<PAGE>

                                                                 Exhibit 4(g)(2)

================================================================================

                         ------------------------------

                              XEROX FUNDING LLC II

                         ------------------------------

                                    INDENTURE

                          DATED AS OF NOVEMBER 27, 2001

                         ------------------------------

                WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION

                                   AS TRUSTEE

                         ------------------------------

           7 1/2% CONVERTIBLE JUNIOR SUBORDINATED DEBENTURES DUE 2021

================================================================================

<PAGE>


                                    TIE-SHEET

     of provisions of Trust Indenture Act of 1939 with Indenture dated as of
November 27, 2001 between Xerox Funding LLC II and Wells Fargo Bank Minnesota,
National Association, as Trustee:

                                                                    INDENTURE
ACT SECTION                                                           SECTION

310(a)(1)................................................................6.09
     (a)(2) .............................................................6.09
310(a)(3).................................................................N/A
     (a)(4)...............................................................N/A
310(a)(5)..........................................................6.10, 6.11
310(b)....................................................................N/A
310(c)...................................................................6.13
311(a) and (b)............................................................N/A
311(c)..........................................................4.01, 4.02(a)
312(a)...................................................................4.02
312(b) and (c)...........................................................4.04
313(a)...................................................................4.04
313(b)(1)................................................................4.04
313(b)(2)................................................................4.04
313(c)...................................................................4.04
313(d)...................................................................4.04
314(a)...................................................................4.03
314(b)....................................................................N/A
314(c)(1) and (2)........................................................6.07
314(c)(3).................................................................N/A
314(d) ...................................................................N/A
314(e)...................................................................6.07
314(f) ...................................................................N/A
315(a)(c) and (d)........................................................6.01
315(b)...................................................................5.08
315(e) ..................................................................5.09
316(a)(1) ...............................................................5.07
316(a)(2) ................................................................N/A
316(a) last sentence ....................................................2.09
316(b)...................................................................9.02
317(a)...................................................................5.05
317(b)...................................................................6.05
318(a)..................................................................13.08

----------
            THIS TIE-SHEET IS NOT PART OF THE INDENTURE AS EXECUTED.

<PAGE>



                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
                                    ARTICLE I
                                   DEFINITIONS

SECTION 1.01.    Definitions.............................................    1

                                   ARTICLE II
                                   SECURITIES

SECTION 2.01.    Forms Generally.........................................    8
SECTION 2.02.    Execution and Authentication............................    8
SECTION 2.03.    Form and Payment and Delivery...........................    9
SECTION 2.04.    Legends.................................................    9
SECTION 2.05.    Global Security.........................................    9
SECTION 2.06.    Interest................................................   11
SECTION 2.07.    Transfer and Exchange...................................   12
SECTION 2.08.    Replacement Securities..................................   12
SECTION 2.09.    Temporary Securities....................................   13
SECTION 2.10.    Cancellation............................................   13
SECTION 2.11.    Defaulted Interest......................................   13
SECTION 2.12.    CUSIP Numbers...........................................   14

                                   ARTICLE III
                       PARTICULAR COVENANTS OF THE COMPANY

SECTION 3.01.    Payment and Delivery of amounts Due.....................   15
SECTION 3.02.    Offices for Notices and Payments, etc...................   15
SECTION 3.03.    Appointments to Fill Vacancies in Trustee's Office......   15
SECTION 3.04.    Provision as to Paying Agent............................   16
SECTION 3.05.    Certificate to Trustee..................................   16
SECTION 3.06.    Payment Upon Resignation or Removal.....................   17

                                   ARTICLE IV
        SECURITYHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE

SECTION 4.01.    Lists of Securityholders................................   17
SECTION 4.02.    Reports by the Trustee..................................   17
SECTION 4.03.    Periodic Reports to Trustee.............................   17

                                    ARTICLE V
         REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS ON EVENT OF DEFAULT

SECTION 5.01.    Events of Default.......................................   18
SECTION 5.02.    Payment of Securities on Default; Suit Therefor.........   20
SECTION 5.03.    Application of Moneys Collected by Trustee..............   22
SECTION 5.04.    Proceedings by Securityholders..........................   22
SECTION 5.05.    Proceedings by Trustee..................................   23
SECTION 5.06.    Remedies Cumulative and Continuing......................   23
SECTION 5.07.    Direction of Proceedings and Waiver of Defaults by
                 Majority of Securityholders.............................   24
SECTION 5.08.    Notice of Defaults......................................   24
SECTION 5.09.    Undertaking to Pay Costs................................   25

                                   ARTICLE VI
                             CONCERNING THE TRUSTEE

SECTION 6.01.    Duties and Responsibilities of Trustee..................   25
SECTION 6.02.    Reliance on Documents, Opinions, etc....................   26
SECTION 6.03.    No Responsibility for Recitals, etc.....................   27
SECTION 6.04.    Trustee, Authenticating Agent, Paying Agents,
                 Transfer Agents or Registrar May Own Securities.........   27
SECTION 6.05.    Moneys to be Held in Trust..............................   28
SECTION 6.06.    Compensation and Expenses of Trustee....................   28
SECTION 6.07.    Officers' Certificate as Evidence.......................   28
SECTION 6.08.    Conflicting Interest of Trustee.........................   29
SECTION 6.09.    Eligibility of Trustee..................................   29
SECTION 6.10.    Resignation or Removal of Trustee.......................   29

<PAGE>

SECTION 6.11.    Acceptance by Successor Trustee.........................   30
SECTION 6.12.    Succession by Merger, etc...............................   31
SECTION 6.13.    Limitation on Rights of Trustee as a Creditor...........   31
SECTION 6.14.    Authenticating Agents...................................   32
SECTION 6.15.    Appointment of Conversion Agent.........................   33

                                   ARTICLE VII
                         CONCERNING THE SECURITYHOLDERS

SECTION 7.01.    Action by Securityholders...............................   33
SECTION 7.02.    Proof of Execution by Securityholders...................   34
SECTION 7.03.    Who Are Deemed Absolute Owners..........................   34
SECTION 7.04.    Securities Owned by Company Deemed Not Outstanding......   34
SECTION 7.05.    Revocation of Consents; Future Holders Bound............   35

                                  ARTICLE VIII
                            SECURITYHOLDERS' MEETINGS

SECTION 8.01.    Purposes of Meetings....................................   35
SECTION 8.02.    Call of Meetings by Trustee.............................   35
SECTION 8.03.    Call of Meetings by Company or Securityholders..........   36
SECTION 8.04.    Qualifications for Voting...............................   36
SECTION 8.05.    Regulations.............................................   36
SECTION 8.06.    Voting..................................................   37

                                   ARTICLE IX
                                   AMENDMENTS

SECTION 9.01.    Without Consent of Securityholders......................   37
SECTION 9.02.    With Consent of Securityholders.........................   38
SECTION 9.03.    Compliance with Trust Indenture Act; Effect of
                 Supplemental Indentures.................................   39
SECTION 9.04.    Notation on Securities..................................   40
SECTION 9.05.    Evidence of Compliance of Supplemental Indenture
                 to be Furnished to Trustee..............................   40

                                 ARTICLE X
             CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE

SECTION 10.01.   Company May Merge, Consolidate or Sell Assets...........   40
SECTION 10.02.   Opinion of Counsel to be Given Trustee..................   41

