence of an event referred to
in Section 8.1(a), the Administrative Trustees shall file a certificate of
cancellation with the Secretary of State of the State of Delaware.

     (c) The provisions of Section 3.9 and Article X shall survive the
termination of the Trust.

                                   ARTICLE IX
                              TRANSFER OF INTERESTS

     SECTION 9.1 Transfer of Securities.

     (a) Securities may only be transferred, in whole or in part, in accordance
with the terms and conditions set forth in this Declaration and in the terms of
the Securities. Any transfer or purported transfer of any Security not made in
accordance with this Declaration shall be null and void.

     (b) The Common Securities may not be transferred except to the Sponsor or
an Affiliate of the Sponsor.

     (c) The Administrative Trustees shall provide for the registration of Trust
Preferred Securities and of the transfer of Securities, which will be effected
without charge but only upon payment (with such indemnity as the Administrative
Trustees may require) in respect of any tax or other governmental charges that
may be imposed in relation to it. Upon surrender for registration of transfer of
any Trust Preferred Securities, the Administrative Trustees shall cause one or
more new Securities to be issued in the name of the designated transferee or
transferees. Every Trust Preferred Security surrendered for registration of
transfer shall be accompanied by a written instrument of transfer in form
satisfactory to the Administrative Trustees and the Registrar duly executed by
the Holder or such Holder's attorney duly authorized in writing. Each Trust
Preferred Security surrendered for registration of transfer shall be canceled by
the Property Trustees. A transferee of a Trust Preferred Security shall be
entitled to the rights and subject to the obligations of a Holder hereunder upon
the receipt by such transferee of a Trust Preferred Security. By acceptance of a
Security or any interest therein, each transferee shall be deemed to have agreed
to be bound by this Declaration.

     SECTION 9.2 Transfer Procedures and Restrictions

     (a) General. If Trust Preferred Securities are issued upon the transfer,
exchange, redemption, repurchase, conversion or replacement of Trust Preferred
Securities bearing the Restricted Securities Legend set forth in Exhibit A-1
hereto, or if a request is made to remove such Restricted Securities Legend on
Trust Preferred Securities, the Trust Preferred Securities so issued shall bear
the Restricted Securities Legend, or the Restricted Securities Legend shall not
be removed, as the case may be, unless

<PAGE>

there is delivered to the Trust and the Property Trustee such satisfactory
evidence, which shall include an Opinion of Counsel licensed to practice law in
the State of New York, as may be reasonably required by the Sponsor and the
Property Trustee, that neither the legend nor the restrictions on transfer set
forth therein are required to ensure that transfers thereof are made pursuant to
an exception from the registration requirements of the Securities Act or, with
respect to Restricted Securities, that such Securities are not "restricted"
within the meaning of Rule 144. Upon provision of such satisfactory evidence,
the Property Trustee, at the written direction of the Trust, shall authenticate
and deliver Trust Preferred Securities that do not bear the legend.

     (b) Transfer and Exchange of Definitive Trust Preferred Securities. When
Definitive Trust Preferred Securities are presented to the Registrar (x) to
register the transfer of such Definitive Trust Preferred Securities; or (y) to
exchange such Definitive Trust Preferred Securities for an equal number of
Definitive Trust Preferred Securities, the Registrar or co- registrar shall
register the transfer or make the exchange as requested if its reasonable
requirements for such transaction are met; provided, however, that the
Definitive Trust Preferred Securities surrendered for transfer or exchange:

          (i) shall be duly endorsed or accompanied by a written instrument of
     transfer in form reasonably satisfactory to the Trust and the Registrar or
     co-registrar, duly executed by the Holder thereof or his attorney duly
     authorized in writing; and

          (ii) in the case of Definitive Trust Preferred Securities that are
     Restricted Definitive Trust Preferred Securities:

               (A) if such Restricted Trust Preferred Securities are being
          delivered to the Registrar by a Holder for registration in the name of
          such Holder, without transfer, a certification from such Holder to
          that effect; or

               (B) if such Restricted Trust Preferred Securities are being
          transferred: (i) a certification from the transferor in a form
          substantially similar to that attached hereto as the "Form of
          Assignment" in Exhibit A-1, and (ii) if the Trust or Registrar so
          requests, evidence reasonably satisfactory to them as to the
          compliance with the restrictions set forth in the Restricted
          Securities Legend.

     (c) Restrictions on Transfer of a Definitive Trust Preferred Security for a
Beneficial Interest in a Global Trust Preferred Security. A Definitive Trust
Preferred Security may not be exchanged for a beneficial interest in a Global
Trust Preferred Security except upon satisfaction of the requirements set forth
below. Upon receipt by the Property Trustee of a Definitive Trust Preferred
Security, duly endorsed or accompanied by appropriate instruments of transfer,
in form satisfactory to the Property Trustee and the Administrative Trustees,
together with:

          (i) if such Definitive Trust Preferred Security is a Restricted Trust
     Preferred Security, certification (in a form substantially similar to that
     attached hereto as the "Form of Assignment" in Exhibit A-1); and

          (ii) whether or not such Definitive Trust Preferred Security is a

<PAGE>

     Restricted Trust Preferred Security, written instructions directing the
     Property Trustee to make, or to direct the Clearing Agency to make, an
     adjustment on its books and records with respect to the appropriate Global
     Trust Preferred Security to reflect an increase in the number of the Trust
     Preferred Securities represented by such Global Trust Preferred Security,

then the Property Trustee shall cancel such Definitive Trust Preferred Security
and cause, or direct the Clearing Agency to cause, the aggregate number of Trust
Preferred Securities represented by the appropriate Global Trust Preferred
Security to be increased accordingly. If no Global Trust Preferred Securities
are then outstanding, the Trust shall issue and the Property Trustee shall
authenticate, upon written order of any Administrative Trustee, an appropriate
number of Trust Preferred Securities in global form.

     (d) Transfer and Exchange of Global Trust Preferred Securities. Subject to
Section 9.02(e), the transfer and exchange of Global Trust Preferred Securities
or beneficial interests therein shall be effected through the Clearing Agency,
in accordance with this Declaration (including applicable restrictions on
transfer set forth herein, if any) and the procedures of the Clearing Agency
therefor.

     (e) Restrictions on Transfer and Exchange of Global Trust Preferred
Securities. Notwithstanding any other provisions of this Declaration (other than
the provisions set forth in subsection (f) of this Section 9.2), a Global Trust
Preferred Security may not be transferred as a whole except by the Clearing
Agency to a nominee of the Clearing Agency or another nominee of the Clearing
Agency or by the Clearing Agency or any such nominee to a successor Clearing
Agency or a nominee of such successor Clearing Agency.

     (f) Authentication of Definitive Trust Preferred Securities. If at any
time:

          (i) the Clearing Agency notifies the Sponsor or the Trust that it is
     unwilling or unable to continue as Clearing Agency for the outstanding
     Global Trust Preferred Securities or if at any time such Clearing Agency
     ceases to be a "clearing agency" registered under the Exchange Act and a
     clearing agency is not appointed by the Sponsor within 90 days of such
     notice;

          (ii) there occurs a Default or an Event of Default which is
     continuing, or

          (iii) the Administrative Trustees, in their sole discretion, notify
     the Property Trustee in writing that they elect to cause the issuance of
     Definitive Trust Preferred Securities under this Declaration, then the
     Administrative Trustees will execute, and the Property Trustee, upon
     receipt of a written order signed by one Administrative Trustee requesting
     the authentication and delivery of Definitive Trust Preferred Securities to
     the Persons designated in such notice, will authenticate and make available
     for delivery Definitive Trust Preferred Securities, equal in number to the
     number of Trust Preferred Securities represented by the Global Trust
     Preferred Securities, in exchange for such Global Trust Preferred
     Securities.

     (g) Legend.

<PAGE>

          (i) Except as permitted by the following paragraph (ii), each Trust
     Preferred Security certificate evidencing the Global Trust Preferred
     Securities and the Definitive Trust Preferred Securities (and all Trust
     Preferred Securities issued in exchange therefor or substitution thereof)
     shall bear a legend (the "Restricted Securities Legend") in substantially
     the following form:

THIS SECURITY AND THE UNDERLYING SHARES OF COMMON STOCK HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
STATE SECURITIES LAWS. NEITHER THIS SECURITY, THE SHARES OF UNDERLYING COMMON
STOCK ISSUABLE UPON CONVERSION OR PURCHASE OF THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN OR THEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION
OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.

THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES TO OFFER, SELL OR
OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION
TERMINATION DATE"), WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE
DATE HEREOF, THE ISSUANCE OF THE SECURITIES UPON AN EXERCISE OF THE
OVERALLOTMENT OPTION GRANTED TO THE INITIAL PURCHASERS IN CONNECTION WITH THE
ORIGINAL SALE OF THE SECURITIES AND THE LAST DATE ON WHICH XEROX CORPORATION
("XEROX") OR ANY AFFILIATE OF XEROX WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR OF SUCH SECURITY) ONLY (A) TO XEROX OR ANY AFFILIATE THEREOF, (B)
FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO
A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR
THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHICH NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE 1N RELIANCE ON RULE 144A, (C) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, OR (D)
PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT, SUBJECT TO XEROX'S AND THE PROPERTY TRUSTEE'S AND/OR
TRANSFER AGENT'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO
CLAUSE (D) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION
AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE
FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER
SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE
PROPERTY TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER
AFTER THE RESALE RESTRICTION TERMINATION DATE.

          (ii) Upon any sale or transfer of a Restricted Trust Preferred
     Security (including any Restricted Trust Preferred Security represented by
     a Global Trust Preferred Security) pursuant to an effective registration
     statement under the Securities Act or pursuant to Rule 144 under the
     Securities Act:

               (A) in the case of any Restricted Trust Preferred Security that
          is a Definitive Trust Preferred Security, the Registrar shall permit
          the Holder thereof to exchange such Restricted Trust Preferred
          Security for a Definitive Trust Preferred Security that does not bear
          the Restricted Securities Legend and rescind any restriction on the
          transfer of such Restricted Trust Preferred Security;

               (B) in the case of any Restricted Trust Preferred Security that
          is represented by a Global Trust Preferred Security, the

<PAGE>

          Registrar shall permit the Holder of such Global Trust Preferred
          Security to exchange such Global Trust Preferred Security for another
          Global Trust Preferred Security that does not bear the Restricted
          Securities Legend; and

               (C) in the case of clause (A) and (B) above, the Administrative
          Trustees will execute, and the Property Trustee, upon receipt of a
          written order signed by one Administrative Trustee requesting the
          authentication and delivery of Trust Preferred Securities that do not
          bear the Restricted Securities Legend to the Persons designated in
          such notice, will authenticate and make available for delivery an
          equivalent liquidation amount of such Trust Preferred Securities as
          are specified in such notice.

     (h) Cancellation or Adjustment of Global Trust Preferred Security. At such
time as all beneficial interests in a Global Trust Preferred Security have
either been exchanged for Definitive Trust Preferred Securities to the extent
permitted by this Declaration or redeemed, repurchased or canceled in accordance
with the terms of this Declaration, such Global Trust Preferred Security shall
be returned to the Property Trustee for cancellation or retained and canceled by
the Property Trustee. At any time prior to such cancellation, if any beneficial
interest in a Global Trust Preferred Security is exchanged for Definitive Trust
Preferred Securities, Trust Preferred Securities represented by such Global
Trust Preferred Security shall be reduced and an adjustment shall be made on the
books and records of the Property Trustee (if it is then the custodian for such
Global Trust Preferred Security) with respect to such Global Trust Preferred
Security, by the Property Trustee or the Securities Custodian, to reflect such
reduction.

     (i) Obligations with Respect to Transfers and Exchanges of Trust Preferred
Securities.

          (i) To permit registrations of transfers and exchanges, the Trust
     shall execute and the Property Trustee shall authenticate Definitive Trust
     Preferred Securities and Global Trust Preferred Securities at the
     Registrar's or co-Registrar's request in accordance with the terms of this
     Declaration.

          (ii) Registrations of transfers or exchanges will be effected without
     charge, but only upon payment (with such indemnity as the Trust or the
     Sponsor may require) in respect of any tax or other governmental charge
     that may be imposed in relation to it.

          (iii) The Registrar or co-registrar shall not be required to register
     the transfer of or exchange of (a) Trust Preferred Securities during a
     period beginning at the opening of business 15 days before the day of
     mailing of a notice of redemption or any notice of selection of Trust
     Preferred Securities for redemption and ending at the close of business on
     the day of such mailing; or (b) any Trust Preferred Security so selected
     for redemption in whole or in part, except the unredeemed portion of any
     Trust Preferred Security being redeemed in part.

          (iv) Prior to the due presentation for registrations of transfer of
     any Trust Preferred Security, the Trust, the Property Trustee, the Paying
     Agent, the Registrar or any co-registrar may deem and treat the person in
     whose name a Trust Preferred Security is registered as the absolute owner
     of such Trust Preferred Security for the purpose of

<PAGE>

     receiving Distributions on such Trust Preferred Security and for all other
     purposes whatsoever, and none of the Trust, the Property Trustee, the
     Paying Agent, the Registrar or any co-registrar shall be affected by notice
     to the contrary.

          (v) All Trust Preferred Securities issued upon any transfer or
     exchange pursuant to the terms of this Declaration shall evidence the same
     security and shall be entitled to the same benefits under this Declaration
     as the Trust Preferred Securities surrendered upon such transfer or
     exchange.

     (j) No Obligation of the Property Trustee.

          (i) The Property Trustee shall have no responsibility or obligation to
     any beneficial owner of a Global Trust Preferred Security, a Participant in
     the Clearing Agency or other Person with respect to the accuracy of the
     records of the Clearing Agency or its nominee or of any Participant
     thereof, with respect to any ownership interest in the Trust Preferred
     Securities or with respect to the delivery to any Participant, beneficial
     owner or other Person (other than the Clearing Agency) of any notice
     (including any notice of redemption) or the payment of any amount, under or
     with respect to such Trust Preferred Securities. All notices and
     communications to be given to the Holders and all payments to be made to
     Holders under the Trust Preferred Securities shall be given or made only to
     or upon the order of the registered Holders (which shall be the Clearing
     Agency or its nominee in the case of a Global Trust Preferred Security).
     The rights of beneficial owners in any Global Trust Preferred Security
     shall be exercised only through the Clearing Agency subject to the
     applicable rules and procedures of the Clearing Agency. The Property
     Trustee may conclusively rely and shall be fully protected in relying upon
     information furnished by the Clearing Agency or any agent thereof with
     respect to its Participants and any beneficial owners.

          (ii) The Property Trustee and Registrar shall have no obligation or
     duty to monitor, determine or inquire as to compliance with any
     restrictions on transfer imposed under this Declaration or under applicable
     law with respect to any transfer of any interest in any Trust Preferred
     Security (including any transfers between or among Clearing Agency
     Participants or beneficial owners in any Global Trust Preferred Security)
     other than to require delivery of such certificates and other documentation
     or evidence as are expressly required by, and to do so if and when
     expressly required by, the terms of this Declaration, and to examine the
     same to determine substantial compliance as to form with the express
     requirements hereof.

     SECTION 9.3 Deemed Security Holders.

     The Trustees may treat the Person in whose name any Security shall be
registered on the books and records of the Trust as the sole owner of such
Security for purposes of receiving Distributions and for all other purposes
whatsoever and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such Security on the part of any Person, whether
or not the Trust shall have actual or other notice thereof.

     SECTION 9.4 Book Entry Interests.

<PAGE>

     Global Trust Preferred Securities shall initially be registered on the
books and records of the Trust in the name of Cede & Co., the nominee of the
Clearing Agency, and no Trust Preferred Security Beneficial Owner will receive a
definitive Trust Preferred Security Certificate representing such Trust
Preferred Security Beneficial Owner's interests in such Global Trust Preferred
Securities, except as provided in Section 9.2 and Section 7.9. Unless and until
Definitive Trust Preferred Securities have been issued to the Trust Preferred
Security Beneficial Owners pursuant to Section 9.2 or Section 7.9:

     (a) the provisions of this Section 9.4 shall be in full force and effect;

     (b) the Trust and the Trustees shall be entitled to deal with the Clearing
Agency for all purposes of this Declaration (including the payment of
Distributions on the Global Trust Preferred Securities and receiving approvals,
votes or consents hereunder) as the Holder of the Trust Preferred Securities and
the sole holder of the Global Certificates and shall have no obligation to the
Trust Preferred Security Beneficial Owners;

     (c) to the extent that the provisions of this Section 9.4 conflict with any
other provisions of this Declaration, the provisions of this Section 9.4 shall
control; and

     (d) the rights of the Trust Preferred Security Beneficial Owners shall be
exercised only through the Clearing Agency and shall be limited to those
established by law and agreements between such Trust Preferred Security
Beneficial Owners and the Clearing Agency and/or the Clearing Agency
Participants and receive and transmit payments of Distributions on the Global
Certificates to such Clearing Agency Participants. DTC will make book entry
transfers among the Clearing Agency Participants, provided, that solely for the
purposes of determining whether the Holders of the requisite amount of Trust
Preferred Securities have voted on any matter provided for in this Declaration,
so long as Definitive Trust Preferred Security Certificates have not been
issued, the Trustees may conclusively rely on, and shall be protected in relying
on, any written instrument (including a proxy) delivered to the Trustees by the
Clearing Agency setting forth the Trust Preferred Security Beneficial Owners'
votes or assigning the right to vote on any matter to any other Persons either
in whole or in part.

     SECTION 9.5 Notices to Clearing Agency.

     Whenever a notice or other communication to the Trust Preferred Security
Holders is required under this Declaration, the Trustees shall give all such
notices and communications specified herein to be given to the Holders of Global
Trust Preferred Securities to the Clearing Agency, and shall have no notice
obligations to the Trust Preferred Security Beneficial Owners.

     SECTION 9.6 Appointment of Successor Clearing Agency.

     If any Clearing Agency elects to discontinue its services as securities
depositary with respect to the Trust Preferred Securities, the Administrative
Trustees may, in their sole discretion, appoint a successor Clearing Agency with
respect to such Trust Preferred Securities.

                                    ARTICLE X
                           LIMITATION OF LIABILITY OF

<PAGE>

                    HOLDERS OF SECURITIES, TRUSTEES OR OTHERS

     SECTION 10.1 Liability.

     (a) Except as expressly set forth in this Declaration, the Trust Securities
Guarantee and the terms of the Securities, the Sponsor shall not be:

          (i) personally liable for the return of any portion of the capital
     contributions (or any return thereon) of the Holders of the Securities
     which shall be made solely from assets of the Trust; and

          (ii) be required to pay to the Trust or to any Holder of Securities
     any deficit upon dissolution of the Trust or otherwise.

     (b) The Sponsor shall be liable for all of the debts and obligations of the
Trust (other than with respect to the payment or delivery of amounts due, if
any, on the Securities) to the extent not satisfied out of the Trust's assets.

     (c) Pursuant to Section 3803(a) of the Business Trust Act, the Holders of
the Trust Preferred Securities shall be entitled to the same limitation of
personal liability extended to stockholders of private corporations for profit
organized under the General Corporation Law of the State of Delaware.

     SECTION 10.2 Exculpation.

     (a) No Indemnified Person shall be liable, responsible or accountable in
damages or otherwise to the Trust or any Covered Person for any loss, damage or
claim incurred by reason of any act or omission performed or omitted by such
Indemnified Person in good faith on behalf of the Trust and in a manner such
Indemnified Person reasonably believed to be within the scope of the authority
conferred on such Indemnified Person by this Declaration or by law, except that
an Indemnified Person shall be liable for any such loss, damage or claim
incurred by reason of such Indemnified Person's gross negligence or willful
misconduct with respect to such acts or omissions.

     (b) An Indemnified Person shall be fully protected in relying in good faith
upon the records of the Trust and upon such information, opinions, reports or
statements presented to the Trust by any Person as to matters the Indemnified
Person reasonably believes are within such other Person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Trust, including information, opinions, reports or statements as to the value
and amount of the assets, liabilities, profits, losses, or any other facts
pertinent to the existence and amount of assets from which Distributions to
Holders of Securities might properly be paid.

     SECTION 10.3 Fiduciary Duty.

     (a) To the extent that, at law or in equity, an Indemnified Person has
duties (including fiduciary duties) and liabilities relating thereto to the
Trust or to any other Covered Person, an Indemnified Person acting under this
Declaration shall not be liable to the Trust or to any other Covered Person for
its good faith reliance on the provisions of this Declaration. The provisions of
this Declaration, to the extent that they restrict the duties and liabilities of
an Indemnified Person otherwise existing at law or in

<PAGE>

equity (other than the duties imposed on the Property Trustee under the Trust
Indenture Act), are agreed by the parties hereto to replace such other duties
and liabilities of such Indemnified Person.

     (b) Unless otherwise expressly provided herein:

          (i) whenever a conflict of interest exists or arises between any
     Covered Persons; or

          (ii) whenever this Declaration or any other agreement contemplated
     herein or therein provides that an Indemnified Person shall act in a manner
     that is, or provides terms that are, fair and reasonable to the Trust or
     any Holder of Securities,

the Indemnified Person shall resolve such conflict of interest, take such action
or provide such terms, considering in each case the relative interest of each
party (including its own interest) to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such interests, any customary
or accepted industry practices, and any applicable generally accepted accounting
practices or principles. In the absence of bad faith by the Indemnified Person,
the resolution, action or term so made, taken or provided by the Indemnified
Person shall not constitute a breach of this Declaration or any other agreement
contemplated herein or of any duty or obligation of the Indemnified Person at
law or in equity or otherwise.

     (c) Whenever in this Declaration an Indemnified Person is permitted or
required to make a decision:

          (i) in its "discretion" or under a grant of similar authority, the
     Indemnified Person shall be entitled to consider such interests and factors
     as it desires, including its own interests, and shall have no duty or
     obligation to give any consideration to any interest of or factors
     affecting the Trust or any other Person; or

          (ii) in its "good faith" or under another express standard, the
     Indemnified Person shall act under such express standard and shall not be
     subject to any other or different standard imposed by this Declaration or
     by applicable law.

     SECTION 10.4 Indemnification.

     (a) (i) The Sponsor shall indemnify, to the fullest extent permitted by
     law, any Company Indemnified Person who was or is a party or is threatened
     to be made a party to any threatened, pending or completed action, suit or
     proceeding, whether civil, criminal, administrative or investigative (other
     than an action by or in the right of the Trust) by reason of the fact that
     he is or was a Company Indemnified Person against expenses (including
     reasonable attorneys' fees and expenses), judgments, fines and amounts paid
     in settlement actually and reasonably incurred by him in connection with
     such action, suit or proceeding if he acted in good faith and in a manner
     he reasonably believed to be in or not opposed to the best interests of the
     Trust, and, with respect to any criminal action or proceeding, had no
     reasonable cause to believe his conduct was unlawful. The termination of
     any action, suit or proceeding by judgment, order, settlement, conviction,
     or upon a plea of nolo contendere or its equivalent, shall not, in and of
     itself, create a presumption that the Company Indemnified Person did not
     act in good

<PAGE>

     faith and in a manner which he reasonably believed to be in or not opposed
     to the best interests of the Trust, and, with respect to any criminal
     action or proceeding, had reasonable cause to believe that his conduct was
     unlawful.

          (ii) The Sponsor shall indemnify, to the fullest extent permitted by
     law, any Company Indemnified Person who was or is a party or is threatened
     to be made a party to any threatened, pending or completed action or suit
     by or in the right of the Trust to procure a judgment in its favor by
     reason of the fact that he is or was a Company Indemnified Person against
     expenses (including reasonable attorneys' fees and expenses) actually and
     reasonably incurred by him in connection with the defense or settlement of
     such action or suit if he acted in good faith and in a manner he reasonably
     believed to be in or not opposed to the best interests of the Trust and
     except that no such indemnification shall be made in respect of any claim,
     issue or matter as to which such Company Indemnified Person shall have been
     adjudged to be liable to the Trust unless and only to the extent that the
     Court of Chancery of Delaware or the court in which such action or suit was
     brought shall determine upon application that, despite the adjudication of
     liability but in view of all the circumstances of the case, such person is
     fairly and reasonably entitled to indemnity for such expenses which such
     Court of Chancery or such other court shall deem proper.

          (iii) Any indemnification under paragraphs (i) and (ii) of this
     Section 10.4(a) (unless ordered by a court) shall be made by the Sponsor
     only as authorized in the specific case upon a determination that
     indemnification of the Company Indemnified Person is proper in the
     circumstances because he has met the applicable standard of conduct set
     forth in paragraphs (i) and (ii). Such determination shall be made (1) by
     the Administrative Trustees by a majority vote of a quorum consisting of
     such Administrative Trustees who were not parties to such action, suit or
     proceeding, (2) if such a quorum is not obtainable, or, even if obtainable,
     if a quorum of disinterested Administrative Trustees so directs, by
     independent legal counsel in a written opinion, or (3) by the Common
     Security Holder of the Trust.

          (iv) Expenses (including reasonable attorneys' fees and expenses)
     incurred by a Company Indemnified Person in defending a civil, criminal,
     administrative or investigative action, suit or proceeding referred to in
     paragraphs (i) and (ii) of this Section 10.4(a) shall be paid by the
     Sponsor in advance of the final disposition of such action, suit or
     proceeding upon receipt of an undertaking by or on behalf of such Company
     Indemnified Person to repay such amount if it shall ultimately be
     determined that he is not entitled to be indemnified by the Sponsor as
     authorized in this Section 10.4(a). Notwithstanding the foregoing, no
     advance shall be made by the Sponsor if a determination is reasonably and
     promptly made (i) by the Administrative Trustees by a majority vote of a
     quorum of disinterested Administrative Trustees, (ii) if such a quorum is
     not obtainable, or, even if obtainable, if a quorum of disinterested
     Administrative Trustees so directs, by independent legal counsel in a
     written opinion or (iii) the Common Security Holder of the Trust, that,
     based upon the facts known to the Administrative Trustees, counsel or the
     Common Security Holder at the time such determination is made, such Company
     Indemnified Person acted in bad faith or in a manner that such person did
     not believe to be in or not opposed to the best interests of the Trust, or,
     with respect to any criminal proceeding,

<PAGE>

     that such Company Indemnified Person believed or had reasonable cause to
     believe his conduct was unlawful. In no event shall any advance be made in
     instances where the Administrative Trustees, independent legal counsel or
     Common Security Holder reasonably determine that such person deliberately
     breached his duty to the Trust or its Common or Trust Preferred Security
     Holders.

          (v) The indemnification and advancement of expenses provided by, or
     granted pursuant to, the other paragraphs of this Section 10.4(a) shall not
     be deemed exclusive of any other rights to which those seeking
     indemnification and advancement of expenses may be entitled under any
     agreement, vote of stockholders or disinterested directors of the Sponsor
     or Trust Preferred Security Holders of the Trust or otherwise, both as to
     action in his official capacity and as to action in another capacity while
     holding such office. All rights to indemnification under this Section
     10.4(a) shall be deemed to be provided by a contract between the Sponsor
     and each Company Indemnified Person who serves in such capacity at any time
     while this Section 10.4(a) is in effect. Any repeal or modification of this
     Section 10.4(a) shall not affect any rights or obligations then existing.

          (vi) The Sponsor or the Trust may purchase and maintain insurance on
     behalf of any person who is or was a Company Indemnified Person against any
     liability asserted against him and incurred by him in any such capacity, or
     arising out of his status as such, whether or not the Sponsor would have
     the power to indemnify him against such liability under the provisions of
     this Section 10.4(a).

          (vii) For purposes of this Section 10.4(a), references to "the Trust"
     shall include, in addition to the resulting or surviving entity, any
     constituent entity (including any constituent of a constituent) absorbed in
     a consolidation or merger, so that any person who is or was a director,
     trustee, officer or employee of such constituent entity, or is or was
     serving at the request of such constituent entity as a director, trustee,
     officer, employee or agent of another entity, shall stand in the same
     position under the provisions of this Section 10.4(a) with respect to the
     resulting or surviving entity as he would have with respect to such
     constituent entity if its separate existence had continued.

          (viii) The indemnification and advancement of expenses provided by, or
     granted pursuant to, this Section 10.4(a) shall, unless otherwise provided
     when authorized or ratified, continue as to a person who has ceased to be a
     Company Indemnified Person and shall inure to the benefit of the heirs,
     executors and administrators of such a person.

     (b) The Sponsor agrees to indemnify the (i) Property Trustee, (ii) the
Delaware Trustee, (iii) any Affiliate of the Property Trustee and the Delaware
Trustee, and (iv) any officers, directors, shareholders, members, partners,
employees, representatives, custodians, nominees or agents of the Property
Trustee and the Delaware Trustee (each of the Persons in (i) through (iv) being
referred to as a "Fiduciary Indemnified Person") for, and to hold each Fiduciary
Indemnified Person harmless against, any and all loss, liability, damage, claim
or expense including taxes (other than taxes based on the income of such
Fiduciary Indemnified Person) incurred without gross negligence or bad faith on
its part, arising out of or in connection with the acceptance or administration
of the trust or trusts hereunder, including the

<PAGE>

costs and expenses (including reasonable legal fees and expenses) of defending
itself against or investigating any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder. The obligation
to indemnify as set forth in this Section 10.4(b) shall survive the satisfaction
and discharge of this Declaration and the removal or resignation of the Property
Trustee or the Delaware Trustee, as the case may be.

     SECTION 10.5 Outside Businesses.

     Any Covered Person, the Sponsor, the Delaware Trustee and the Property
Trustee may engage in or possess an interest in other business ventures of any
nature or description, independently or with others, similar or dissimilar to
the business of the Trust, and the Trust and the Holders shall have no rights by
virtue of this Declaration in and to such independent ventures or the income or
profits derived therefrom, and the pursuit of any such venture, even if
competitive with the business of the Trust, shall not be deemed wrongful or
improper. No Covered Person, and none of the Sponsor, the Delaware Trustee, or
the Property Trustee shall be obligated to present any particular investment or
other opportunity to the Trust even if such opportunity is of a character that,
if presented to the Trust, could be taken by the Trust, and any Covered Person,
the Sponsor, the Delaware Trustee and the Property Trustee shall have the right
to take for its own account (individually or as a partner or fiduciary) or to
recommend to others any such particular investment or other opportunity. Any
Covered Person, the Delaware Trustee and the Property Trustee may engage or be
interested in any financial or other transaction with the Sponsor or any
Affiliate of the Sponsor, or may act as depositary for, trustee or agent for, or
act on any committee or body of holders of, securities or other obligations of
the Sponsor or its Affiliates.

                                   ARTICLE XI
                                   ACCOUNTING

     SECTION 11.1 Fiscal Year.

     The fiscal year ("Fiscal Year") of the Trust shall be the calendar year, or
such other year as is required by the Code.

     SECTION 11.2 Certain Accounting Matters.

     (a) At all times during the existence of the Trust, the Administrative
Trustees shall keep, or cause to be kept, full books of account, records and
supporting documents, which shall reflect in reasonable detail, each transaction
of the Trust. The books of account shall be maintained on the accrual method of
accounting, in accordance with generally accepted accounting principles,
consistently applied. The Trust shall use the accrual method of accounting for
United States federal income tax purposes. The books of account and the records
of the Trust shall be examined by and reported upon as of the end of each Fiscal
Year of the Trust by a firm of independent certified public accountants selected
by the Administrative Trustees.

     (b) The Administrative Trustees shall cause to be duly prepared and
delivered to each of the Holders, any annual United States federal income tax
information statement, required by the Code, containing such information with
regard to the Securities held by each Holder as is required by the Code and the
Treasury Regulations. Notwithstanding any right under the Code to deliver

<PAGE>

any such statement at a later date, the Administrative Trustees shall endeavor
to deliver all such information statements within 30 days after the end of each
Fiscal Year of the Trust.