                                   ARTICLE XI
                     SATISFACTION AND DISCHARGE OF INDENTURE

SECTION 11.01.   Discharge of Indenture..................................   42
SECTION 11.02.   Deposited Moneys to be Held in Trust by Trustee.........   42
SECTION 11.03.   Paying Agent to Repay Moneys Held.......................   42
SECTION 11.04.   Return of Unclaimed Moneys..............................   43
SECTION 11.05.   Defeasance Upon Deposit of Moneys or U.S.
                 Government Obligations..................................   43

                                   ARTICLE XII
                        IMMUNITY OF MEMBERS AND OFFICERS

SECTION 12.01.   Indenture and Securities Solely Corporate Obligations...   44

<PAGE>

                                  ARTICLE XIII
                            MISCELLANEOUS PROVISIONS

SECTION 13.01.   Successors..............................................   45
SECTION 13.02.   Official Acts by Successor Entity or Person.............   45
SECTION 13.03.   Surrender of Company Powers.............................   45
SECTION 13.04.   Addresses for Notices, etc..............................   45
                                           -
SECTION 13.05.   Governing Law...........................................   45
SECTION 13.06.   Evidence of Compliance with Conditions Precedent........   45
SECTION 13.07.   Business Days...........................................   46
SECTION 13.08.   Trust Indenture Act to Control..........................   46
SECTION 13.09.   Table of Contents, Headings, etc........................   46
SECTION 13.10.   Execution in Counterparts...............................   46
SECTION 13.11.   Separability............................................   46
SECTION 13.12.   Assignment..............................................   47
SECTION 13.13.   Acknowledgement of Rights...............................   47

                                   ARTICLE XIV
                                   REDEMPTION

SECTION 14.01.   Optional Redemption by Company..........................   47
SECTION 14.02.   No Sinking Fund.........................................   48
SECTION 14.03.   Notice of Redemption; Selection of Securities...........   48
SECTION 14.04.   Payment of Securities Called for Redemption.............   49
SECTION 14.05.   Conversion Arrangement on Call for Redemption...........   49

                                   ARTICLE XV
                                    PURCHASE

SECTION 15.01.   Purchase of Securities at Option of the Holder..........   50
SECTION 15.02.   Purchase of Securities at Option of the Holder
                 upon a Change in Control................................   50

                                   ARTICLE XVI
                                   CONVERSION

                                  ARTICLE XVII
                           SUBORDINATION OF SECURITIES

SECTION 17.01.   Agreement to Subordinate................................   52
SECTION 17.02.   Default on Senior Indebtedness..........................   52
SECTION 17.03.   Liquidation; Dissolution; Bankruptcy....................   52
SECTION 17.04.   Subrogation.............................................   54
SECTION 17.05.   Trustee to Effectuate Subordination.....................   54
SECTION 17.06.   Notice by the Company...................................   54
SECTION 17.07.   Rights of the Trustee; Holders of Senior Indebtedness...   55
SECTION 17.08.   Subordination May Not Be Impaired.......................   56

<PAGE>

               THIS INDENTURE, dated as of November 27, 2001, between XEROX
FUNDING LLC II, a Delaware limited liability company (hereinafter sometimes
called the "Company"), and WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION, a
national banking association, as trustee (hereinafter sometimes called the
"Trustee"),

                              W I T N E S S E T H :

               In consideration of the premises, and the purchase of the
Securities by the holders thereof, the Company covenants and agrees with the
Trustee for the equal and proportionate benefit of the respective holders from
time to time of the Securities, as follows:

                                    ARTICLE I

                                   DEFINITIONS

               SECTION 1.01. Definitions.

               The terms defined in this Section 1.01 (except as herein
otherwise expressly provided or unless the context otherwise requires) for all
purposes of this Indenture shall have the respective meanings specified in this
Section 1.01. All other terms used in this Indenture which are defined in the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), or which
are by reference therein defined in the Securities Act, shall (except as herein
otherwise expressly provided or unless the context otherwise requires) have the
meanings assigned to such terms in said Trust Indenture Act and in said
Securities Act as in force at the date of this Indenture as originally executed.
The following terms have the meanings given to them in the Declaration: (i)
Administrative Trustees; (ii) Business Day; (iii) Clearing Agency; (iv) Delaware
Trustee; (v) Direct Action; (vi) Distributions; (vii) Property Trustee; (viii)
Purchase Agreement; (ix) Special Event; (x) Trust Preferred Securities; (xi)
Xerox Debentures; and (xii) Xerox Indenture. All accounting terms used herein
and not expressly defined shall have the meanings assigned to such terms in
accordance with generally accepted accounting principles and the term "generally
accepted accounting principles" means such accounting principles as are
generally accepted at the time of any computation. The words "herein", "hereof"
and "hereunder" and other words of similar import refer to this Indenture as a
whole and not to any particular Article, Section or other subdivision. Headings
are used for convenience of reference only and do not affect interpretation. The
singular includes the plural and vice versa.

               "Additional Interest" shall have the meaning set forth in Section
2.06(c).

               "Affiliate" means, with respect to a specified Person, (a) any
Person directly or indirectly owning, controlling or holding the power to vote
10% or more of the outstanding voting securities or other ownership interests of
the specified Person, (b) any Person 10% or more of whose outstanding voting
securities or other ownership interests are directly or indirectly owned,
controlled or held with power to vote by the specified Person, (c) any Person
directly or indirectly controlling, controlled by, or under common control with
the specified Person, (d) a partnership in which the specified Person is a
general partner, (e) any officer or director of the specified Person, and (f) if
the specified

<PAGE>

Person is an individual, any entity of which the specified Person is an officer,
director or general partner.

               "Authenticating Agent" shall mean any agent or agents of the
Trustee which at the time shall be appointed and acting pursuant to Section
6.14.

               "Bankruptcy Law" shall mean Title 11, U.S. Code, or any similar
federal or state law for the relief of debtors.

               "Capital Stock" for any corporation means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) stock issued by that
corporation.

               "Change in Control" has the meaning set forth in Section 15.02 of
the Xerox Indenture.

               "Change in Control Purchase Price" shall have the meaning set
forth in Section 15.02(a).

               "Commission" shall mean the Securities and Exchange Commission,
as from time to time constituted, created under the Exchange Act, or if at any
time after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.

               "Common Securities" shall mean the common securities of Xerox
Capital.

               "Common Stock" shall mean the Common Stock, par value $1.00 per
share, of Xerox or any other class of stock resulting from changes or
reclassifications of such Common Stock consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value.

               "Company" shall mean Xerox Funding LLC II, a Delaware limited
liability company, and, subject to the provisions of Article X, shall include
its successors and assigns.

               "Company Request" or "Company Order" shall mean a written request
or order signed in the name of the Company by any member thereof or its duly
authorized officer and delivered to the Trustee.

               "Conversion Agent" shall have the meaning set forth in Section
6.15.

               "Conversion Rate" shall have the meaning set forth in Section
16.01.

               "Custodian" shall mean any receiver, trustee, assignee,
liquidator, or similar official under any Bankruptcy Law.

               "Declaration" means the Amended and Restated Declaration of Trust
of Xerox Capital, dated as of the Issue Date.

               "Debenture Guarantee" means the Debenture Guarantee Agreement,
dated as of November 27, 2001, between the Company and the

<PAGE>

guarantee trustee thereto.

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

               "Defaulted Interest" shall have the meaning set forth in Section
2.11.

               "Defeasance Agent" has the meaning set forth in Section
11.05(a)(i).

               "Definitive Securities" shall mean those securities issued in
fully registered certificated form not otherwise in global form.

               "Depositary" shall mean, with respect to Securities of any
series, for which the Company shall determine that such Securities will be
issued as a Global Security, The Depository Trust Company, New York, New York,
another clearing agency, or any successor registered as a clearing agency under
the Exchange Act or other applicable statute or regulation, which, in each case,
shall be designated by the Company pursuant to Section 2.05(d).

               "Discharged" has the meaning set forth in Section 11.05(b).

               "Event of Default" shall mean any event specified in Section
5.01, continued for the period of time, if any, and after the giving of the
notice, if any, therein designated.

               "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

               "Exchange Event" means the exchange by the Company of the
Securities for Xerox Debentures and the distribution of the Xerox Debentures to
the holders of such Securities pro rata in accordance with the LLC Agreement and
this Indenture.

               "Global Security" means, with respect to the Securities, a
Security executed by the Company and delivered by the Trustee to the Depositary
or pursuant to the Depositary's instruction, all in accordance with the
Indenture, which shall be registered in the name of the Depositary or its
nominee.

               "Guarantees" means the Debenture Guarantee and the Trust
Securities Guarantee.

               "Indenture" shall mean this instrument as originally executed or,
if amended as herein provided, as so amended.

               "Initial Optional Redemption Date" means December 4, 2004.

               "Investment Company Act" means the Investment Company Act of
1940, as amended from time to time, or any successor legislation.

               "Interest Payment Date" shall have the meaning set forth in
Section 2.06.

               "Issue Date" means November 27, 2001.

<PAGE>

               "LLC Agreement" means the limited liability company agreement of
the Company, dated as of November 19, 2001, by Xerox as sole member.

               "Like Amount" means (i) with respect to a conversion, redemption
or purchase of the Securities, Securities having an aggregate principal amount
equal to the aggregate principal amount of Xerox Debentures to be converted,
redeemed or purchased in accordance with their terms, (ii) with respect to a
conversion, redemption or purchase of the Securities, Securities having an
aggregate principal amount equal to the aggregate liquidation amount of Trust
Securities to be converted, redeemed or purchased in accordance with their
terms, (iii) with respect to the distribution of Xerox Debentures upon an
Exchange Event, Xerox Debentures having a principal amount equal to the
aggregate principal amount of the Securities of the holder to whom such Xerox
Debentures are distributed and (iv) with respect to a distribution of Securities
upon a Trust Dissolution Event of Xerox Capital, Securities having a principal
amount equal to the aggregate liquidation amount of the Trust Securities of the
holder to whom such Securities are distributed.

               "Maturity Date" means November 27, 2021.

               "Member" means any member of the Company.

               "Non Book-Entry Trust Preferred Securities" shall have the
meaning set forth in Section 2.05.

               "Officers" shall mean any duly appointed officer of the Company.

               "Officers' Certificate" shall mean a certificate signed by any
Officer or Member and delivered to the Trustee.

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

               The term "outstanding" when used with reference to Securities,
shall, subject to the provisions of Section 7.04, mean, as of any particular
time, all Securities authenticated and delivered by the Trustee or the
Authenticating Agent under this Indenture, except

               (a) Securities theretofore cancelled by the Trustee or the
Authenticating Agent or delivered to the Trustee for cancellation;

               (b) Securities, or portions thereof, for the payment or
redemption of which moneys in the necessary amount shall have been deposited in
trust with the Trustee or with any paying agent (other than the Company) or
shall have been set aside and segregated in trust by the Company (if the Company
shall act as its own paying agent); provided that, if such Securities, or
portions thereof, are to be redeemed prior to maturity thereof, notice of such
redemption shall have been given as in Article XIV provided or provision
satisfactory to the Trustee shall have been made for giving such notice; and

               (c) Securities in lieu of or in substitution for which

<PAGE>

other Securities shall have been authenticated and delivered pursuant to the
terms of Section 2.08 unless proof satisfactory to the Company and the Trustee
is presented that any such Securities are held by bona fide holders in due
course.

               "Paying Agent" has the meaning set forth in Section 3.04.

               "Person" shall mean any individual, corporation, estate,
partnership, joint venture, association, joint-stock company, limited liability
company, trust, unincorporated organization or government or any agency or
political subdivision thereof.

               "Pledge Agreement" means the pledge agreement, dated November 27,
2001, between the Company and Wells Fargo Bank Minnesota, National Association,
as pledge trustee.

               "Pledged Account" has the meaning set forth in the Pledge
Agreement.

               "Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt and as that
evidenced by such particular Security; and, for the purposes of this definition,
any Security authenticated and delivered under Section 2.08 in lieu of a lost,
destroyed or stolen Security shall be deemed to evidence the same debt as the
lost, destroyed or stolen Security.

               "Principal Office of the Trustee", or other similar term, shall
mean the principal corporate trust office of the 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 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.

               "Purchase Date" shall have the meaning set forth in Section
15.01(a).

               "Purchase Price" shall have the meaning set forth in Section
15.01(a).

               "Redemption Price" means the Regular Redemption Price and the
Special Redemption Price, as applicable.

               "Regular Redemption Price" means an amount equal to 100% of the
principal amount of the Debentures called for redemption, plus accrued and
unpaid interest to but excluding the date of redemption.

               "Responsible Officer", when used with respect to the Trustee,
shall mean the chairman or any vice chairman of the board of directors, the
chairman or any vice chairman of the executive committee of the board of
directors, the chairman of the trust committee, the president, any vice
president, the cashier, any assistant cashier, the secretary, any assistant
secretary, the treasurer, any assistant treasurer or senior trust officer, any
trust officer or assistant trust officer, the controller or any

<PAGE>

assistant controller or any other officer or assistant officer of the 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 his
knowledge of and familiarity with the particular subject.

               "Restricted Security" shall mean Securities that bear or are
required to bear the Securities Act legends set forth in Exhibit A hereto.

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

               "Securities" means the securities issued hereunder.

               "Securities Act" shall mean the Securities Act of 1933, as
amended.

               "Securityholder", "holder of Securities", or other similar terms,
shall mean any person in whose name at the time a particular Security is
registered on the register kept by the Company or the Trustee for that purpose
in accordance with the terms hereof; provided, however, that, in determining
whether the holders of the requisite percentage of principal amount of the
Securities have given any request, notice, consent or waiver hereunder, "Holder"
shall not include the Company or any Affiliate of the Company (other than Xerox
Capital); and provided, further, that, in determining whether the holders of the
requisite principal amount of Securities have voted on any matter provided for
in this Indenture, then for purpose of such determination only (and not for any
other purpose hereunder), if the Securities are held by the Property Trustee,
the term "Holders" shall mean the holders of the Trust Securities, acting at the
direction of the beneficial owners thereof.

               "Security Register" shall mean (i) prior to a Trust Dissolution
Event, the List of Holders provided to the Trustee pursuant to Section 4.01, and
(ii) following a Trust Dissolution Event, any security register maintained by a
security registrar for the Securities appointed by the Company following the
execution of a supplemental indenture providing for transfer procedures as
provided for in Section 2.07(a).