     (c) The Administrative Trustees shall cause to be duly prepared and filed
with the appropriate taxing authority, an annual United States federal income
tax return, on a Form 1041 or such other form required by United States federal
income tax law, and any other annual income tax returns required to be filed by
the Administrative Trustees on behalf of the Trust with any state or local
taxing authority.

     SECTION 11.3 Banking.

     The Trust shall maintain one or more bank accounts in the name and for the
sole benefit of the Trust; provided, however, that all payments of funds in
respect of the Debentures held by the Property Trustee shall be made directly to
the Property Trustee Account and no other funds of the Trust shall be deposited
in the Property Trustee Account. The sole signatories for such accounts shall be
designated by the Administrative Trustees; provided, however, that the Property
Trustee shall designate the signatories for the Property Trustee Account.

     SECTION 11.4 Withholding.

     The Trust and the Administrative Trustees shall comply with all withholding
requirements under United States federal, state and local law. The Trust shall
request, and the Holders shall provide to the Trust, such forms or certificates
as are necessary to establish an exemption from withholding with respect to each
Holder, and any representations and forms as shall reasonably be requested by
the Trust to assist it in determining the extent of, and in fulfilling, its
withholding obligations. The Administrative Trustees shall file required forms
with applicable jurisdictions and, unless an exemption from withholding is
properly established by a Holder, shall remit amounts withheld with respect to
the Holder to applicable jurisdictions. To the extent that the Trust is required
to withhold and pay over any amounts to any authority with respect to
Distributions or allocations to any Holder, the amount withheld shall be deemed
to be a Distribution in the amount of the withholding to the Holder. In the
event of any claimed over withholding, Holders shall be limited to an action
against the applicable jurisdiction. If the amount required to be withheld was
not withheld from actual Distributions made, the Trust may reduce subsequent
Distributions by the amount of such withholding.

                                   ARTICLE XII
                             AMENDMENTS AND MEETINGS

     SECTION 12.1 Amendments.

     (a) Except as otherwise provided in this Declaration or by any applicable
terms of the Securities, this Declaration may only be amended by a written
instrument approved and executed by the Administrative Trustees (or if there are
more than two Administrative Trustees a majority of the Administrative
Trustees); and

          (i) if the amendment affects the rights, powers, duties, obligations
     or immunities of the Property Trustee, also by the Property Trustee; and

<PAGE>

          (ii) if the amendment affects the rights, powers, duties, obligations
     or immunities of the Delaware Trustee, also by the Delaware Trustee.

     (b) No amendment shall be made, and any such purported amendment shall be
void and ineffective:

          (i) unless, in the case of any proposed amendment, the Property
     Trustee shall have first received an Officers' Certificate from each of the
     Trust and the Sponsor that such amendment is permitted by, and conforms to,
     the terms of this Declaration (including the terms of the Securities);

          (ii) unless, in the case of any proposed amendment which affects the
     rights, powers, duties, obligations or immunities of the Property Trustee,
     the Property Trustee shall have first received:

               (A) an Officers' Certificate from each of the Trust and the
          Sponsor that such amendment is permitted by, and conforms to, the
          terms of this Declaration (including the terms of the Securities); and

               (B) an opinion of counsel (who may be counsel to the Sponsor or
          the Trust) that such amendment is permitted by, and conforms to, the
          terms of this Declaration (including the terms of the Securities),
          provided, however, that the Property Trustee shall not be required to
          sign any such amendment, and

          (iii) to the extent the result of such amendment would be to:

               (A) cause the Trust to fail to continue to be classified for
          purposes of United States federal income taxation as a grantor trust,
          or in a manner that will have the same consequences as classification
          as a grantor trust;

               (B) reduce or otherwise adversely affect the powers of the
          Property Trustee in contravention of the Trust Indenture Act; or

               (C) cause the Trust to be deemed to be an Investment Company
          required to be registered under the Investment Company Act;

     (c) At such time after the Trust has issued any Securities that remain
outstanding, any amendment that would adversely affect the rights, privileges or
preferences of any Holder of Securities may be effected only with such
additional requirements as may be set forth in the terms of such Securities;

     (d) Section 9.1(b) and this Section 12.1 shall not be amended without the
consent of all of the Holders of the Securities;

     (e) Article Four shall not be amended without the consent of the Holders of
a Majority in liquidation amount of the Common Securities and;

     (f) The rights of the holders of the Common Securities under Article Five
to increase or decrease the number of, and appoint and remove Trustees shall not
be amended without the consent of the Holders of a Majority in liquidation
amount of the Common Securities; and

<PAGE>

     (g) Notwithstanding Section 12.1(c), this Declaration may be amended
without the consent of the Holders of the Securities to:

          (i) cure any ambiguity, correct or supplement any provision in this
     Declaration that may be inconsistent with any other provision of this
     Declaration or to make any other provisions with respect to matters or
     questions arising under this Declaration which shall not be inconsistent
     with the other provisions of the Declaration; and

          (ii) to modify, eliminate or add to any provisions of the Declaration
     to such extent as shall be necessary to ensure that the Trust will be
     classified for United States federal income tax purposes as a grantor
     trust, or in a manner that will have the same consequences as
     classification as a grantor trust, at all times that any Securities are
     outstanding or to ensure that the Trust will not be required to register as
     an Investment Company under the Investment Company Act.

provided, however, such action shall not adversely affect in any material
respect the interests of the Holders, and any amendments of this Declaration
shall become effective when notice thereof is given to the Holders.

     SECTION 12.2 Meetings of the Holders; Action by Written Consent.

     (a) Meetings of the Holders of any class of Securities may be called at any
time by the Administrative Trustees (or as provided in the terms of the
Securities) to consider and act on any matter on which Holders of such class of
Securities are entitled to act under the terms of this Declaration, the terms of
the Securities or the rules of any stock exchange on which the Trust Preferred
Securities are listed or admitted for trading. The Administrative Trustees shall
call a meeting of the Holders of such class if directed to do so by the Holders
of at least 10% in liquidation amount of such class of Securities. Such
direction shall be given by delivering to the Administrative Trustees one or
more notice in a writing stating that the signing Holders of Securities wish to
call a meeting and indicating the general or specific purpose for which the
meeting is to be called. Any Holders calling a meeting shall specify in writing
the Security Certificates held by the Holders exercising the right to call a
meeting and only those Securities specified shall be counted for purposes of
determining whether the required percentage set forth in the second sentence of
this paragraph has been met.

     (b) Except to the extent otherwise provided in the terms of the Securities,
the following provisions shall apply to meetings of Holders of Securities:

          (i) notice of any such meeting shall be given to all the Holders of
     Securities having a right to vote thereat at least seven days and not more
     than 60 days before the date of such meeting. Whenever a vote, consent or
     approval of the Holders is permitted or required under this Declaration or
     the rules of any stock exchange on which the Trust Preferred Securities are
     listed or admitted for trading, such vote, consent or approval may be given
     at a meeting of the Holders. Any action that may be taken at a meeting of
     the Holders of Securities may be taken without a meeting if a consent in
     writing setting forth the action so taken is signed by the Holders of
     Securities owning not less than the minimum amount of Securities in
     liquidation amount that would be necessary to authorize or take such action
     at a meeting at which all

<PAGE>

     Holders having a right to vote thereon were present and voting. Prompt
     notice of the taking of action without a meeting shall be given to the
     Holders entitled to vote who have not consented in writing. The
     Administrative Trustees may specify that any written ballot submitted to
     the Security Holder for the purpose of taking any action without a meeting
     shall be returned to the Trust within the time specified by the
     Administrative Trustees;

          (ii) each Holder may authorize any Person to act for it by proxy on
     all matters in which a Holder is entitled to participate, including waiving
     notice of any meeting, or voting or participating at a meeting. No proxy
     shall be valid after the expiration of 11 months from the date thereof
     unless otherwise provided in the proxy. Every proxy shall be revocable at
     the pleasure of the Holder of Securities executing it. Except as otherwise
     provided herein, all matters relating to the giving, voting or validity of
     proxies shall be governed by the General Corporation Law of the State of
     Delaware relating to proxies, and judicial interpretations thereunder, as
     if the Trust were a Delaware corporation and the Holders were stockholders
     of a Delaware corporation;

          (iii) each meeting of the Holders shall be conducted by the
     Administrative Trustees or by such other Person that the Administrative
     Trustees may designate; and

          (iv) unless the Business Trust Act, this Declaration, the terms of the
     Securities, the Trust Indenture Act or the listing rules of any stock
     exchange on which the Trust Preferred Securities are then listed or
     trading, otherwise provides, the Administrative Trustees, in their sole
     discretion, shall establish all other provisions relating to meetings of
     Holders, including notice of the time, place or purpose of any meeting at
     which any matter is to be voted on by any Holders of Securities, waiver of
     any such notice, action by consent without a meeting, the establishment of
     a record date, quorum requirements, voting in person or by proxy or any
     other matter with respect to the exercise of any such right to vote.

                                   ARTICLE XII
                       REPRESENTATIONS OF PROPERTY TRUSTEE
                              AND DELAWARE TRUSTEE

     SECTION 13.1 Representations and Warranties of Property Trustee.

     The Trustee that acts as initial Property Trustee represents and warrants
to the Trust and to the Sponsor at the date of this Declaration, and each
Successor Property Trustee represents and warrants to the Trust and the Sponsor
at the time of the Successor Property Trustee's acceptance of its appointment as
Property Trustee that:

     (a) The Property Trustee is a national banking association with trust
powers and authority to execute and deliver, and to carry out and perform its
obligations under the terms of, this Declaration;

     (b) The execution, delivery and performance by the Property Trustee of the
Declaration has been duly authorized by all necessary corporate action on the
part of the Property Trustee. The Declaration has been duly executed and
delivered by the Property Trustee and constitutes a legal, valid and binding
obligation of the Property Trustee, enforceable against it in accordance with

<PAGE>

its terms, subject to applicable bankruptcy, reorganization, moratorium,
insolvency, and other similar laws affecting creditors' rights generally and to
general principles of equity and the discretion of the court (regardless of
whether the enforcement of such remedies is considered in a proceeding in equity
or at law);

     (c) The execution, delivery and performance of this Declaration by the
Property Trustee does not conflict with or constitute a breach of the charter or
by-laws of the Property Trustee; and

     (d) No consent, approval or authorization of, or registration with or
notice to, any federal banking authority is required for the execution, delivery
or performance by the Property Trustee of this Declaration.

     SECTION 13.2 Representations and Warranties of Delaware Trustee.

     The Trustee that acts as initial Delaware Trustee represents and warrants
to the Trust and to the Sponsor at the date of this Declaration, and each
Successor Delaware Trustee represents and warrants to the Trust and the Sponsor
at the time of the Successor Delaware Trustee's acceptance of its appointment as
Delaware Trustee that:

     (a) The Delaware Trustee, if an entity, is duly organized, validly existing
and in good standing under the laws of the State of Delaware, with corporate
power and authority to execute and deliver, and to carry out and perform its
obligations under the terms of, this Declaration;

     (b) The execution, delivery and performance by the Delaware Trustee of this
Declaration has been duly authorized by all necessary corporate action on the
part of the Delaware Trustee. This Declaration has been duly executed and
delivered by the Delaware Trustee and constitutes a legal, valid and binding
obligation of the Delaware Trustee, enforceable against it in accordance with
its terms, subject to applicable bankruptcy, reorganization, moratorium,
insolvency, and other similar laws affecting creditors' rights generally and to
general principles of equity and the discretion of the court (regardless of
whether the enforcement of such remedies is considered in a proceeding in equity
or at law);

     (c) No consent, approval or authorization of, or registration with or
notice to, any federal banking authority is required for the execution, delivery
or performance by the Delaware Trustee of this Declaration; and

     (d) The Delaware Trustee is a natural person who is a resident of the State
of Delaware or, if not a natural person, an entity which has its principal place
of business in the State of Delaware.

                                   ARTICLE XIV
                                  MISCELLANEOUS

     SECTION 14.1 Notices.

     All notices provided for in this Declaration shall be in writing, duly
signed by the party giving such notice, and shall be delivered, telecopied or
mailed by first class mail, as follows:

     (a) if given to the Trust, in care of the Administrative Trustees at the
Trust's mailing address set forth below (or such other address as the

<PAGE>

Trust may give notice of to the Holders):

                       Xerox Capital Trust I
                       c/o Xerox Corporation
                       P.O. Box 1600
                       800 Long Ridge Road
                       Stamford, Connecticut 06904
                       Attention: Treasurer

     (b) if given to the Delaware Trustee, at the mailing address set forth
below (or such other address as Delaware Trustee may give notice of to the
Holders):

                       Wilmington Trust Company
                       Rodney Square North
                       1100 North Market Street
                       Wilmington, Delaware 19890
                       Attention: Corporate Trust Administration
                       Fax: (302) 651-8882

     (c) if given to the Property Trustee, at the Property Trustee's mailing
address set forth below (or such other address as the Property Trustee may give
notice of to the Holders):

                       Wells Fargo Bank Minnesota, National Association
                       Sixth and Marquette
                       MAC N9303-120
                       Minneapolis, Minnesota 55479
                       Attention: Corporate Trust Services
                       Fax: (612) 667-9825

     (d) if given to the Holder of the Common Securities, at the mailing address
of the Sponsor set forth below (or such other address as the Holder of the
Common Securities may give notice to the Trust):

                       Xerox Corporation
                       P.O. Box 1600
                       800 Long Ridge Road
                       Stamford, Connecticut 06904
                       Attention: Treasurer

     (e) if given to any other Holder, at the address set forth on the books and
records of the Trust.

     All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the date
of such refusal or inability to deliver.

     SECTION 14.2 Governing Law.

     This Declaration and the rights of the parties hereunder shall be governed
by and interpreted in accordance with the laws of the State of Delaware and all
rights and remedies shall be governed by such laws without regard to principles
of conflict of laws.

<PAGE>

     SECTION 14.3 Intention of the Parties.

     It is the intention of the parties hereto that the Trust be classified for
United States federal income tax purposes as a grantor trust. The provisions of
this Declaration shall be interpreted to further this intention of the parties.

     SECTION 14.4 Headings.

     Headings contained in this Declaration are inserted for convenience of
reference only and do not affect the interpretation of this Declaration or any
provision hereof.

     SECTION 14.5 Successors and Assigns.

     Whenever in this Declaration any of the parties hereto is named or referred
to, the successors and assigns of such party shall be deemed to be included, and
all covenants and agreements in this Declaration by the Sponsor and the Trustees
shall bind and inure to the benefit of their respective successors and assigns,
whether so expressed.

     SECTION 14.6 Partial Enforceability.

     If any provision of this Declaration, or the application of such provision
to any Person or circumstance, shall be held invalid, the remainder of this
Declaration, or the application of such provision to persons or circumstances
other than those to which it is held invalid, shall not be affected thereby.

     SECTION 14.7 Counterparts.

     This Declaration may contain more than one counterpart of the signature
page and this Declaration may be executed by the affixing of the signature of
each of the Trustees to one of such counterpart signature pages. All of such
counterpart signature pages shall be read as though one, and they shall have the
same force and effect as though all of the signers had signed a single signature
page.

     IN WITNESS WHEREOF, the undersigned has caused these presents to be
executed as of the day and year first above written.

                                Gregory B. Tayler, as Administrative Trustee

                                Timothy MacCarrick, as Administrative Trustee

                                Navin M. Chheda, as Administrative Trustee

                                WILMINGTON TRUST COMPANY,
                                as Delaware Trustee


                                By:
                                   -----------------------------------------
                                   Name:
                                   Title:


                                WELLS FARGO BANK MINNESOTA, NATIONAL
                                  ASSOCIATION,

<PAGE>

                                as Property Trustee


                                By:
                                   -----------------------------------------
                                   Name:
                                   Title:


                                XEROX CORPORATION,
                                as Sponsor


                                By:
                                   -----------------------------------------
                                   Name:
                                   Title:

                                     ANNEX I
                                    TERMS OF
                  7 1/2% CONVERTIBLE TRUST PREFERRED SECURITIES
                      7 1/2% CONVERTIBLE COMMON SECURITIES

     Pursuant to Section 7.1 of the Amended and Restated Declaration of Trust,
dated as of November 27, 2001 (as amended from time to time, the "Declaration"),
the designation, rights, privileges, restrictions, preferences and other terms
and provisions of the Securities are set out below (each capitalized term used
but not defined herein has the meaning set forth in the Declaration or, if not
defined in such Declaration, as defined in the Offering Memorandum referred to
below in Section 2(c) of this Annex I):

     1.   Designation and Number.

          (a) Trust Preferred Securities. 20,700,000 Trust Preferred Securities
of the Trust with an aggregate liquidation amount with respect to the assets of
the Trust of up to one billion thirty-five million dollars ($1,035,000,000), and
each with a liquidation amount with respect to the assets of the Trust of $50
per security, are hereby designated for the purposes of identification only as
"7 1/2% Convertible Trust Preferred Securities" (the "Trust Preferred
Securities"). The certificates evidencing the Trust Preferred Securities shall
be substantially in the form of Exhibit A-1 to the Declaration, with such
changes and additions thereto or deletions therefrom as may be required by
ordinary usage, custom or practice or to conform to the rules of any stock
exchange on which the Trust Preferred Securities are listed.

          (b) Common Securities. 640,208 Common Securities of the Trust with an
aggregate liquidation amount with respect to the assets of the Trust of
thirty-two million ten thousand and four hundred dollars ($32,010,400) and a
liquidation amount with respect to the assets of the Trust of $50 per security,
are hereby designated for the purposes of identification only as "7 1/2%
Convertible Common Securities" (the "Common Securities"). The certificates
evidencing the Common Securities shall be substantially in the form of Exhibit
A-2 to the Declaration, with such changes and additions thereto or deletions
therefrom as may be required by ordinary usage, custom or practice.

<PAGE>

     2. Distributions.

          (a) Distributions payable on each Security will be fixed at a rate per
annum of 7 1/2% (the "Coupon Rate") of the liquidation amount of $50 per
Security (the "Liquidation Amount"), such rate being the rate of interest
payable on the Debentures to be held by the Property Trustee. Distributions in
arrears for more than one quarterly period will bear additional distributions
thereon compounded quarterly at the Coupon Rate (to the extent permitted by
applicable law). A Distribution is payable only to the extent that payments are
made in respect of the Debentures held by the Property Trustee and to the extent
the Property Trustee has funds on hand legally available therefor.

          (b) Distributions on the Securities will be cumulative, will
accumulate from the most recent date to which Distributions have been paid or,
if no Distributions have been paid, from November 27, 2001, and will be payable
quarterly in arrears on February 27, May 27, August 27 and November 27 of each
year, commencing on February 27, 2002 (each, a "Distribution Date"), except as
otherwise described below. Distributions will be computed on the basis of a
360-day year consisting of twelve 30-day months and for any period less than a
full calendar month on the basis of the actual number of days elapsed in such
month.

          (c) Distributions on the Securities will be payable to the Holders
thereof as they appear on the books and records of the Trust on the Business Day
or, if the Trust Preferred Securities are no longer represented by Global Trust
Preferred Securities, the 15th calendar day, immediately preceding the relevant
Distribution Date, which Distribution Dates correspond to the interest payment
dates on the Debentures. Subject to any applicable laws and regulations and the
provisions of the Declaration, each such payment in respect of the Trust
Preferred Securities will be made as described under the heading "Description of
the Trust Preferred Securities -- Book-Entry Only Issuance -- The Depository
Trust Company" in the Offering Memorandum, dated November 19, 2001, of the
Sponsor and the Trust relating to the Securities and the Debentures. Payments in
respect of Definitive Trust Preferred Securities will be made by check mailed to
the Holder entitled thereto. The relevant record dates for the Common Securities
shall be the same as the record dates for the Trust Preferred Securities.
Distributions payable on any Securities that are not punctually paid on any
Distribution Date, as a result of the Debenture Issuers having failed to make a
payment under the respective Debentures, will cease to be payable to the Holder
on the relevant record date, and such defaulted Distribution will instead be
payable to the Person in whose name such Securities are registered on the
special record date or other specified date determined in accordance with the
related Indenture. If any date on which Distributions are payable on the
Securities is not a Business Day, then payment of the Distribution payable on
such date will be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such delay), with the
same force and effect as if made on such date. The amount of any Distribution
payable on any Distribution Date, the applicable redemption date, the applicable
Purchase Date or the Change in Control Purchase Date shall include Distributions
accrued from and including the Issue Date or the last Distribution Date to which
Distributions have been paid to but excluding such Distribution Date, such
redemption date, such Purchase Date or such Change in Control Purchase Date, as
applicable.

          (d) In the event that there is any money or other property held by

<PAGE>

or for the Trust that is not accounted for hereunder, such property shall be
distributed Pro Rata (as defined herein) among the Holders of the Securities.

     3. Liquidation Distribution Upon Dissolution.

     If a termination occurs as described in Sections 8.1(a)(i), (ii), (iv) and
(v) of the Declaration, the Trust shall be liquidated by the Trustees as
expeditiously as the Trustees determine to be possible by distributing, after
satisfaction of liabilities to creditors of the Trust as provided by applicable
law, to the holders of the Trust Securities a Like Amount of the Xerox Funding
Debentures (or, in the case of an exchange by Xerox Funding, Xerox Debentures)
then held by the Property Trustee, unless such distribution is determined by the
Property Trustee not to be practicable, in which event such holders will be
entitled to receive out of the assets of the Trust legally available for
distribution to holders, after satisfaction of liabilities to creditors of the
Trust as provided by applicable law, an amount equal to the aggregate of the
Liquidation Amount plus accumulated and unpaid Distributions thereon to the date
of payment (such amount being the "Liquidation Distribution"). If such
Liquidation Distribution can be paid only in part because the Trust has
insufficient assets on hand legally available to pay in full the aggregate
Liquidation Distribution, then the amounts payable directly by the Trust on the
Trust Preferred Securities and the Common Securities shall be paid on a Pro Rata
basis.

     "Like Amount" means (i) with respect to a redemption of the Securities,
Securities having a Liquidation Amount equal to the principal amount of
Debentures to be paid in accordance with their terms, (ii) with respect to a
distribution of Debentures upon the liquidation of the Trust, Debentures having
a principal amount equal to the Liquidation Amount of the Securities of the
Holder to whom such Debentures are distributed.

     4. Conversion.

     The Holders of Trust Securities, subject to the limitations set forth in
this Section 4 and the Securities, shall have the right at any time following
the Closing Time and ending on the second Business Day immediately preceding
November 27, 2021, at their option, to cause the Conversion Agent to convert
Trust Securities, on behalf of the converting Holders, into shares of Common
Stock of the Sponsor in the manner described herein and subject to the following
terms and conditions described in this Section.

          (a) The Trust Securities will be convertible into fully paid and
nonassessable shares of Common Stock of the Sponsor pursuant to the Holder's
direction to the Conversion Agent to direct Xerox Funding or its authorized
agent to immediately convert an equivalent aggregate principal amount of Xerox
Debentures then held by Xerox Funding into fully paid and nonassessable shares
of Common Stock of the Sponsor at an initial rate of 5.4795 shares of Common
Stock for each Trust Security, subject to certain adjustments set forth in the
Xerox Indenture (as so adjusted, the "Conversion Rate").

          (b) In order to convert Trust Securities into Common Stock, the Holder
of such Trust Securities shall submit to the Conversion Agent an irrevocable
Notice of Conversion to convert Trust Securities on behalf of such Holder,
together, if the Trust Securities are in certificated form, with such
certificates. The Notice of Conversion shall (i) set forth the number of Trust
Securities to be converted and the name or names, if other than the Holder, in
which the shares of Company Common Stock should be issued and (ii)

<PAGE>

direct the Conversion Agent (a) to direct Xerox Funding to immediately convert
an equivalent aggregate principal amount of Xerox Debentures into Common Stock
and, if applicable, other securities, cash or property (at the Conversion Rate
specified in the preceding paragraph), and (b) to direct Xerox Funding to direct
the Sponsor to deliver such property to the Property Trustee for delivery to
such Holder. The Conversion Agent shall notify the Property Trustee of the
Holder's election to convert Trust Securities. The Conversion Agent shall
thereupon notify Xerox Funding of the Holder's election to convert the
Debentures into shares of Common Stock. Upon receipt of such notice, Xerox
Funding, or its authorized agent, will elect to convert an equivalent aggregate
principal amount of the Xerox Debentures then held by it into shares of Common
Stock and deliver such Common Stock to the Property Trustee for distribution to
the Holders of the Trust Securities so converted. The Trust shall be obligated
to deliver the shares of Common Stock received in connection with such
conversion to the Holders of such Trust Securities. Upon any such conversion, an
equivalent aggregate principal amount of Xerox Funding Debentures shall be
deemed to have been paid in full in accordance with the provisions of the Xerox
Funding Indenture. None of the Trust, Xerox Funding or the Sponsor will make, or
be required to make, any payment, allowance or adjustment upon any conversion on
account of any unpaid Distributions, whether or not in arrears, accrued on the
Trust Securities surrendered for conversion, or on account of any accrued and
unpaid dividends on the shares of Common Stock issued upon such conversion.
Trust Securities shall be deemed to have been converted immediately prior to the
close of business on the day on which an irrevocable Notice of Conversion
relating to such Trust Securities is received by the Conversion Agent in
accordance with the foregoing provisions (the "Conversion Date"). The Person or
Persons entitled to receive the Common Stock issuable upon conversion of the
Xerox Debentures shall be treated for all purposes as the record holder or
holders of such Common Stock on the Conversion Date. As promptly as practicable
on or after the Conversion Date, the Sponsor shall issue and deliver (or cause
the transfer agent for the Common Stock to deliver) at the office of the
Conversion Agent a certificate or certificates for the number of full shares of
Common Stock issuable upon such conversion, together with the cash payment, if
any, in lieu of any fraction of any share to the Person or Persons entitled to
receive the same, unless otherwise directed by the Holder in the Notice of
Conversion, and the Conversion Agent shall distribute such certificate or
certificates to such Person or Persons. The Trust agrees not to convert any
Debentures then held by it except pursuant to a Notice of Conversion delivered
to the Conversion Agent.

          (c) In effecting the conversion and transactions described in this
Section 4, the Conversion Agent shall be acting as agent of the Holders of Trust
Securities directing it to effect such conversion transactions. The Conversion
Agent is hereby authorized to cause Xerox Funding or its authorized agent to
convert immediately all or a portion of the Xerox Debentures so exchanged into
Common Stock and thereupon to deliver such shares of Common Stock in accordance
with the provisions of this Section and to deliver to the Property Trustee any
new Xerox Funding Debenture or Xerox Funding Debentures for any resulting
unconverted principal amount delivered to the Conversion Agent by the applicable
Debenture Trustee, or if such Debentures are represented by a Global Security,
to cause the applicable Debenture Trustee to make appropriate notations thereon.

          (d) No fractional shares of the Common Stock will be issued as a
result of conversion, but, in lieu thereof, such fractional interest will be
paid in cash by the Sponsor to the Conversion Agent in an amount equal to the

<PAGE>

Sale Price (as determined under the Xerox Indenture) of such fractional share on
the Conversion Date, and the Conversion Agent will in turn make such payment to
the Holder or Holders of Trust Securities so converted.

          (e) Nothing in this Section 4 shall limit the requirement of the Trust
to withhold taxes pursuant to the terms of the Trust Securities or as set forth
in this Declaration or otherwise require the Property Trustee or the Trust to
pay any amounts on account of such withholdings.

          (f) In the event of the conversion of any Trust Securities in part
only in connection with a conversion pursuant to this Section 4, a new Trust
Security or Trust Securities for the unconverted portion thereof will be issued
in the name of the Holder thereof upon the cancellation of the Trust Security
converted in part in accordance with Section 7.10 of the Declaration or if such
Trust Security is represented by a Global Trust Preferred Security, the Property
Trustee shall note thereon the reduction in the number of Trust Securities
evidenced thereby as a result of such exchange.

     5. Redemption and Distribution.

          (a) Upon the repayment of the Xerox Debentures in whole or in part, at
maturity or upon early redemption (either at the option of Sponsor or pursuant
to a Special Event, as described below), an equivalent principal amount of the
Xerox Funding Debentures shall be repaid in accordance with the terms of the
Xerox Funding Indenture and the proceeds from such repayment by Xerox Funding
shall be simultaneously applied by the Property Trustee (subject to the Property
Trustee having received notice no later than 45 days prior to such repayment) to
redeem a Like Amount of the Securities at a redemption price equal to (i) in the
case of the repayment of the Xerox Debentures at maturity or the optional
prepayment of the Xerox Debentures prior to December 4, 2004 upon the occurrence
and continuation of a Special Event, the Regular Redemption Price (as defined
below) and (ii) in the case of the optional prepayment of the Xerox Debentures
on or after December 4, 2004 (the "Initial Optional Redemption Date"), the
Special Redemption Price (as defined below). The Regular Redemption Price and
the Special Redemption Price are referred to collectively as the "Redemption
Price". Holders will be given not less than 30 nor more than 60 days notice of
such redemption.

          (b) (i) The "Regular Redemption Price", with respect to a redemption
     of Securities, shall mean an amount per Security equal to the principal of
     and accrued and unpaid interest on $50 principal amount of the Xerox
     Debentures to but excluding the maturity date or the date fixed for
     redemption thereof.

               (ii) In the case of an optional redemption, if fewer than all the
     outstanding Securities are to be so redeemed, the Trust Preferred
     Securities will be redeemed Pro Rata and the Trust Preferred Securities to
     be redeemed will be determined as described in Section 5(f)(ii) below.

               (iii) The Sponsor shall have the right (subject to the conditions
     in the Xerox Indenture) to elect to redeem the Xerox Debentures in whole or
     in part at any time on or after the Initial Optional Redemption Date, upon
     not less than 30 days and not more than 60 days notice, at the Special
     Redemption Price and, simultaneous with such redemption, to cause an
     equivalent principal amount of the Xerox Funding Debentures to be redeemed
     by Xerox Funding at the Special

<PAGE>

     Redemption Price and to cause a Like Amount of the Securities to be
     redeemed by the Trust at the Special Redemption Price on a Pro Rata basis.
     "Special Redemption Price" shall mean a price equal to the percentage of
     the liquidation amount of Securities to be redeemed plus accumulated and
     unpaid Distributions thereon, if any, to but excluding the date of such
     redemption if redeemed during the periods indicated below:

Period                        Percentage

From December 4, 2004 to
     November 26, 2005        103.75%
From November 27, 2005 to
     November 26, 2006        102.50%
From November 27, 2006 to
     November 26, 2007        101.25%
After November 26, 2007       100%

          (c) If a Special Event shall occur and be continuing, the Sponsor may
at its option prepay the Xerox Debentures in whole (but not in part) at any time
prior to the Initial Optional Redemption Date, within the 90 days of the
occurrence of such Special Event (the "90 Day Period") at the Regular Redemption
Price, and, simultaneous with such redemption, cause an equivalent principal
amount of the Xerox Funding Debentures to be redeemed by Xerox Funding at the
Regular Redemption Price and cause a Like Amount of the Securities to be
redeemed by the Trust at the Regular Redemption Price on a Pro Rata basis.

     "Special Event" means a Tax Event or an Investment Company Event.