               "Senior Indebtedness" shall mean, with respect to an obligor, (i)
the principal, premium, if any, and interest in respect of (A) indebtedness of
such obligor for money borrowed, and (B) indebtedness evidenced by securities,
debentures, bonds or other similar instruments issued by such obligor, (ii) all
capital lease obligations of such obligor, (iii) all obligations of such obligor
issued or assumed as the deferred purchase price of property, all conditional
sale obligations of such obligor and all obligations of such obligor under any
title retention agreement (but excluding trade accounts payable arising in the
ordinary course of business), (iv) all obligations of such obligor for the
reimbursement on any letter of credit, banker's acceptance, security purchase
facility or similar credit transaction, (v) all obligations of the type referred
to in clauses (i) through (iv) above of other persons for the payment of which
such obligor is responsible or liable as obligor, guarantor or otherwise and
(vi) all obligations of the type referred to in clauses (i) through (v) above of
other persons secured by any lien on any property or asset of such obligor
(whether

<PAGE>

or not such obligation is assumed by such obligor), except for any such
indebtedness that is by its terms subordinated to or ranks pari passu with the
Securities. Such Senior Indebtedness shall continue to be Senior Indebtedness
and be entitled to the benefits of the subordination provisions irrespective of
any amendment, modification or waiver of any term of such Senior Indebtedness.

               "Special Redemption Price" means, with respect to the Securities,
the following percentages of the principal amounts of such Securities called for
redemption, and accrued and unpaid interest, if any, to but excluding the date
of redemption if redeemed during the periods set forth 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                  100.00%

               "Subsidiary" shall mean with respect to any Person, (i) any
corporation at least a majority of whose outstanding voting stock is owned,
directly or indirectly, by such Person or by one or more of its Subsidiaries, or
by such Person and one or more of its Subsidiaries, (ii) any general
partnership, joint venture, limited liability company or similar entity, at
least a majority of whose outstanding partnership, membership or similar
interests shall at the time be owned by such Person, or by one or more of its
Subsidiaries, or by such Person and one or more of its Subsidiaries and (iii)
any limited partnership of which such Person or any of its Subsidiaries is a
general partner. For the purposes of this definition, "voting stock" means
shares, interests, participations or other equivalents in the equity interest
(however designated) in such Person having ordinary voting power for the
election of a majority of the directors (or the equivalent) of such Person,
other than shares, interests, participations or other equivalents having such
power only by reason of the occurrence of a contingency.

               "Trust Dissolution Event" means the dissolution of Xerox Capital
and the distribution of a Like Amount of Securities to holders of the Trust
Securities.

               "Trust Indenture Act" shall mean the Trust Indenture Act of 1939
as in force at the date of execution of this Indenture, except as provided in
Section 9.03.

               "Trust Securities" shall mean the Trust Preferred Securities and
the Common Securities, collectively.

               "Trust Securities Guarantee" means the Trust Securities Guarantee
Agreement, dated as of November 27, 2001, between Xerox and the guarantee
trustee thereto.

               "Trustee" shall mean the Person identified as "Trustee" in the
first paragraph hereof, and, subject to the provisions of Article VI hereof,
shall also include its successors and assigns as Trustee hereunder

<PAGE>

The term "Trustee" as used with respect to a particular series of the Securities
shall mean the trustee with respect to that series.

               "U.S. Government Obligations" shall mean securities that are (i)
direct obligations of the United States of America for the payment of which its
full faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case under
clauses (i) or (ii) are not callable or redeemable at the option of the issuer
thereof, and shall also include a depository receipt issued by a bank or trust
company as custodian with respect to any such U.S. Government Obligation or a
specific payment of interest on or principal of any such U.S. Government
Obligation held by such custodian for the account of the holder of a depository
receipt, provided that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
U.S. Government Obligation or the specific payment of interest on or principal
of the U.S. Government Obligation evidenced by such depository receipt.

               "Xerox" means Xerox Corporation, a New York corporation, and its
successors and assigns

               "Xerox Capital" shall mean Xerox Capital Trust II, a Delaware
business trust.

                                   ARTICLE II

                                   SECURITIES

               SECTION 2.01. Forms Generally.

               The Securities and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A, the terms of which are
incorporated in and made a part of this Indenture. The Securities may have
notations, legends or endorsements required by law, stock exchange rule,
agreements to which the Company is subject or usage. Each Security shall be
dated the date of its authentication. The Securities shall be issued in
denominations of $50 and integral multiples thereof.

               SECTION 2.02. Execution and Authentication.

               Any Member or Officer shall sign the Securities for the Company
by manual or facsimile signature in the manner set forth in Exhibit A. If an
Officer whose signature is on a Security no longer holds that office at the time
the Security is authenticated, the Security shall nevertheless be valid. A
Security shall not be valid until authenticated by the manual signature of an
authorized officer of the Trustee. The signature of the Trustee shall be
conclusive evidence that the Security has been authenticated under this
Indenture. The form of Trustee's certificate of authentication to be borne by
the Securities shall be substantially as set forth in Exhibit A hereto. The
Trustee shall, upon a Company Order, authenticate for original issue up to, and
the aggregate principal amount of Securities outstanding at any time may not
exceed the sum of $1,067,010,400 aggregate principal amount of the Securities,
except as provided in Sections 2.07, 2.08, 2.09 and 14.05.

<PAGE>

               SECTION 2.03. Form and Payment and Delivery.

               Except as provided in Section 2.05, the Securities shall be
issued in fully registered certificated form without interest coupons. Amounts
due on or in respect of the Securities issued in certificated form will be
payable or deliverable, the transfer of such Securities will be registrable and
such Securities will be exchangeable for Securities bearing identical terms and
provisions at the office or agency of the Company maintained for such purpose
under Section 3.02; provided, however, that payment of interest with respect to
the Securities may be made at the option of the Company (i) by check mailed to
the holder at such address as shall appear in the Security Register or (ii) by
transfer to an account maintained by the Person entitled thereto, provided that
proper transfer instructions have been received in writing by the relevant
record date. Notwithstanding the foregoing, so long as the holder of any
Securities is the Property Trustee, the payment or delivery of any amounts due
on or in respect of such Securities held by the Property Trustee will be made at
such place and to such account as may be designated by the Property Trustee.

               SECTION 2.04. Legends.

               Except as otherwise determined by the Company in accordance with
applicable law, each Security shall bear the applicable legends relating to
restrictions on transfer pursuant to the securities laws in substantially the
form set forth on Exhibit A hereto.

               SECTION 2.05. Global Security.

               (a) In connection with a Trust Dissolution Event,

                    (i) if any Trust Preferred Securities are held in book-entry
     form, the related certificates evidencing such securities shall be
     presented to the Trustee (if an arrangement with the Depositary has been
     maintained) by the Property Trustee in exchange for one or more Global
     Securities (as may be required pursuant to Section 2.07) in an aggregate
     principal amount equal to the aggregate liquidation amount of all
     outstanding Trust Preferred Securities, to be registered in the name of the
     Depositary, or its nominee, and delivered by the Trustee to the Depositary
     for crediting to the accounts of its participants pursuant to the
     instructions of the Property Trustee; the Company upon any such
     presentation shall execute one or more Global Securities in such aggregate
     principal amount and deliver the same to the Trustee for authentication and
     delivery in accordance with this Indenture; and payments on the Securities
     issued as a Global Security will be made to the Depositary; and

                    (ii) if any Trust Preferred Securities are held in
     certificated form, the related Definitive Securities may be presented to
     the Trustee by the Property Trustee and any Trust Preferred Security
     certificate which represents Trust Preferred Securities other than Trust
     Preferred Securities in book-entry form ("Non Book-Entry Trust Preferred
     Securities") will be deemed to represent beneficial interests in Securities
     presented to the Trustee by the Property Trustee having an aggregate
     principal amount equal to the aggregate liquidation amount of the Non
     Book-Entry Trust Preferred Securities until such Trust Preferred Security
     certificates are presented to the Security Registrar for

<PAGE>

     transfer or reissuance, at which time such Trust Preferred Security
     certificates will be cancelled and a Security, registered in the name of
     the holder of the Trust Preferred Security certificate or the transferee of
     the holder of such Trust Preferred Security certificate, as the case may
     be, with an aggregate principal amount equal to the aggregate liquidation
     amount of the Trust Preferred Security certificate cancelled, will be
     executed by the Company and delivered to the Trustee for authentication and
     delivery in accordance with the Indenture. Upon the issuance of such
     Securities, Securities with an equivalent aggregate principal amount that
     were presented by the Property Trustee to the Trustee will be deemed to
     have been cancelled.

               (b) The Global Securities shall represent the aggregate amount of
outstanding Securities from time to time endorsed thereon; provided, that the
aggregate amount of outstanding Securities represented thereby may from time to
time be reduced or increased, as appropriate, to reflect exchanges, conversions,
purchases and redemptions. Any endorsement of a Global Security to reflect the
amount of any increase or decrease in the amount of outstanding Securities
represented thereby shall be made by the Trustee, in accordance with
instructions given by the Company as required by this Section 2.05.

               (c) The Global Securities may be transferred, in whole but not in
part, only to the Depositary, another nominee of the Depositary, or to a
successor Depositary selected or approved by the Company or to a nominee of such
successor Depositary.

               (d) If at any time the Depositary notifies the Company that it is
unwilling or unable to continue as Depositary or the Depositary has ceased to be
a clearing agency registered under the Exchange Act, and a successor Depositary
is not appointed by the Company within 90 days after the Company receives such
notice or becomes aware of such condition, as the case may be, the Company will
execute, and the Trustee, upon written notice from the Company, will
authenticate and make available for delivery the Definitive Securities, in
authorized denominations, and in an aggregate principal amount equal to the
principal amount of the Global Security in exchange for such Global Security. If
there is an Event of Default, the Depositary shall have the right to exchange
the Global Securities for Definitive Securities. In addition, the Company may at
any time determine that the Securities shall no longer be represented by a
Global Security. In the event of such an Event of Default or such a
determination, the Company shall execute, and subject to Section 2.07, the
Trustee, upon receipt of an Officers' Certificate evidencing such determination
by the Company, will authenticate and make available for delivery the Definitive
Securities, in authorized denominations, and in an aggregate principal amount
equal to the principal amount of the Global Security in exchange for such Global
Security. Upon the exchange of the Global Security for such Definitive
Securities, in authorized denominations, the Global Security shall be cancelled
by the Trustee. Such Definitive Securities issued in exchange for the Global
Security shall be registered in such names and in such authorized denominations
as the Depositary, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee. The Trustee shall deliver
such Definitive Securities to the Depositary for delivery to the Persons in
whose names such Definitive Securities are so registered.

               SECTION 2.06. Interest.

<PAGE>

               (a) Each Security will bear interest at the rate of 7 1/2% per
annum (the "Coupon Rate") from the most recent date to which interest has been
paid or duly provided for or, if no interest has been paid or duly provided for,
from the Issue Date, until the principal thereof becomes due and payable, and at
the rate of 7 1/2% per annum on any overdue principal (and premium, if any) and
(to the extent that payment of such interest is enforceable under applicable
law) on any overdue installment of interest, compounded quarterly, payable
quarterly in arrears on February 27, May 27, August 27 and November 27 of each
year (each, an "Interest Payment Date") commencing on February 27, 2002, to the
Person in whose name such Security or any predecessor Security is registered, at
the close of business on the regular record date for such interest installment,
which shall be the Business Day or, if none of the Securities, the Xerox
Debentures or the Trust Preferred Securities are being represented by global
securities, the 15th calendar day, immediately preceding the relevant Interest
Payment Date. The amount of interest payable on any Interest Payment Date, the
applicable redemption date, the applicable Purchase Date, the Change in Control
Purchase Date or the Maturity Date shall include interest accrued from and
including the Issue Date or the last Interest Payment Date to which interest has
been paid to but excluding such Interest Payment Date, such redemption date,
such Purchase Date, such Change in Control Purchase Date or the Maturity Date,
as applicable.

               (b) Interest will be computed on the basis of a 360-day year
consisting of twelve 30-day months and, for any period of less than a full
calendar month, the number of days lapsed in such month.

               (c) During such time as Xerox Capital is the holder of any
Securities, the Company shall pay any additional interest on the Securities in
an amount sufficient so that the net amounts received and retained by the holder
of the Securities after paying any taxes, duties, assessments or governmental
charges of whatever nature, other than withholding taxes, imposed by the United
States, or any other taxing authority will be equal to the amounts the holder of
the Securities would have received had no such taxes, duties, assessments or
other governmental charges been imposed ("Additional Interest").

               (d) Notwithstanding Section 2.06(c) above, none of the Company,
Xerox or Xerox Capital will be responsible for, nor will the Company, Xerox or
Xerox Capital be required to compensate holders of or investors in the Trust
Preferred Securities (or the Securities that may be distributed by Xerox
Capital) for, any withholding taxes that are imposed on interest payments on the
Securities or on distributions with respect to the Trust Preferred Securities.

               (e) Notwithstanding anything to the contrary herein, for any date
on which a payment on the Securities is due and payable, to the extent such
payment is made or otherwise duly provided for on such date from proceeds from
the Pledged Account in accordance with Section 5 of the Pledge Agreement, for
all purposes of this Indenture, such payment shall be deemed to have been paid
in full on such date.

               SECTION 2.07. Transfer and Exchange.

               (1) Transfer Restrictions. The Securities may not be transferred
except in compliance with the legend contained in Exhibit A unless otherwise
determined by the Company in accordance with applicable

<PAGE>

law. Upon any distribution of the Securities following a Trust Dissolution
Event, the Company and the Trustee shall enter into a supplemental indenture
pursuant to Section 9.01 to provide for the transfer restrictions and procedures
with respect to the Securities substantially similar to those contained in the
Declaration to the extent applicable in the circumstances existing at such time.

               (2) General Provisions Relating to Transfers and Exchanges Upon
surrender for registration of transfer of any Security at the office or agency
of the Company maintained for the purpose pursuant to Section 3.02, the Company
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Securities of the same
series, of any authorized denominations and of a like aggregate principal amount
and such method shall be the only method of effecting a transfer of a Security.