     "Tax Event" means that the Administrative Trustees shall have received an
opinion of a nationally recognized independent tax counsel experienced in such
matters to the effect that, as a result of (a) any amendment to, or change
(including any announced prospective change) in, the laws or any regulations
thereunder of the United States or any political subdivision or taxing authority
thereof or therein; (b) any judicial decision or official administrative
pronouncement, ruling, regulatory procedure, notice or announcement, including
any notice or announcement of intent to adopt such procedures or regulations (an
"Administrative Action"); or (c) any amendment to or change in the
administrative position or interpretation of any Administrative Action or
judicial decision that differs from the theretofore generally accepted position,
in each case, by any legislative body, court, governmental agency or regulatory
body, irrespective of the manner in which such amendment or change is made
known, which amendment or change is effective or such Administrative Action or
decision is announced, in each case, on or after the date of original issuance
of the Debentures or the initial issue date of the Trust Preferred Securities,
there is more than an insubstantial risk that (i) either the Trust or Xerox
Funding is, or will be within 90 days of the date of such opinion, subject to
United States federal income tax with respect to income received or accrued on
the Debentures, (ii) interest payable on the Xerox Debentures is not, or within
90 days of the date thereof will not be, deductible by the Sponsor, in whole or
in part, for United States federal income tax purposes or (iii) the Trust or
Xerox Funding is, or will be within 90 days of the date thereof, subject to more
than a de minimis amount of other taxes, duties or other governmental charges.

     "Investment Company Event" means that the Sponsor shall have received an

<PAGE>

opinion of independent legal counsel experienced in such matters to the effect
that, as a result of the occurrence of a change in law or regulation or a change
in interpretation or application of law or regulation by any legislative body,
courts, governmental agency or regulatory authority on or after the date of
initial issuance of the Trust Preferred Securities by the Trust, either the
Trust or Xerox Funding is or will be considered an "Investment Company" that is
required to be registered under the Investment Company Act.

          (d) On and from the date fixed by the Administrative Trustees for any
distribution of Debentures and liquidation of the Trust: (i) the Securities will
no longer be deemed to be outstanding, (ii) the Clearing Agency or its nominee
(or any successor Clearing Agency or its nominee), as the Holder of the Trust
Preferred Securities, will receive a registered global certificate or
certificates representing the Debentures to be delivered upon such distribution
and any certificates representing Securities not held by the Clearing Agency or
its nominee (or any successor Clearing Agency or its nominee) will be deemed to
represent beneficial interests in a Like Amount of Debentures until such
certificates are presented to the applicable Debenture Issuer or its agent for
transfer or reissue.

          (e) The Trust may not redeem any outstanding Securities unless all
accumulated and unpaid Distributions have been paid on all Securities for all
quarterly Distribution periods terminating on or before the date of redemption.

          (f) The procedure with respect to redemptions or distributions of
Debentures shall be as follows:

               (i) Notice of any redemption of, or notice of distribution of
     Debentures in exchange for, the Securities (a "Redemption/Distribution
     Notice") will be given by the Trust by mail to each Holder to be redeemed
     or exchanged not fewer than 30 nor more than 60 days before the date fixed
     for redemption or exchange thereof which, in the case of a redemption, will
     be the date fixed for redemption of the Debentures. For purposes of the
     calculation of the date of redemption or exchange and the dates on which
     notices are given pursuant to this Section 5(f)(i), a Redemption/
     Distribution Notice shall be deemed to be given on the day such notice is
     first mailed by first-class mail, postage prepaid, to Holders. Each
     Redemption/Distribution Notice shall be addressed to the Holders of
     Securities at the address of each such Holder appearing in the books and
     records of the Trust. No defect in the Redemption/Distribution Notice or in
     the mailing of either thereof with respect to any Holder shall affect the
     validity of the redemption or exchange proceedings with respect to any
     other Holder.

               (ii) In the event that fewer than all the outstanding Securities
     are to be redeemed, the Securities to be redeemed shall be redeemed Pro
     Rata from each Holder of Trust Preferred Securities, it being understood
     that, in respect of Trust Preferred Securities registered in the name of
     and held of record by the Clearing Agency or its nominee (or any successor
     Clearing Agency or its nominee) or any nominee, the distribution of the
     proceeds of such redemption will be made to the Clearing Agency and
     disbursed by such Clearing Agency in accordance with the procedures applied
     by such agency or nominee.

               (iii) If Securities are to be redeemed and the Trust gives a

<PAGE>

     Redemption/Distribution Notice, (which notice will be irrevocable), then
     (A) with respect to Trust Preferred Securities issued in book-entry form,
     by 12:00 noon, New York City time, on the redemption date, provided that
     the Debenture Issuer has paid the Property Trustee a sufficient amount of
     cash in connection with the related redemption or maturity of the
     Debentures by 10:00 a.m., New York City time, on the maturity date or the
     date of redemption, as the case requires, the Property Trustee will deposit
     irrevocably with the Clearing Agency or its nominee (or successor Clearing
     Agency or its nominee) funds sufficient to pay the applicable Redemption
     Price with respect to such Trust Preferred Securities and will give the
     Clearing Agency irrevocable instructions and authority to pay the
     Redemption Price to the relevant Clearing Agency Participants, and (B) with
     respect to Trust Preferred Securities issued in certificated form and
     Common Securities, provided that the Debenture Issuer has paid the Property
     Trustee a sufficient amount of cash in connection with the related
     redemption or maturity of the Debentures, the Property Trustee will pay the
     relevant Redemption Price to the Holders by check mailed to the address of
     the relevant Holder appearing on the books and records of the Trust on the
     redemption date. If a Redemption/Distribution Notice shall have been given
     and funds deposited as required, if applicable, then immediately prior to
     the close of business on the date of such deposit, or on the redemption
     date, as applicable, Distributions will cease to accumulate on the
     Securities so called for redemption and all rights of Holders so called for
     redemption will cease, except the right of the Holders of such Securities
     to receive the Redemption Price, but without interest on such Redemption
     Price, and such Securities shall cease to be outstanding.

               (iv) Payment of accrued and unpaid Distributions on the
     Redemption Date of the Securities will be subject to the rights of Holders
     of Securities on the close of business on a regular record date in respect
     of a Distribution Date occurring on or prior to such Redemption Date.

               Neither the Administrative Trustees nor the Trust shall be
     required to register or cause to be registered the transfer of (i) any
     Securities beginning on the opening of business 15 days before the day of
     mailing of a notice of redemption or any notice of selection of Securities
     for redemption or (ii) any Securities selected for redemption except the
     unredeemed portion of any Security being redeemed. If any date fixed for
     redemption of Securities is not a Business Day, then payment of the
     Redemption Price payable on such date will be made on the next succeeding
     day that is a Business Day (except that if such next succeeding day which
     is a Business Day falls in a subsequent calendar year, such payment shall
     be payable on the Business Day next preceding such date) (and without any
     interest or other payment in respect of any such delay), with the same
     force and effect as if made on such date fixed for redemption. If payment
     of the Redemption Price in respect of any Securities is improperly withheld
     or refused and not paid either by the Property Trustee or by the Sponsor as
     guarantor pursuant to the Trust Securities Guarantee, Distributions on such
     Securities will continue to accumulate from the original redemption date to
     the actual date of payment, in which case the actual payment date will be
     considered the date fixed for redemption for purposes of calculating the
     Redemption Price.

               (v) Redemption/Distribution Notices shall be sent by the

<PAGE>

     Property Trustee on behalf of the Trust to (A) in respect of the Trust
     Preferred Securities, the Clearing Agency or its nominee (or any successor
     Clearing Agency or its nominee) if the Global Certificates have been issued
     or, if Definitive Trust Preferred Security Certificates have been issued,
     to the Holder thereof, and (B) in respect of the Common Securities to the
     Holder thereof.

               (vi) Subject to the foregoing and applicable law (including,
     without limitation, United States federal securities laws and banking
     laws), provided the acquiror is not the Holder of the Common Securities or
     the obligor under the Xerox Funding Indenture, the Sponsor or any of its
     subsidiaries may at any time and from time to time purchase outstanding
     Trust Preferred Securities by tender, in the open market or by private
     agreement. Any Trust Preferred Securities so acquired will not be resold.

     6. Purchase of Trust Securities at Option of the Holder.

          (a) General. Subject to the terms and conditions of the Xerox
Indenture and this Section, the Trust may become obligated to purchase, at the
option of the Holder, all or a portion of the Trust Securities held by such
Holder on December 4, 2004, November 27, 2006, November 27, 2008, November 27,
2011 and November 27, 2016 (each, a "Purchase Date"), at a purchase price of $50
per Trust Security, plus accrued and unpaid Distributions thereon to but
excluding the applicable Purchase Date (the "Purchase Price"). If Holders
require the Trust to purchase all or a portion of their Trust Securities on a
Purchase Date, (x) Xerox Funding will be required to purchase a Like Amount of
the Xerox Funding Debentures at the Purchase Price and (y) the Sponsor will be
required to purchase an equivalent aggregate principal amount of the Xerox
Debentures at such Purchase Price in the manner described below. The Trust will
be obligated to use the same consideration received in connection with any such
purchase to purchase the applicable Trust Securities on the applicable Purchase
Date. The Trust will be required to purchase a Holder's Trust Securities upon:

               (1) delivery to the Paying Agent, by the Holder of a written
     notice of purchase (a "Purchase Notice") at any time from the opening of
     business on the date that is at least 20 Business Days prior to a Purchase
     Date until the close of business on the second Business Day immediately
     preceding such Purchase Date substantially in the form set forth in the
     Xerox Indenture; the Purchase Notice shall, in addition to the information
     set forth in the Xerox Indenture, (i) set forth the number of Trust
     Securities to be purchased and (ii) direct the Paying Agent (a) to direct
     the Property Trustee to immediately deliver a notice of purchase of a
     portion of the Xerox Funding Debentures having an aggregate principal
     amount equal to the Liquidation Amount of the Trust Securities that are the
     subject of the Purchase Notice to the applicable trustee, (b) to direct
     Xerox Funding to elect to submit a notice of purchase to the Sponsor of an
     equivalent aggregate principal amount of Xerox Debentures, and (c) to
     direct Xerox Funding to direct the Sponsor to deliver the Purchase Price to
     the Paying Agent for delivery to such Holder; and

               (2) delivery of such Trust Security to the Paying Agent prior to,
     on or after the Purchase Date (together with all necessary endorsements) at
     the offices of the Paying Agent, such delivery being a condition to receipt
     by the Holder of the Purchase Price therefor;

<PAGE>

     provided, however, that such Purchase Price shall be so paid pursuant to
     this Section 6, the Xerox Funding Indenture and the Xerox Indenture only if
     the Trust Security so delivered to the Paying Agent shall conform in all
     respects to the description thereof in the related Purchase Notice, as
     determined by the Sponsor, and such Purchase Notice shall not be validly
     withdrawn by the Holder.

                    Any purchase by the Sponsor contemplated pursuant to the
     provisions of this Section shall be consummated by the delivery of the
     consideration to be received by the Holder promptly following the later of
     the Purchase Date and the time of delivery of the Trust Security to the
     Paying Agent.

                    Notwithstanding anything herein to the contrary, any Holder
     delivering to the Paying Agent the Purchase Notice contemplated by this
     Section 6(a) shall have the right to withdraw such Purchase Notice at any
     time prior to the close of business on the Purchase Date by delivery of a
     written notice of withdrawal to the Paying Agent in accordance with the
     Xerox Indenture.

                    The Paying Agent shall promptly notify Xerox Funding and the
     Sponsor of the receipt by it of any Purchase Notice or written notice of
     withdrawal thereof.

          (b) Sponsor's Right to Elect Manner of Payment of Purchase Price. The
Trust Securities to be purchased pursuant to Section 6(a) may be paid for, at
the election of the Sponsor, in U.S. legal tender ("cash") or Common Stock, or
in any combination of cash and Common Stock, subject to the conditions set forth
in the Xerox Indenture in respect of the simultaneous purchase of the Xerox
Debentures.

               Upon a payment by Common Stock pursuant to the terms hereof, that
portion of unpaid and accumulated Distributions attributable to the period from
the Issue Date to the Purchase Date with respect to the purchased Trust Security
shall not be cancelled, extinguished or forfeited but rather shall be deemed
paid in full to the Holder through the delivery of the Common Stock in exchange
for the Trust Security being purchased pursuant to the terms hereof, and the
fair market value of such Common Stock (together with any cash payments in lieu
of fractional shares of Common Stock) shall be treated as issued, to the extent
thereof, first in exchange for the Distributions accumulated through the
Purchase Date, and the balance, if any, of the fair market value of such shares
of Common Stock shall be treated as issued in exchange for the Liquidation
Amount of the Trust Security being purchased pursuant to the provisions hereof.

          (c) Notice of Election. The Sponsor's notice of election to purchase
with cash or Common Stock or any combination thereof (the "Sponsor Notice")
shall be sent to the Holders (and to beneficial owners as required by applicable
law) not less than 20 Business Days prior to the applicable Purchase Date (the
"Sponsor Notice Date"). Any such Sponsor Notice shall state the manner of
payment elected and shall contain the information set forth in the Xerox
Indenture.

          (d) Effect of Purchase Notice; Withdrawal. Upon receipt by the Paying
Agent of the Purchase Notice specified in Section 6(a), the Holder of the Trust
Security in respect of which such Purchase Notice was given shall (unless such
Purchase Notice is withdrawn as specified below) thereafter be

<PAGE>

entitled to receive solely the Purchase Price with respect to such Trust
Security to but excluding the Purchase Date. Such Purchase Price shall be paid
to such Holder, subject to receipts of funds and/or other property by the Paying
Agent, promptly following the later of (x) the Purchase Date with respect to
such Trust Security (provided the conditions in the Xerox Indenture have been
satisfied) and (y) the time of delivery of such Trust Security to the Paying
Agent by the Holder thereof in the manner required by the Xerox Indenture. Trust
Securities in respect of which a Purchase Notice has been given by the Holder
thereof may not be converted pursuant to Section 4 hereof on or after the date
of the delivery of such Purchase Notice unless such Purchase Notice has first
been validly withdrawn as specified below.

               A Purchase Notice may be withdrawn by means of a written notice
of withdrawal delivered to the office of the Paying Agent at any time prior to
the close of business on the applicable Purchase Date.

          (e) No Purchase Upon Event of Default. There shall be no purchase of
any Trust Securities pursuant to this Section 6 (other than through the delivery
of Common Stock in payment of the Purchase Price, including cash in lieu of
fractional shares) if there has occurred (prior to, on or after, as the case may
be, the giving, by the Holders of such Trust Securities, of the required
Purchase Notice) and is continuing an Event of Default (other than a default in
the payment of the Purchase Price with respect to such Trust Securities). The
Paying Agent will promptly return to the respective Holders thereof any Trust
Securities (x) with respect to which a Purchase Notice has been withdrawn in
compliance with the Xerox Indenture, or (y) held by it during the continuance of
an Event of Default (other than a default in the payment of the Purchase Price
with respect to such Trust Securities or if the Sponsor has elected, in
accordance with the provisions hereof, to pay the Purchase Price through the
delivery of Common Stock, including cash in lieu of fractional shares) in which
case, upon such return, the Purchase Notice with respect thereto shall be deemed
to have been withdrawn.

          (f) Covenants of the Sponsor. All shares of Common Stock delivered
upon purchase of the Trust Securities shall be newly issued shares or treasury
shares, shall be duly authorized, validly issued, fully paid and nonassessable
and shall be free from preemptive rights and free of any lien or adverse claim
and subject to no restriction on transfer other than those that may be
applicable at that time to the Trust Securities.

          (g) Procedure upon Purchase. The Sponsor shall deposit cash (in
respect of a cash purchase or for fractional interests) or shares of Common
Stock, or a combination thereof, as applicable, at the time and in the manner as
provided in the Xerox Indenture, sufficient to pay the aggregate Purchase Price
of all Trust Securities to be purchased pursuant to this Section 6 and the Xerox
Indenture. As soon as practicable after the Purchase Date, the Sponsor shall
deliver to each Holder entitled to receive Common Stock through the Paying
Agent, a certificate (or other evidence of ownership) for the number of full
shares of Common Stock issuable in payment of the Purchase Price and cash in
lieu of any fractional interests. The person in whose name the certificate for
Common Stock is registered shall be treated as a holder of record of shares of
Common Stock on the Business Day following the Purchase Date. No payment or
adjustment will be made for dividends on the Common Stock the record date for
which occurred on or prior to the Purchase Date.