               At the option of the holder, Securities of any series may be
exchanged for other Securities of the same series, of any authorized
denominations and of a like aggregate principal amount, upon surrender of the
Securities to be exchanged at such office or agency. Whenever any Securities are
so surrendered for exchange, the Company shall execute, and the Trustee shall
authenticate and deliver, the Securities which the holder making the exchange is
entitled to receive.

               Every Security presented or surrendered for registration of
transfer or exchange shall (if so required by the Company or the Trustee) be
duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed, by the
holder thereof or his attorney duly authorized in writing. All Definitive
Securities and Global Securities issued upon any registration of transfer or
exchange of Definitive Securities or Global Securities shall be the valid
obligations of the Company, evidencing the same debt, and entitled to the same
benefits under this Indenture, as the Definitive Securities or Global Securities
surrendered upon such registration of transfer or exchange.

               No service charge shall be made to a holder for any registration
of transfer or exchange, but the Company may require payment of a sum sufficient
to cover any transfer tax or similar governmental charge payable in connection
therewith.

               The Company shall not be required to (i) issue, register the
transfer of or exchange 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 Securities for redemption under Article XIV hereof and
ending at the close of business on the day of such mailing; or (ii) register the
transfer of or exchange any Security so selected for redemption in whole or in
part, except the unpaid portion of any Security being redeemed in part.

               SECTION 2.08. Replacement Securities.

               If any mutilated Security is surrendered to the Trustee, or the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, the Company shall issue and the
Trustee shall authenticate a replacement Security if the Trustee's requirements
for replacements of Securities are met. An indemnity bond must be supplied by
the holder that is sufficient in the judgment of the Trustee

<PAGE>

and the Company to protect the Company, the Trustee, any agent thereof or any
authenticating agent from any loss that any of them may suffer if a Security is
replaced. The Company or the Trustee may charge for its expenses in replacing a
Security.

               Every replacement Security is an obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Securities duly issued hereunder.

               SECTION 2.09. Temporary Securities.

               Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and make
available for delivery, temporary Securities that are printed, lithographed,
typewritten, mimeographed or otherwise reproduced, in any authorized
denomination, substantially of the tenor of the definitive Securities in lieu of
which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Securities may
determine, as conclusively evidenced by their execution of such Securities.

               If temporary Securities are issued, the Company shall cause
definitive Securities to be prepared without unreasonable delay. The definitive
Securities shall be printed, lithographed or engraved, or provided by any
combination thereof, or in any other manner as the Company may elect to the
extent (if such definitive Securities are listed thereon) permitted by the rules
and regulations of any applicable securities exchange After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at the office
or agency maintained by the Company for such purpose pursuant to Section 3.02
hereof, without charge to the Holder. Upon surrender for cancellation of any one
or more temporary Securities, the Company shall execute, and the Trustee shall
authenticate and make available for delivery, in exchange therefor the same
aggregate principal amount of definitive Securities of authorized denominations.
Until so exchanged, the temporary Securities shall in all respects be entitled
to the same benefits under this Indenture as definitive Securities.

               SECTION 2.10. Cancellation.

               The Company at any time may deliver Securities to the Trustee for
cancellation. The Trustee and no one else shall cancel all Securities
surrendered for registration of transfer, exchange, payment, replacement or
cancellation and shall retain or dispose of cancelled Securities in accordance
with its normal practices (subject to the record retention requirement of the
Exchange Act) unless the Company directs them to be returned to it. The Company
may not issue new Securities to replace Securities that have been redeemed or
paid or that have been delivered to the Trustee for cancellation.

               SECTION 2.11. Defaulted Interest.

               Any interest on any Security that is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the holder
on the relevant regular record date by virtue of having been such holder; and
such Defaulted Interest shall be paid by the Company, at its

<PAGE>

election, as provided in clause (a) or clause (b) below:

               (a) The Company may make payment of any Defaulted Interest on
Securities to the Persons in whose names such Securities (or their respective
Predecessor Securities) are registered at the close of business on a special
record date for the payment of such Defaulted Interest, which shall be fixed in
the following manner: the Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each such Security and the
date of the proposed payment, and at the same time the Company shall deposit
with the Trustee an amount of money equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the proposed
payment, such money when deposited to be held in trust for the benefit of the
Persons entitled to such Defaulted Interest as in this clause provided.
Thereupon the Trustee shall fix a special record date for the payment of such
Defaulted Interest which shall not be more than 15 nor less than 10 days prior
to the date of the proposed payment and not less than 10 days after the receipt
by the Trustee of the notice of the proposed payment. The Trustee shall promptly
notify the Company of such special record date and, in the name and at the
expense of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the special record date therefor to be mailed, first
class postage prepaid, to each Securityholder at his or her address as it
appears in the Security Register, not less than 10 days prior to such special
record date. Notice of the proposed payment of such Defaulted Interest and the
special record date therefor having been mailed as aforesaid, such Defaulted
Interest shall be paid to the Persons in whose names such Securities (or their
respective Predecessor Securities) are registered on such special record date
and shall be no longer payable pursuant to the following clause (b).

               (b) The Company may make payment of any Defaulted Interest on any
Securities in any other lawful manner not inconsistent with the requirements of
any securities exchange on which such Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this clause, such
manner of payment shall be deemed practicable by the Trustee.

               SECTION 2.12. CUSIP Numbers.

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

                                   ARTICLE III

                       PARTICULAR COVENANTS OF THE COMPANY

               SECTION 3.01. Payment and Delivery of amounts Due.

<PAGE>

               The Company covenants and agrees for the benefit of the holders
of the Securities that it will duly and punctually pay, deliver or cause to be
paid or delivered all amounts due on or in respect of the Securities at the
place, at the respective times and in the manner provided herein. Except as
provided in Section 2.03, each installment of interest on the Securities may be
paid by mailing checks for such interest payable to the order of the holder of
Security entitled thereto as they appear in the Security Register.

               SECTION 3.02. Offices for Notices and Payments, etc.

               So long as any of the Securities remain outstanding, the Company
will maintain in the Borough of Manhattan, The City of New York, an office or
agency where the Securities may be presented for payment, an office or agency
where the Securities may be presented for registration of transfer, for
exchange, for purchase and conversion as in this Indenture provided and an
office or agency where notices and demands to or upon the Company in respect of
the Securities or of this Indenture may be served. The Company will give to the
Trustee written notice of the location of any such office or agency and of any
change of location thereof. Until otherwise designated from time to time by the
Company in a notice to the Trustee, any such office or agency for all of the
above purposes shall be the Principal Office of the Trustee. In case the Company
shall fail to maintain any such office or agency in the Borough of Manhattan,
The City of New York, or shall fail to give such notice of the location or of
any change in the location thereof, presentations and demands may be made and
notices may be served at the Principal Office of the Trustee.

               In addition to any such office or agency, the Company may from
time to time designate one or more offices or agencies outside the Borough of
Manhattan, The City of New York, where the Securities may be presented for
payment, registration of transfer and for exchange, for purchase and conversion
in the manner provided in this Indenture, and the Company may from time to time
rescind such designation, as the Company may deem desirable or expedient;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain any such office or agency in
the Borough of Manhattan, The City of New York, for the purposes above
mentioned. The Company will give to the Trustee prompt written notice of any
such designation or rescission thereof.

               SECTION 3.03. Appointments to Fill Vacancies in Trustee's Office.