          (h) Taxes. If a Holder of a Trust Security is paid in Common Stock,

<PAGE>

the Sponsor shall pay any documentary, stamp or similar issue or transfer tax
due on such issue of shares of Common Stock. However, the Holder shall pay any
such tax which is due if the Holder requests the shares of Common Stock to be
issued in a name other than the Holder's name. The Paying Agent may refuse to
deliver the certificates representing the Common Stock being issued in a name
other than the Holder's name until the Paying Agent receives a sum sufficient to
pay any tax which will be due because the shares of Common Stock are to be
issued in a name other than the Holder's name. Nothing herein shall preclude any
income tax withholding required by law or regulations being deducted by the
Sponsor.

     7. Purchase of Trust Securities at Option of the Holder upon a Change in
Control.

          (a) If on or prior to December 4, 2004, there shall have occurred a
Change in Control (as defined in the Xerox Indenture), the Trust may become
obligated to purchase Trust Securities, at the option of the Holder, at a
purchase price of $50 per Trust Security, plus accrued and unpaid Distributions
to but excluding the date of such purchase (the "Change in Control Purchase
Price"), as of the date that is no later than 45 Business Days after the
occurrence of the applicable Change in Control (the "Change in Control Purchase
Date"), subject to satisfaction by or on behalf of the Holder of the
requirements set forth in the Xerox Indenture. If Holders require the Trust to
purchase all or a portion of their Trust Securities on a Change in Control
Purchase Date, (x) Xerox Funding will be required to purchase a Like Amount of
the Xerox Funding Debentures at the Change in Control Purchase Price and (y) the
Sponsor will be required to purchase an equivalent principal amount of the Xerox
Debentures at such Change in Control Purchase Price. The Trust will be obligated
to use the same consideration received in connection with any such purchase to
purchase the applicable Trust Securities on the Change in Control Purchase Date.

          (b) Within 30 Business Days after the occurrence of a Change in
Control, the Sponsor shall mail a written notice of such Change in Control by
first-class mail to the Trustee and to each Holder (and to beneficial owners as
required by applicable law). The notice shall include a form of Change in
Control Purchase Notice to be completed by the Trust Securityholder
substantially in the form specified in the Xerox Indenture.

          (c) A Holder may exercise its rights specified in Section 7(a) upon
delivery of a written notice of purchase (a "Change in Control Purchase Notice")
to the Paying Agent at any time prior to the close of business on the Business
Day immediately preceding the Change in Control Purchase Date as specified in
the Xerox Indenture. The Change in Control Purchase Notice shall, in addition to
the information set forth in the Xerox Indenture, (i) set forth the number of
Trust Securities to be purchased and (ii) direct the Paying Agent (a) to direct
the Property Trustee to immediately deliver a notice of purchase of a portion of
the Xerox Funding Debentures having an aggregate principal amount equal to the
Liquidation Amount of the Trust Securities that are the subject of the Change in
Control Purchase Notice to the applicable trustee, (b) to direct Xerox Funding
to elect to submit a notice of purchase to the Sponsor of an equivalent
aggregate principal amount of Xerox Debentures, and (c) to direct Xerox Funding
to direct the Sponsor to deliver the Change in Control Purchase Price to the
Paying Agent for delivery to such Holder.

               The delivery of such Trust Security to the Paying Agent prior

<PAGE>

to, on or after the Change in Control Purchase Date (together with all necessary
endorsements) at the offices of the Paying Agent shall be a condition to the
receipt by the Holder of the Change in Control Purchase Price therefor;
provided, however, that such Change in Control Purchase Price shall be so paid
pursuant to this Section, the Xerox Funding Indenture and the Xerox Indenture
only if the Trust Security so delivered to the Paying Agent shall conform in all
respects to the description thereof set forth in the related Change in Control
Purchase Notice, as determined by the Sponsor, and such Change in Control
Purchase Notice shall not be validly withdrawn by the Holder.

               Any purchase by the Sponsor contemplated pursuant to the
provisions of this Section 7 shall be consummated by the delivery of the
consideration to be received by the Holder promptly following the later of the
Change in Control Purchase Date and the time of delivery of the Trust Security
to the Paying Agent.

               Notwithstanding anything herein to the contrary, any Holder
delivering to the Paying Agent the Change in Control Purchase Notice
contemplated by this Section 7 shall have the right to withdraw such Change in
Control Purchase Notice at any time prior to the close of business on the Change
in Control Purchase Date by delivery of a written notice of withdrawal to the
Paying Agent in accordance with the Xerox Indenture.

               The Paying Agent shall promptly notify Xerox Funding and the
Sponsor of the receipt by it of any Change in Control Purchase Notice or written
withdrawal thereof.

               The Sponsor shall not be required to comply with this Section 7
if a third party mails a written notice of Change in Control in the manner, at
the times and otherwise in compliance with this Section 7 and repurchases all
Trust Securities for which a Change in Control Purchase Notice shall be
delivered and not withdrawn.

          (d) Sponsor's Right to Elect Manner of Payment of Change in Control
Purchase Price. The Trust Securities to be purchased pursuant to Section 7(a)
may be paid for, at the election of the Sponsor, in cash or Common Stock, or in
any combination of cash and Common Stock, subject to the conditions set forth in
the Xerox Indenture in respect of the simultaneous purchase of the Xerox
Debentures.

               Upon a payment by Common Stock pursuant to the terms hereof, that
portion of unpaid and accumulated Distributions attributable to the period from
the Issue Date to the Change in Control Purchase Date with respect to the
purchased Trust Security shall not be cancelled, extinguished or forfeited but
rather shall be deemed paid in full to the Holder through the delivery of the
Common Stock in exchange for the Trust Security being purchased pursuant to the
terms hereof, and the fair market value of such Common Stock (together with any
cash payments in lieu of fractional shares of Common Stock) shall be treated as
issued, to the extent thereof, first in exchange for the Distributions
accumulated through the Change in Control Purchase Date, and the balance, if
any, of the fair market value of such shares of Common Stock shall be treated as
issued in exchange for the Liquidation Amount of the Trust Security being
purchased pursuant to the provisions hereof.

          (e) Notice of Election. The Sponsor's notice of election to

<PAGE>

purchase with cash or Common Stock or any combination thereof (the "Change in
Control Sponsor Notice") shall be sent to the Holders (and to beneficial owners
as required by applicable law) not less than 30 Business Days prior to the
applicable Change in Control Purchase Date (the "Change in Control Sponsor
Notice Date"). Any such Change in Control Sponsor Notice shall state the manner
of payment elected and shall contain the information set forth in the Xerox
Indenture.

          (f) Effect of Change in Control Purchase Notice; Withdrawal. Upon
receipt by the Paying Agent of the Change in Control Purchase Notice specified
in Section 7(a), the Holder of the Trust Security in respect of which such
Change in Control Purchase Notice was given shall (unless such Change in Control
Purchase Notice is withdrawn as specified below) thereafter be entitled to
receive solely the Change in Control Purchase Price with respect to such Trust
Security to but excluding the Change in Control Purchase Date. Such Change in
Control Purchase Price shall be paid to such Holder, subject to receipts of
funds and/or other property by the Paying Agent, promptly following the later of
(x) the Change in Control Purchase Date with respect to such Trust Security
(provided the conditions in the Xerox Indenture have been satisfied) and (y) the
time of delivery of such Trust Security to the Paying Agent by the Holder
thereof in the manner required by the Xerox Indenture. Trust Securities in
respect of which a Change in Control Purchase Notice has been given by the
Holder thereof may not be converted pursuant to Section 4 hereof on or after the
date of the delivery of such Change in Control Purchase Notice unless such
Change in Control Purchase Notice has first been validly withdrawn as specified
below.

               A Change in Control Purchase Notice may be withdrawn by means of
a written notice of withdrawal delivered to the office of the Paying Agent at
any time prior to the close of business on the Change in Control Purchase Date.

          (g) No Purchase Upon Event of Default. There shall be no purchase of
any Trust Securities pursuant to this Section 7 (other than through the issuance
of Common Stock in payment of the Change in Control Purchase Price, including
cash in lieu of fractional shares) if there has occurred (prior to, on or after,
as the case may be, the giving, by the Holders of such Trust Securities, of the
required Change in Control Purchase Notice) and is continuing an Event of
Default (other than a default in the payment of the Change in Control Purchase
Price with respect to such Trust Securities). The Paying Agent will promptly
return to the respective Holders thereof any Trust Securities (x) with respect
to which a Purchase Notice has been withdrawn in compliance with the Xerox
Indenture, or (y) held by it during the continuance of an Event of Default
(other than a default in the payment of the Change in Control Purchase Price
with respect to such Trust Securities or if the Sponsor has elected, in
accordance with the provisions hereof, to pay the Change in Control Purchase
Price through the delivery of Common Stock, including cash in lieu of fractional
shares) in which case, upon such return, the Change in Control Purchase Notice
with respect thereto shall be deemed to have been withdrawn.

          (h) Covenants of the Sponsor. All shares of Common Stock delivered
upon purchase of the Trust Securities shall be newly issued shares or treasury
shares, shall be duly authorized, validly issued, fully paid and nonassessable
and shall be free from preemptive rights and free of any lien or adverse claim
and subject to no restriction on transfer other than those that may be
applicable at that time to the Trust Securities.

<PAGE>

          (i) Procedure upon Purchase. The Sponsor shall deposit cash (in
respect of a cash purchase or for fractional interests) or shares of Common
Stock, or a combination thereof, as applicable, at the time and in the manner as
provided in the Xerox Indenture, sufficient to pay the aggregate Change in
Control Purchase Price of all Trust Securities to be purchased pursuant to this
Section 7. As soon as practicable after the Change in Control Purchase Date, the
Sponsor shall deliver to each Holder entitled to receive Common Stock through
the Paying Agent, a certificate (or other evidence of ownership) for the number
of full shares of Common Stock issuable in payment of the Change in Control
Purchase Price and cash in lieu of any fractional interests. The person in whose
name the certificate for Common Stock is registered shall be treated as a holder
of record of shares of Common Stock on the Business Day following the Change in
Control Purchase Date. No payment or adjustment will be made for dividends on
the Common Stock the record date for which occurred on or prior to the Change in
Control Purchase Date.

          (j) Taxes. If a Holder of a Trust Security is paid in Common Stock,
the Sponsor shall pay any documentary, stamp or similar issue or transfer tax
due on such issue of shares of Common Stock. However, the Holder shall pay any
such tax which is due if the Holder requests the shares of Common Stock to be
issued in a name other than the Holder's name. The Paying Agent may refuse to
deliver the certificates representing the Common Stock being issued in a name
other than the Holder's name until the Paying Agent receives a sum sufficient to
pay any tax which will be due because the shares of Common Stock are to be
issued in a name other than the Holder's name. Nothing herein shall preclude any
income tax withholding required by law or regulations being deducted by the
Sponsor.

     8. Voting Rights -- Trust Preferred Securities.

          (a) Except as provided in this Annex I and as otherwise required by
law and the Declaration, the Holders of the Trust Preferred Securities will have
no voting rights.

          (b) So long as any Debentures are held by the Property Trustee, the
Trustees shall not (i) direct the time, method and place of conducting any
proceeding for any remedy available to the Debenture Trustee, or executing any
trust or power conferred on such Debenture Trustee with respect to the
Debentures, (ii) waive any past default that is waivable under Section 5.07 of
each Indenture, (iii) exercise any right to rescind or annul a declaration of
acceleration of the maturity of the principal of the Debentures or (iv) consent
to any amendment, modification or termination of the Indentures or the
Debentures, where such consent shall be required, without, in each case,
obtaining the prior approval of the Holders of a majority in liquidation amount
of all outstanding Trust Preferred Securities; provided, however, that where a
consent under the Indentures would require the consent of each holder of
Debentures affected thereby, no such consent shall be given by the Property
Trustee without the prior approval of each Holder of the Trust Preferred
Securities. The Trustees shall not revoke any action previously authorized or
approved by a vote of the Holders of the Trust Preferred Securities except by
subsequent vote of such Holders. The Property Trustee shall notify each Holder
of Trust Preferred Securities of any notice of default with respect to the
Debentures. In addition to obtaining the foregoing approvals of such Holders of
the Trust Preferred Securities, prior to taking any of the foregoing actions,
the Trustees shall obtain an opinion of counsel experienced in such matters to
the effect that, under then current

<PAGE>

law and assuming full compliance with the terms of this Declaration and the
Indentures, the Trust will, for United States federal income tax purposes, be
classified as a grantor trust, or in a manner that will have the same
consequences as classification as a grantor trust, and will not be classified as
an association taxable as a corporation.

               If an Event of Default under the Declaration has occurred and is
continuing and such event is attributable to the failure of a Debenture Issuer
to pay or deliver any amounts due on the Debentures on the due date (or in the
case of redemption, on the redemption date, or in the case of purchase, the
Purchase Date or Change in Control Purchase Date), then a Holder of Trust
Preferred Securities may directly institute a proceeding for enforcement of
payment to such Holder of such amounts on a Like Amount of Xerox Funding
Debentures and Xerox Debentures (a "Direct Action") on or after the respective
due date specified in the Debentures. In connection with such Direct Action, the
rights of the Common Securities Holder will be subrogated to the rights of such
Holder of Trust Preferred Securities to the extent of any payment made by the
Debenture Issuer to such Holder of Trust Preferred Securities in such Direct
Action. Except as provided in the second preceding sentence, the Holders of
Trust Preferred Securities will not be able to exercise directly any other
remedy available to the holders of the Debentures.

               Any approval or direction of Holders of Trust Preferred
Securities may be given at a separate meeting of Holders of Trust Preferred
Securities convened for such purpose, at a meeting of all of the Holders of
Securities in the Trust or pursuant to written consent. The Property Trustees
will cause a notice of any meeting at which Holders of Trust Preferred
Securities are entitled to vote, or of any matter upon which action by written
consent of such Holders is to be taken, to be mailed to each Holder of record of
Trust Preferred Securities. Each such notice will include a statement setting
forth (i) the date of such meeting or the date by which such action is to be
taken, (ii) a description of any resolution proposed for adoption at such
meeting on which such Holders are entitled to vote or of such matter upon which
written consent is sought and (iii) instructions for the delivery of proxies or
consents.

               No vote or consent of the Holders of the Trust Preferred
Securities will be required for the Trust to redeem and cancel Trust Preferred
Securities or to distribute the Debentures in accordance with the Declaration
and the terms of the Securities.

               Notwithstanding that Holders of Trust Preferred Securities are
entitled to vote or consent under any of the circumstances described above, any
of the Trust Preferred Securities that are owned by the Sponsor or any Affiliate
of the Sponsor shall not be entitled to vote or consent and shall, for purposes
of such vote or consent, be treated as if they were not outstanding.

     9. Voting Rights -- Common Securities.

          (a) Except as provided under Sections 9(b) and 10 and as otherwise
required by law and the Declaration, the Holders of the Common Securities will
have no voting rights.

          (b) Unless a Debenture Event of Default shall have occurred and be
continuing, any Trustee may be removed at any time by the holder of the

<PAGE>

Common Securities. If a Debenture Event of Default has occurred and is
continuing, the Property Trustee and the Delaware Trustee may be removed at such
time by the holders of a majority in liquidation amount of the outstanding Trust
Preferred Securities. In no event will the holders of the Trust Preferred
Securities have the right to vote to appoint, remove or replace the
Administrative Trustees, which voting rights are vested exclusively in the
Sponsor as the holder of the Common Securities. No resignation or removal of a
Trustee and no appointment of a successor trustee shall be effective until the
acceptance of appointment by the successor trustee in accordance with the
provisions of the Declaration.

          (c) So long as any Xerox Funding Debentures or Xerox Debentures are
held by the Property Trustee, the Trustees shall not (i) direct the time, method
and place of conducting any proceeding for any remedy available to the Debenture
Trustee, or executing any trust or power conferred on such Debenture Trustee
with respect to the Debentures, (ii) waive any past default that is waivable
under Section 5.07 of each Indenture, (iii) exercise any right to rescind or
annul a declaration of acceleration of the maturity of the principal of the
Debentures or (iv) consent to any amendment, modification or termination of the
Indentures or the Debentures, where such consent shall be required, without, in
each case, obtaining the prior approval of the Holders of a majority in
liquidation amount of all outstanding Common Securities; provided, however, that
where a consent under the Indentures would require the consent of each holder of
Debentures affected thereby, no such consent shall be given by the Property
Trustee without the prior approval of each Holder of the Common Securities. The
Trustees shall not revoke any action previously authorized or approved by a vote
of the Holders of the Common Securities except by subsequent vote of such
Holders. The Property Trustee shall notify each Holder of Common Securities of
any notice of default with respect to the Debentures. In addition to obtaining
the foregoing approvals of such Holders of the Common Securities, prior to
taking any of the foregoing actions, the Trustees shall obtain an opinion of
counsel experienced in such matters to the effect that, under then current law
and assuming full compliance with the terms of this Declaration and the
Indentures, the Trust will, for United States federal income tax purposes, be
classified as a grantor trust, or in a manner that will have the same
consequences as classification as a grantor trust, and will not be classified as
an association taxable as a corporation.

               If an Event of Default under the Declaration has occurred and is
continuing and such event is attributable to the failure of a Debenture Issuer
to pay or deliver any amounts due on the Debentures on the due date (or in the
case of redemption, on the redemption date or in the case of purchase, the
Purchase Date or the Change in Control Purchase Date), then a Holder of Common
Securities may institute a Direct Action for enforcement of payment to such
Holder of the principal of or premium, if any, or interest on a Like Amount of
Xerox Funding Debentures, or the Xerox Debentures, on or after the respective
due date specified in the Debentures. In connection with Direct Action, the
rights of the Common Securities Holder will be subordinated to the rights of
such Holder of Trust Preferred Securities to the extent of any payment made by
the Debenture Issuer to such Holder of Common Securities in such Direct Action.
Except as provided in the second preceding sentence, the Holders of Common
Securities will not be able to exercise directly any other remedy available to
the holders of the Debentures.

               Any approval or direction of Holders of Common Securities may

<PAGE>

be given at a separate meeting of Holders of Common Securities convened for such
purpose, at a meeting of all of the Holders of Securities in the Trust or
pursuant to written consent. The Administrative Trustees will cause a notice of
any meeting at which Holders of Common Securities are entitled to vote, or of
any matter upon which action by written consent of such Holders is to be taken,
to be mailed to each Holder of record of Common Securities. Each such notice
will include a statement setting forth (i) the date of such meeting or the date
by which such action is to be taken, (ii) a description of any resolution
proposed for adoption at such meeting on which such Holders are entitled to vote
or of such matter upon which written consent is sought and (iii) instructions
for the delivery of proxies or consents.

               No vote or consent of the Holders of the Common Securities will
be required for the Trust to redeem and cancel Common Securities or to
distribute the Debentures in accordance with the Declaration and the terms of
the Securities.

     10. Amendments to Declaration and Xerox Funding Indenture.

          In addition to the requirements set out in Section 12.1 of the
Declaration, the Declaration may be amended from time to time by the Sponsor,
the Property Trustee and the Administrative Trustees, without the consent of the
Holders of the Securities (i) to cure any ambiguity, correct or supplement any
provisions in the Declaration that may be inconsistent with any other
provisions, or to make any other provisions with respect to matters or questions
arising under the Declaration which shall not be inconsistent with the other
provisions of the Declaration, or (ii) to modify, eliminate or add to any
provisions of the Declaration to such extent as shall be necessary to ensure
that the Trust will be classified for United States federal income tax purposes
as a grantor trust, or in a manner that will have the same consequences as
classification as a grantor trust, at all times that any Securities are
outstanding or to ensure that the Trust will not be required to register as an
"Investment Company" under the Investment Company Act; provided, however, such
action shall not adversely affect in any material respect the interests of any
Holder of Securities, and any amendments of the Declaration shall become
effective when notice thereof is given to the holders of the Securities. The
Declaration may be amended by the Trustees and the Sponsor with (i) the consent
of Holders representing a majority in liquidation amount of all outstanding
Securities, and (ii) receipt by the Trustees of an Opinion of Counsel to the
effect that such amendment or the exercise of any power granted to the Trustees
in accordance with such amendment will not affect the Trust's status as a
grantor trust, or being classified in a manner that will have the same
consequences as classification as a grantor trust, for United States federal
income tax purposes (under then current law and assuming full compliance with
the terms of the Indentures (and certain other documents), and based on certain
facts contained therein), or the Trust's exemption from status as an Investment
Company under the Investment Company Act, provided that, without the consent of
each Holder of Trust Securities, the Declaration may not be amended to (i)
change the amount or timing of any Distribution on the Trust Securities, reduce
the Redemption Price, Purchase Price or Change in Control Purchase Price, make
any change that adversely affects the right to convert any Security, make any
change that adversely affects the right to require the Trust to purchase the
Securities in accordance with the terms thereof and this Declaration or
otherwise adversely affect the amount of any Distribution required to be made in
respect of the Trust Securities as of a specified date or (ii) restrict the
right of a holder of Trust Securities to institute suit for the

<PAGE>

enforcement of any such payment on or after such date.

     11. Pro Rata.

          A reference in these terms of the Securities to any payment,
distribution or treatment as being "Pro Rata" shall mean pro rata to each Holder
according to the aggregate liquidation amount of the Securities held by the
relevant Holder in relation to the aggregate liquidation amount of all
Securities outstanding unless, in relation to a payment, an Event of Default
under the Declaration has occurred and is continuing, in which case any funds
available to make such payment shall be paid first to each Holder of the Trust
Preferred Securities pro rata according to the aggregate liquidation amount of
Trust Preferred Securities held by the relevant Holder relative to the aggregate
liquidation amount of all Trust Preferred Securities outstanding, and only after
satisfaction of all amounts owed to the Holders of the Trust Preferred
Securities, to each Holder of Common Securities pro rata according to the
aggregate liquidation amount of Common Securities held by the relevant Holder
relative to the aggregate liquidation amount of all Common Securities
outstanding.

     12. Ranking.

          The Trust Preferred Securities rank pari passu with the Common
Securities and payment thereon shall be made Pro Rata with the Common
Securities, except that, if an Event of Default under the Declaration occurs and
is continuing, no payments in respect of Distributions on, or payments upon
liquidation, redemption or otherwise with respect to, the Common Securities
shall be made until the Holders of the Trust Preferred Securities shall be paid
in full the Distributions, Redemption Price, Purchase Price, Change in Control
Purchase Price and other payments to which they are entitled at such time.

     13. Acceptance of Trust Securities Guarantee and Indentures.

          Each Holder of Trust Preferred Securities and Common Securities, by
the acceptance thereof, agrees to the provisions of the Trust Securities
Guarantee including the subordination provisions therein and to the provisions
of the Indentures.

     14. No Preemptive Rights.

          The Holders of the Securities shall have no preemptive rights to
subscribe for any additional securities.

     15. Miscellaneous.

          These terms constitute a part of the Declaration.

          The Sponsor will provide a copy of the Declaration, the Trust
Securities Guarantee and the Indentures (including any supplemental indenture)
to a Holder without charge on written request to the Sponsor at its principal
place of business.

<PAGE>

                                   EXHIBIT A-1

                  FORM OF TRUST PREFERRED SECURITY CERTIFICATE

                               [FORM OF SECURITY]

     [IF THIS GLOBAL SECURITY IS A GLOBAL TRUST PREFERRED SECURITY, INSERT: THIS
TRUST PREFERRED SECURITY IS A GLOBAL TRUST PREFERRED SECURITY WITHIN THE MEANING
OF THE DECLARATION HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE
DEPOSITORY TRUST COMPANY (THE "CLEARING AGENCY") OR A NOMINEE OF THE CLEARING
AGENCY. THIS TRUST PREFERRED SECURITY IS EXCHANGEABLE FOR TRUST PREFERRED
SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE CLEARING AGENCY OR
ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE DECLARATION AND
NO TRANSFER OF THIS TRUST PREFERRED SECURITY (OTHER THAN A TRANSFER OF THIS
TRUST PREFERRED SECURITY AS A WHOLE BY THE CLEARING AGENCY TO A NOMINEE OF THE
CLEARING AGENCY OR BY A NOMINEE OF THE CLEARING AGENCY TO THE CLEARING AGENCY OR
ANOTHER NOMINEE OF THE CLEARING AGENCY) MAY BE REGISTERED EXCEPT IN LIMITED
CIRCUMSTANCES.

     UNLESS THIS TRUST PREFERRED SECURITY IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW
YORK) TO THE TRUST OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY TRUST PREFERRED SECURITY ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS
WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]

     [IF THIS SECURITY IS A RESTRICTED TRUST PREFERRED SECURITY, INSERT: THIS
SECURITY AND THE UNDERLYING SHARES OF COMMON STOCK HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
STATE SECURITIES LAWS. NEITHER THIS SECURITY, THE SHARES OF UNDERLYING COMMON
STOCK ISSUABLE UPON CONVERSION OR PURCHASE OF THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN OR THEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION
OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.

     THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE"), WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF, THE ISSUANCE OF THE SECURITIES UPON AN EXERCISE OF
THE OVERALLOTMENT OPTION GRANTED TO THE INITIAL PURCHASERS IN CONNECTION WITH
THE ORIGINAL SALE OF THE SECURITIES AND THE LAST DATE ON WHICH XEROX CORPORATION
("XEROX") OR ANY AFFILIATE OF XEROX WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR OF SUCH SECURITY) ONLY (A) TO XEROX OR ANY AFFILIATE THEREOF, (B)
FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO
A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR
THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHICH NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE 1N RELIANCE ON RULE 144A, (C) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, OR (D)
PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT, SUBJECT TO XEROX'S AND THE PROPERTY TRUSTEE'S AND/OR
TRANSFER AGENT'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO
CLAUSE (D) TO REQUIRE THE

<PAGE>

DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE
OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS
COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE PROPERTY TRUSTEE. THIS LEGEND
WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE.]

Certificate Number:                                        Aggregate Liquidation
                                            Amount of Trust Preferred Securities
                                                            CUSIP NO. 98411F 202

                Certificate Evidencing Trust Preferred Securities
                                       of
                             Xerox Capital Trust II

                  7 1/2% Convertible Trust Preferred Securities
              (liquidation amount $50 per Trust Preferred Security)

     Xerox Capital Trust II, a statutory business trust created under the laws
of the State of Delaware (the "Trust"), hereby certifies that
                                                              ------------------
                (the "Holder") is the registered owner of [$        in aggregate
---------------                                             --------
liquidation amount of Trust Preferred Securities of the Trust] [the aggregate
liquidation amount of Trust Preferred Securities of the Trust specified in
Schedule A hereto] representing undivided beneficial interests in the assets of
the Trust designated the 7 1/2% Convertible Trust Preferred Securities
(liquidation amount $50 per Trust Preferred Security) (the "Trust Preferred
Securities"). The Trust Preferred Securities are transferable on the books and
records of the Trust, in person or by a duly authorized attorney, upon surrender
of this certificate duly endorsed and in proper form for transfer. The
designation, rights, privileges, restrictions, preferences and other terms and
provisions of the Trust Preferred Securities represented hereby are issued and
shall in all respects be subject to the provisions of the Amended and Restated
Declaration of Trust of the Trust, dated as of November 27, 2001, as the same
may be amended from time to time (the "Declaration"), including the designation
of the terms of the Trust Preferred Securities as set forth in Annex I to the
Declaration. Capitalized terms used but not defined herein shall have the
meaning given them in the Declaration. The Sponsor will provide a copy of the
Declaration, the Trust Securities Guarantee and the Indentures to a Holder
without charge upon written request to the Trust at its principal place of
business.

     Upon receipt of this certificate, the Holder is bound by the Declaration
and is entitled to the benefits thereunder and to the benefits of the Trust
Securities Guarantee to the extent provided therein.

     By acceptance, the Holder agrees to treat, for United States federal income
tax purposes, the Xerox Funding Debentures and the Xerox Debentures as
indebtedness and the Trust Preferred Securities as evidence of indirect
beneficial ownership in the Xerox Funding Debentures and the Xerox Debentures.

     IN WITNESS WHEREOF, the Trust has executed this certificate this 27th day
of November, 2001.

<PAGE>

                                           XEROX CAPITAL TRUST II


                                           By:
                                              ----------------------------------
                                              Name:
                                              Administrative Trustee

                PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION

     This is one of the Trust Preferred Securities referred to in the within-
mentioned Declaration.

Dated: November 27, 2001

                                           WELLS FARGO BANK MINNESOTA,
                                           NATIONAL ASSOCIATION,
                                           as Property Trustee


                                           By:
                                              ----------------------------------
                                              Authorized Signatory

                          [FORM OF REVERSE OF SECURITY]

     Distributions payable on each Trust Preferred Security will be fixed at a
rate per annum of 7 1/2% (the "Coupon Rate") of the liquidation amount of $50
per Security (the "Liquidation Amount"), such rate being the rate of interest
payable on the Xerox Funding Debentures to be held by the Property Trustee.
Distributions in arrears for more than one quarterly period will bear additional
distributions thereon compounded quarterly at the Coupon Rate (to the extent
permitted by applicable law). A Distribution is payable only to the extent that
payments are made in respect of the Xerox Funding Debentures held by the
Property Trustee and to the extent the Property Trustee has funds on hand
legally available therefor.

     Distributions on the Trust Preferred Securities will be cumulative, will
accumulate from the most recent date to which Distributions have been paid or,
if no Distributions have been paid, from November 27, 2001, and will be payable
quarterly in arrears on February 27, May 27, August 27 and November 27 of each
year, commencing on February 27, 2002 (each, a "Distribution Date"), except as
otherwise described below. Distributions will be computed on the basis of a
360-day year consisting of twelve 30-day months and for any period less than a
full calendar month on the basis of the actual number of days elapsed in such
month.

     Distributions on the Trust Preferred Securities will be payable to the
Holders thereof as they appear on the books and records of the Trust on the
Business Day or, if the Trust Preferred Securities are no longer represented by
Global Trust Preferred Securities, the 15th calendar day, immediately preceding
the relevant Distribution Date, which Distribution Dates correspond to the
interest payment dates on the Debentures. Subject to any applicable laws and
regulations and the provisions of the Declaration, each such payment

<PAGE>

in respect of the Trust Preferred Securities will be made as described under the
heading "Description of the Trust Preferred Securities -- Book-Entry Only
Issuance -- The Depository Trust Company" in the Offering Memorandum, dated
November 19, 2001, of the Sponsor and the Trust relating to the Securities and
the Debentures. Payments in respect of Definitive Trust Preferred Securities
will be made by check mailed to the Holder entitled thereto. Distributions
payable on any Trust Preferred Securities that are not punctually paid on any
Distribution Date, as a result of the Debenture Issuers having failed to make a
payment under the respective Debentures, will cease to be payable to the Holder
on the relevant record date, and such defaulted Distribution will instead be
payable to the Person in whose name such Trust Preferred Securities are
registered on the special record date or other specified date determined in
accordance with the related Indenture. If any date on which Distributions are
payable on the Trust Preferred Securities is not a Business Day, then payment of
the Distribution payable on such date will be made on the next succeeding day
that is a Business Day (and without any interest or other payment in respect of
any such delay), with the same force and effect as if made on such date. The
amount of any Distribution payable on any Distribution Date, the applicable
redemption date, the applicable Purchase Date or the Change in Control Purchase
Date shall include Distributions accrued from and including the Issue Date or
the last Distribution Date to which Distributions have been paid to but
excluding such Distribution Date, such redemption date, such Purchase Date or
such Change in Control Purchase Date, as applicable.