               The Company, whenever necessary to avoid or fill a vacancy in the
office of Trustee, will appoint, in the manner provided in Section 6.10, a
Trustee, so that there shall at all times be a Trustee hereunder.

               SECTION 3.04. Provision as to Paying Agent.

               (a) If the Company shall appoint a paying agent other than the
Trustee with respect to the Securities, it will cause such paying agent to
execute and deliver to the Trustee an instrument in which such agent shall agree
with the Trustee, subject to the provision of this Section 3.04,

                    (1) that it will hold all sums held by it as such agent for
     the payment of the principal of and premium, if any, or interest on

<PAGE>

     the Securities (whether such sums have been paid to it by the Company or by
     any other obligor on the Securities of such series) in trust for the
     benefit of the holders of the Securities;

                    (2) that it will give the Trustee notice of any failure by
     the Company (or by any other obligor on the Securities) to make any payment
     of the principal of or premium (if any) or interest on the Securities when
     the same shall be due and payable; and

                    (3) that it will at any time during the continuance of any
     such failure, upon the written request of the Trustee, forthwith pay to the
     Trustee all sums so held in trust by it as such paying agent.

               (b) If the Company shall act as its own paying agent, it will, on
or before each due date of the principal of and premium, if any, or interest on
the Securities, set aside, segregate and hold in trust for the benefit of the
holders of the Securities a sum sufficient to pay such principal, premium or
interest so becoming due and will notify the Trustee of any failure to take such
action and of any failure by the Company (or by any other obligor under the
Securities) to make any payment of the principal of and premium, if any, or
interest on the Securities when the same shall become due and payable.

               (c) Anything in this Section 3.04 to the contrary
notwithstanding, the Company may, at any time, for the purpose of obtaining a
satisfaction and discharge with respect to the Securities hereunder, or for any
other reason, pay or cause to be paid to the Trustee all sums held in trust for
any such series by the Trustee or any paying agent hereunder, as required by
this Section 3.04, such sums to be held by the Trustee upon the trusts herein
contained.

               (d) Anything in this Section 3.04 to the contrary
notwithstanding, the agreement to hold sums in trust as provided in this Section
3.04 is subject to Sections 11.03 and 11.04.

               (e) The Company appoints the Trustee as the initial paying agent
(the "Paying Agent").

               SECTION 3.05. Certificate to Trustee.

               The Company will deliver to the Trustee on or before 120 days
after the end of each fiscal year of the Company, commencing with the first
fiscal year ending after the date hereof, so long as Securities are outstanding
hereunder, an Officers' Certificate, one of the signers of which shall be the
principal executive, principal financial or principal accounting officer of the
Company stating that in the course of the performance by the signers of their
duties as officers of the Company they would normally have knowledge of any
default by the Company in the performance of any covenants contained herein,
stating whether or not they have knowledge of any such default and, if so,
specifying each such default of which the signers have knowledge and the nature
thereof.

               SECTION 3.06. Payment Upon Resignation or Removal.

               Upon termination of this Indenture or the removal or resignation
of the Trustee, unless otherwise stated, the Company shall pay to the Trustee
all amounts accrued and owing to the date of such termination,

<PAGE>

removal or resignation.

                                   ARTICLE IV

                    SECURITYHOLDERS' LISTS AND REPORTS BY THE
                             COMPANY AND THE TRUSTEE

               SECTION 4.01. Lists of Securityholders.

               (a) The Company shall provide the Trustee, unless the Trustee or
one of its Affiliates is registrar for the Securities (i) within 14 days after
each record date for payment of distributions on the Securities, a list, in such
form as the Trustee may reasonably require, of the names and addresses of the
Securityholders ("List of Holders") as of such record date, provided that the
Company shall not 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 Trustee by the Company, and (ii) at any other time, within 30 days of
receipt by the Company 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 Trustee. The
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 for the Securities (if acting in such capacity),
provided that the Trustee may destroy any List of Holders previously given to it
on receipt of a new List of Holders. (b) The Trustee shall comply with its
obligations under Sections 311(a), 311(b) and 312(b) of the Trust Indenture Act.

               SECTION 4.02. Reports by the Trustee.

               Within 60 days after December 15 of each year, commencing
December 15, 2002, the Trustee shall provide to the Securityholders 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 4.03. Periodic Reports to Trustee.

               The Company shall provide to the 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, such compliance certificate to be delivered annually on or before 120 days
after the end of each fiscal year of the Company.

                                    ARTICLE V

                   REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
                               ON EVENT OF DEFAULT

               SECTION 5.01. Events of Default.

               One or more of the following events of default shall constitute
an Event of Default hereunder (whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):

<PAGE>

               (a) default in the payment of any interest upon any Security when
it becomes due and payable, and continuance of such default for a period of 30
days, to the extent such payment is not made or otherwise duly provided for from
proceeds from the Pledged Account in accordance with Section 5 of the Pledge
Agreement; or

               (b) default in the payment of all or any part of the principal of
(or premium, if any), Redemption Price, Purchase Price or Change in Control
Purchase Price on any Security as and when the same shall become due and payable
either at maturity, upon redemption, upon purchase, by declaration of
acceleration of maturity or otherwise, to the extent such payment is not made or
otherwise duly provided for from proceeds from the Pledged Account in accordance
with Section 5 of the Pledge Agreement; or

               (c) the Company fails either to deliver shares of Common Stock
(or to pay cash in lieu of fractional shares) or other consideration in
accordance with the terms hereof when such Common Stock (or cash in lieu of
fractional shares) or other consideration is required to be delivered, whether
upon conversion or purchase, and such failure is not remedied for a period of 10
Business Days, to the extent any such cash payment is not made or otherwise duly
provided for from proceeds from the Pledged Account in accordance with Section 5
of the Pledge Agreement; or

               (d) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a covenant or warranty a
default in whose performance or whose breach is elsewhere in this Section
specifically dealt with), and continuance of such default or breach for a period
of 60 days after there has been given, by registered or certified mail, to the
Company by the Trustee or to the Company and the Trustee by the holders of at
least 25% in aggregate principal amount of the outstanding Securities a written
notice specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" hereunder; or

               (e) a court having jurisdiction in the premises shall enter a
decree or order for relief in respect of the Company, Xerox or Xerox Capital (so
long as the Trust Securities are outstanding) in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or appointing a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of the Company, Xerox or Xerox Capital, as
the case may be, or for any substantial part of their property, or ordering the
winding-up or liquidation of their affairs and such decree or order shall remain
unstayed and in effect for a period of 90 consecutive days;

               (f) the Company, Xerox or Xerox Capital (so long as the Trust
Securities are outstanding) shall commence a voluntary case under any applicable
bankruptcy, insolvency, reorganization or other similar law now or hereafter in
effect, shall consent to the entry of an order for relief in an involuntary case
under any such law, or shall consent to the appointment of or taking possession
by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other
similar official) of the Company, Xerox or Xerox Capital, as the case may be, or
of any substantial part of their property, or shall make any general assignment
for the benefit of creditors, or shall fail generally to pay their debts as they
become due; or

<PAGE>


               (g) the occurrence and continuance of an Event of Default under
the Xerox Indenture.