     In the event that there is any money or other property held by or for the
Trust that is not accounted for hereunder, such property shall be distributed
Pro Rata (as defined herein) among the Holders of the Trust Securities.

     Subject to certain conditions set forth in the Declaration and the Xerox
Funding Indenture, the Property Trustee may, at the direction of the Sponsor, at
any time liquidate the Trust and cause the Xerox Funding Debentures or the Xerox
Debentures to be distributed to the holders of the Securities in liquidation of
the Trust or, simultaneous with any redemption of the Xerox Funding Debentures
or the Xerox Debentures, cause a Like Amount of the Securities to be redeemed by
the Trust.

     Subject to the terms and conditions of the Xerox Indenture and the
Declaration, the Trust may become obligated to purchase, at the option of the
Holder, the Trust Preferred Securities held by such Holder on December 4, 2004,
November 27, 2006, November 27, 2008, November 27, 2011 and November 27, 2016
(each, a "Purchase Date"), at a purchase price of $50 per Trust Security, plus
accrued and unpaid Distributions thereon to but excluding the applicable
Purchase Date (the "Purchase Price"). In addition, if on or prior to December 4,
2004, there shall have occurred a Change in Control, Trust Preferred Securities
shall be purchased by the Trust, at the option of the Holder thereof, at the
purchase price of $50 per Trust Security, plus accrued and unpaid Distributions
thereon to but excluding the Change in Control Purchase Date (the "Change in
Control Purchase Price"), as of the date that is no later than 45 Business Days
after the occurrence of the applicable Change in Control (the "Change in Control
Purchase Date").

     The Trust Preferred Securities shall be redeemable as provided in the
Declaration.

     The Trust Preferred Securities are convertible into shares of common

<PAGE>

stock of the Sponsor as provided in the Declaration.

                              NOTICE OF CONVERSION

     To:  Wells Fargo Bank Minnesota, National Association Conversion Agent for
          Xerox Capital Trust II

     The undersigned owner of this Trust Security or Trust Securities hereby
irrevocably exercises the option to convert this Trust Security or Trust
Securities, or the portion designated below, into Common Stock, par value $1.00
per share (the "Common Stock"), of Xerox Corporation or its successor, ("Xerox")
in accordance with the terms of the Amended and Restated Declaration of Trust
(as amended from time to time, the "Declaration" dated as of November 27, 2001,
among Gregory B. Tayler, Timothy MacCarrick and Navin M. Chheda, as
Administrative Trustees, Wilmington Trust Company, as Delaware Trustee, Wells
Fargo Bank Minnesota, National Association, as Property Trustee, Xerox, as
Sponsor, and the Holders, from time to time, of undivided beneficial interests
in the Trust to be issued pursuant to the Declaration). Pursuant to the
aforementioned exercise of the option to convert the Trust Security or Trust
Securities, the undersigned hereby directs the Conversion Agent (as that term is
defined in the Declaration) to (a) direct Xerox Funding to convert immediately
an equivalent aggregate principal amount of Xerox Debentures then held by Xerox
Funding into Common Stock and, if applicable, other securities, cash or property
(at the conversion rate specified in the Declaration), and (b) to direct Xerox
Funding to direct Xerox to deliver such property to the Property Trustee for
delivery to the undersigned.

     The undersigned also hereby directs the Conversion Agent that the shares of
Common Stock issuable and deliverable upon conversion, together with any check
in payment for fractional shares, be issued in the name of and delivered to the
undersigned, unless a different name has been indicated in the assignment below.
If shares are to be issued in the name of a person other than the undersigned,
the undersigned will pay all transfer taxes payable with respect thereto.

           Date:

                in whole

                in part

           Number of Trust Preferred
                Securities to be converted
                ($50 Liquidation Amount or
                integral multiples thereof):

<PAGE>

                               FORM OF ASSIGNMENT

     FOR VALUE RECEIVED, the undersigned assigns and transfers this Trust
Preferred Security Certificate to:

        (Insert assignee's social security or tax identification number)

                    (Insert address and zip code of assignee)

and irrevocably appoints

                                                       agent to transfer

this Trust Preferred Security Certificate on the books of the Trust. The
agent may substitute another to act for him or her.

Date:


Signature:

(Sign exactly as your name appears on the other side of this Trust Preferred
Security Certificate)


Signature Guarantee/*/:

[Include the following if the Trust Preferred Security bears a Restricted Trust
Preferred Securities Legend -

In connection with any transfer of any of the Trust Preferred Securities
evidenced by this certificate, the undersigned confirms that such Trust
Preferred Securities are being:

CHECK ONE BOX BELOW

     (1)  [_] exchanged for the undersigned's own account without transfer; or

     (2)  [_] transferred pursuant to and in compliance with Rule 144A under the
              Securities Act of 1933; or

     (3)  [_] transferred pursuant to another available exemption from the
              registration requirements of the Securities Act of 1933; or

     (4)  [_] transferred pursuant to an effective registration statement.

Unless one of the boxes is checked, the Registrar will refuse to register any of
the Trust Preferred Securities evidenced by this certificate in the name of any
person other than the registered Holder thereof; provided, however, that if box
(3) is checked, the Registrar may require, prior to registering any such
transfer of the Trust Preferred Securities such legal opinions, certifications
and other information as the Trust has reasonably requested to confirm that such
transfer is being made pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act of 1933, such as
the exemption provided by Rule 144 under such Act;

<PAGE>

provided, further, that after the date that a registration statement has been
filed and so long as such registration statement continues to be effective, the
Registrar may only permit transfers for which box (4) has been checked.


                                                   Signature

* Signature must be guaranteed by an "eligible guarantor institution" that is a
bank, stockbroker, savings and loan association or credit union meeting the
requirements of the Registrar, which requirements include membership or
participation in the Securities Transfer Agents Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities and Exchange Act of 1934, as amended.

                                  SCHEDULE A/*/

     The initial aggregate liquidation amount of Trust Preferred Securities
evidenced by the Certificate to which this Schedule is attached is $
                                                                    ------------
(equivalent to                 Trust Preferred Securities). The notations on
              -----------------
the following table evidence decreases and increases in the number of Trust
Preferred Securities evidenced by such Certificate.

                                                  Liquidation Amount of
      Decrease in      Increase in Liquidation  Trust Preferred Securities
 Liquidation Amount of    Amount of Capital       Remaining After Such    Not
Trust Preferred Securities     Securities         Decrease or Increase    Reg

* Append to Global Trust Preferred Securities only.

                                   EXHIBIT A-2
                       FORM OF COMMON SECURITY CERTIFICATE

     THIS SECURITY AND THE UNDERLYING SHARES OF COMMON STOCK HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY, THE SHARES OF UNDERLYING
COMMON STOCK ISSUABLE UPON CONVERSION OR PURCHASE OF THIS SECURITY NOR ANY
INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
REGISTRATION.

     THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE"), WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF, THE ISSUANCE OF THE SECURITIES UPON AN EXERCISE OF
THE OVERALLOTMENT OPTION GRANTED TO THE INITIAL PURCHASERS IN CONNECTION

<PAGE>

WITH THE ORIGINAL SALE OF THE SECURITIES AND THE LAST DATE ON WHICH XEROX
CORPORATION ("XEROX") OR ANY AFFILIATE OF XEROX WAS THE OWNER OF THIS SECURITY
(OR ANY PREDECESSOR OF SUCH SECURITY) ONLY (A) TO XEROX OR ANY AFFILIATE
THEREOF, (B) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO
RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL
BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHICH
NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE 1N RELIANCE ON RULE 144A, (C)
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, OR (D) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO XEROX'S AND THE
PROPERTY TRUSTEE'S AND/OR TRANSFER AGENT'S RIGHT PRIOR TO ANY SUCH OFFER, SALE
OR TRANSFER PURSUANT TO CLAUSE (D) TO REQUIRE THE DELIVERY OF AN OPINION OF
COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM,
AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM
APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE
TRANSFEROR TO THE PROPERTY TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST
OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.

Certificate Number:                           Number of Common Securities

                    Certificate Evidencing Common Securities
                                       of
                             Xerox Capital Trust II
                      7 1/2% Convertible Common Securities
                  (liquidation amount $50 per Common Security)

     Xerox Capital Trust II, a statutory business trust formed under the laws of
the State of Delaware (the "Trust"), hereby certifies that Xerox Corporation
(the "Holder") is the registered owner of common securities of the Trust
representing undivided beneficial interests in the assets of the Trust
designated the 7 1/2% Convertible Common Securities (liquidation amount $50 per
Common Security) (the "Common Securities"). The Common Securities are
transferable on the books and records of the Trust, in person or by a duly
authorized attorney, upon surrender of this certificate duly endorsed and in
proper form for transfer. The designation, rights, privileges, restrictions,
preferences and other terms and provisions of the Common Securities represented
hereby are issued and shall in all respects be subject to the provisions of the
Amended and Restated Declaration of Trust of the Trust, dated as of November 27,
2001, as the same may be amended from time to time (the "Declaration"),
including the designation of the terms of the Common Securities as set forth in
Annex I to the Declaration. Capitalized terms used but not defined herein shall
have the meaning given them in the Declaration. The Sponsor will provide a copy
of the Declaration, the Trust Securities Guarantee and the Indentures (including
any supplemental indenture) to a Holder without charge upon written request to
the Sponsor at its principal place of business.

     Upon receipt of this certificate, the Sponsor is bound by the Declaration
and is entitled to the benefits thereunder and to the benefits of the Trust
Securities Guarantee to the extent provided therein.

<PAGE>

     By acceptance, the Holder agrees to treat, for United States federal income
tax purposes, the Xerox Funding Debentures and the Xerox Debentures as
indebtedness and the Common Securities as evidence of indirect beneficial
ownership in the Xerox Funding Debentures and the Xerox Debentures.

     IN WITNESS WHEREOF, the Trust has executed this certificate this 27th day
of November, 2001.

                                    XEROX CAPITAL TRUST II


                                    By:
                                       -----------------------------------------
                                       Name:
                                       Administrative Trustee

                        [FORM OF REVERSE OF SECURITY]

     Distributions payable on each Common Security will be fixed at a rate per
annum of 7 1/2% (the "Coupon Rate") of the liquidation amount of $50 per
Security (the "Liquidation Amount"), such rate being the rate of interest
payable on the Xerox Funding Debentures to be held by the Property Trustee.
Distributions in arrears for more than one quarterly period will bear additional
distributions thereon compounded quarterly at the Coupon Rate (to the extent
permitted by applicable law). A Distribution is payable only to the extent that
payments are made in respect of the Xerox Funding Debentures held by the
Property Trustee and to the extent the Property Trustee has funds on hand
legally available therefor.

     Distributions on the Common Securities will be cumulative, will accumulate
from the most recent date to which Distributions have been paid or, if no
Distributions have been paid, from November 27, 2001, and will be payable
quarterly in arrears on February 27, May 27, August 27 and November 27 of each
year, commencing on February 27, 2002 (each, a "Distribution Date"), except as
otherwise described below. Distributions will be computed on the basis of a
360-day year consisting of twelve 30-day months and for any period less than a
full calendar month on the basis of the actual number of days elapsed in such
month. The amount of any Distribution payable on any Distribution Date, the
applicable redemption date, the applicable Purchase Date or the Change in
Control Purchase Date shall include Distributions accrued from and including the
Issue Date or the last Distribution Date to which Distributions have been paid
to but excluding such Distribution Date, such redemption date, such Purchase
Date or such Change in Control Purchase Date, as applicable.

     Distributions on the Common Securities will be payable to the Holders
thereof as they appear on the books and records of the Trust on the 15th
calendar day immediately preceding the relevant Distribution Date, which
Distribution Dates correspond to the interest payment dates on the Debentures.
Distributions payable on any Common Securities that are not punctually paid on
any Distribution Date, as a result of the Debenture Issuers having failed to
make a payment under the Debentures, will cease to be payable to the Holder on
the relevant record date, and such defaulted

<PAGE>

Distribution will instead be payable to the Person in whose name such Common
Securities are registered on the special record date or other specified date
determined in accordance with the respective Indentures. If any date on which
Distributions are payable on the Common Securities is not a Business Day, then
payment of the Distribution payable on such date will be made on the next
succeeding day that is a Business Day (and without any interest or other payment
in respect of any such delay), with the same force and effect as if made on such
date.

     In the event that there is any money or other property held by or for the
Trust that is not accounted for hereunder, such property shall be distributed
Pro Rata (as defined herein) among the Holders of the Trust Securities.

     Subject to certain other conditions set forth in the Declaration and the
Xerox Funding Indenture, the Property Trustee may, at the direction of the
Sponsor, at any time liquidate the Trust and cause the Xerox Funding Debentures
to be distributed to the holders to the Securities in liquidation of the Trust
or, simultaneous with any redemption of the Xerox Funding Debentures, cause a
Like Amount of the Securities to be redeemed by the Trust.

     Subject to the terms and conditions of the Xerox Indenture and the
Declaration, the Trust may become obligated to purchase, at the option of the
Holder, the Common Securities held by such Holder on December 4, 2004, November
27, 2006, November 27, 2008, November 27, 2011 and November 27, 2016 (each, a
"Purchase Date"), at a purchase price of $50 per Trust Security, plus accrued
and unpaid Distributions thereon to but excluding the applicable Purchase Date
(the "Purchase Price"). In addition, if on or prior to December 4, 2004, there
shall have occurred a Change in Control, Common Securities shall be purchased by
the Trust, at the option of the Holder thereof, at the purchase price of $50 per
Trust Security, plus accrued and unpaid Distributions thereon to but excluding
the Change in Control Purchase Date (the "Change in Control Purchase Price"), as
of the date that is no later than 45 Business Days after the occurrence of the
applicable Change in Control (the "Change in Control Purchase Date").

     The Common Securities shall be redeemable as provided in the Declaration.

     The Common Securities are convertible into shares of common stock of the
Sponsor as provided in the Declaration.

                              NOTICE OF CONVERSION

To:  Wells Fargo Bank Minnesota, National Association
       Conversion Agent for Xerox Capital Trust II

     The undersigned owner of this Trust Security or Trust Securities hereby
irrevocably exercises the option to convert this Trust Security or Trust
Securities, or the portion designated below, into Common Stock, par value $1.00
per share (the "Common Stock"), of Xerox Corporation or its successor,

<PAGE>

("Xerox") in accordance with the terms of the Amended and Restated Declaration
of Trust (as amended from time to time, the "Declaration" dated as of November
27, 2001, among Gregory B. Tayler, Timothy MacCarrick and Navin M. Chheda, as
Administrative Trustees, Wilmington Trust Company, as Delaware Trustee, Wells
Fargo Bank Minnesota, National Association, as Property Trustee, Xerox, as
Sponsor, and the Holders, from time to time, of undivided beneficial interests
in the Trust to be issued pursuant to the Declaration). Pursuant to the
aforementioned exercise of the option to convert the Trust Security or Trust
Securities, the undersigned hereby directs the Conversion Agent (as that term is
defined in the Declaration) to (a) direct Xerox Funding to convert immediately
an equivalent aggregate principal amount of Xerox Debentures then held by Xerox
Funding on behalf of such Holders, into Common Stock and, if applicable, other
securities, cash or property (at the conversion rate specified in the
Declaration), and (b) to direct Xerox Funding to direct Xerox to deliver such
property to the Property Trustee for delivery to the undersigned.

     The undersigned also hereby directs the Conversion Agent that the shares of
Common Stock issuable and deliverable upon conversion, together with any check
in payment for fractional shares, be issued in the name of and delivered to the
undersigned, unless a different name has been indicated in the assignment below.
If shares are to be issued in the name of a person other than the undersigned,
the undersigned will pay all transfer taxes payable with respect thereto.

                                    Date:

                                    in whole

                                    in part
                                    Number of Common
                                    Securities to be converted
                                    ($50 Liquidation Amount or
                                    integral multiples thereof):