               If an Event of Default with respect to Securities at the time
outstanding occurs and is continuing, then in the cases specified in (e) and (f)
above, the principal amount of all Securities automatically shall become
immediately due and payable; in every other case specified above, the Trustee or
the holders of not less than 25% in aggregate principal amount of the Securities
then outstanding may declare the principal amount of all Securities to be due
and payable immediately, by a notice in writing to the Company (and to the
Trustee if given by the holders of the outstanding Securities), and upon any
such declaration the same shall become immediately due and payable.

               The foregoing provisions, however, are subject to the condition
that if, at any time after the principal of the Securities shall have been so
declared due and payable, and before any judgment or decree for the payment of
the moneys due shall have been obtained or entered as hereinafter provided, (i)
the Company shall pay or shall deposit with the Trustee a sum sufficient to pay
(A) all matured installments of interest upon all the Securities and the
principal of and premium, if any, on any and all Securities which shall have
become due otherwise than by acceleration (with interest upon such principal and
premium, if any, and, to the extent that payment of such interest is enforceable
under applicable law, on overdue installments of interest, at the same rate as
the rate of interest specified in the Securities to the date of such payment or
deposit) and (B) such amount as shall be sufficient to cover reasonable
compensation to the Trustee and each predecessor Trustee, their respective
agents, attorneys and counsel, and all other expenses and liabilities incurred,
and all advances made, by the Trustee and each predecessor Trustee except as a
result of gross negligence or bad faith, and (ii) any and all Events of Default
under the Indenture, other than the non-payment of the principal of the
Securities which shall have become due solely by such declaration of
acceleration, shall have been cured, waived or otherwise remedied as provided
herein, then, in every such case, the holders of a majority in aggregate
principal amount of the Securities then outstanding, by written notice to the
Company and to the Trustee, may rescind and annul such declaration and its
consequences, but no such waiver or rescission and annulment shall extend to or
shall affect any subsequent default or shall impair any right consequent
thereon.

               In case the Trustee shall have proceeded to enforce any right
under this Indenture and such proceedings shall have been discontinued or
abandoned because of such rescission or annulment or for any other reason or
shall have been determined adversely to the Trustee, then and in every such case
the Company, the Trustee and the holders of the Securities shall be restored
respectively to their several positions and rights hereunder, and all rights,
remedies and powers of the Company, the Trustee and the holders of the
Securities shall continue as though no such proceeding had been taken.

               SECTION 5.02. Payment of Securities on Default; Suit Therefor.

               The Company covenants that (a) in case default shall be made in
the payment of any installment of interest upon any of the Securities as and
when the same shall become due and payable, and such default shall have
continued for a period of 30 days, to the extent such payment is not made or
otherwise duly provided for from proceeds from the Pledged Account in

<PAGE>

accordance with Section 5 of the Pledge Agreement, (b) in case default shall be
made in the payment of the principal of or premium, if any, Redemption Price,
Purchase Price or Change in Control Purchase Price on any of the Securities as
and when the same shall have become due and payable, whether at maturity of the
Securities or upon redemption, purchase or by declaration or otherwise, to the
extent such payment is not made or otherwise duly provided for from proceeds
from the Pledged Account in accordance with Section 5 of the Pledge Agreement or
(c) in case default shall be made in the delivery of shares of Common Stock (or
to pay cash in lieu of fractional shares) or other consideration in accordance
with the terms hereof when such Common Stock (or cash in lieu of fractional
shares) or other consideration is required to be delivered, whether upon
conversion or purchase, and such failure is not remedied for a period of 10
Business Days, to the extent any such cash payment is not made or otherwise duly
provided for from proceeds from the Pledged Account in accordance with Section 5
of the Pledge Agreement, then, upon demand of the Trustee, the Company will pay
or deliver to the Trustee, for the benefit of the holders of the Securities, the
whole amount that then shall have become due and payable or deliverable on all
such Securities including the Redemption Price, Purchase Price or Change in
Control Purchase Price, with interest upon such overdue amounts, if any, and (to
the extent that payment of such interest is enforceable under applicable law
and, if the Securities are held by Xerox Capital, without duplication of any
other amounts paid by Xerox Capital in respect thereof) upon the overdue
installments of interest at the rate borne by the Securities; and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including a reasonable compensation to the Trustee, its
agents, attorneys and counsel, and any expenses or liabilities incurred by the
Trustee hereunder other than through its gross negligence or bad faith.

               In case the Company shall fail forthwith to pay such amounts upon
such demand, the Trustee, in its own name and as trustee of an express trust,
shall be entitled and empowered to institute any actions or proceedings at law
or in equity for the collection of the sums so due and decree, and may enforce
any such judgment or final decree against the Company or any other obligor on
the Securities and collect in the manner provided by law out of the property of
the Company or any other obligor on the Securities wherever situated the moneys
adjudged or decreed to be payable.

               In case there shall be pending proceedings for the bankruptcy or
for the reorganization of the Company or any other obligor on the Securities
under Title 11, United States Code, or any other applicable law, or in case a
receiver or trustee shall have been appointed for the property of the Company or
such other obligor, or in the case of any other similar judicial proceedings
relative to the Company or other obligor upon the Securities, or to the
creditors or property of the Company or such other obligor, the Trustee,
irrespective of whether the principal of the Securities shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective of
whether the Trustee shall have made any demand pursuant to the provisions of
this Section 5.02, shall be entitled and empowered, by intervention in such
proceedings or otherwise, to file and prove a claim or claims for the whole
amount of principal and interest owing and unpaid in respect of the Securities
and, in case of any judicial proceedings, to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for reasonable compensation to the Trustee
and each predecessor Trustee, and their respective agents, attorneys and
counsel, and

<PAGE>

for reimbursement of all expenses and liabilities incurred, and all advances
made, by the Trustee and each predecessor Trustee, except as a result of gross
negligence or bad faith) and of the Securityholders allowed in such judicial
proceedings relative to the Company or any other obligor on the Securities, or
to the creditors or property of the Company or such other obligor, unless
prohibited by applicable law and regulations, to vote on behalf of the holders
of the Securities in any election of a trustee or a standby trustee in
arrangement, reorganization, liquidation or other bankruptcy or insolvency
proceedings or person performing similar functions in comparable proceedings,
and to collect and receive any moneys or other property payable or deliverable
on any such claims, and to distribute the same after the deduction of its
charges and expenses; and any receiver, assignee or trustee in bankruptcy or
reorganization is hereby authorized by each of the Securityholders to make such
payments to the Trustee, and, in the event that the Trustee shall consent to the
making of such payments directly to the Securityholders, to pay to the Trustee
such amounts as shall be sufficient to cover reasonable compensation to the
Trustee, each predecessor Trustee and their respective agents, attorneys and
counsel, and all other expenses and liabilities incurred, and all advances made,
by the Trustee and each predecessor Trustee except as a result of gross
negligence or bad faith.

               Nothing herein contained shall be construed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any
Securityholder any plan of reorganization, arrangement, adjustment or
composition affecting the Securities or the rights of any holder thereof or to
authorize the Trustee to vote in respect of the claim of any Securityholder in
any such proceeding.

               All rights of action and of asserting claims under this
Indenture, or under any of the Securities, may be enforced by the Trustee
without the possession of any of the Securities, or the production thereof on
any trial or other proceeding relative thereto, and any such suit or proceeding
instituted by the Trustee shall be brought in its own name as trustee of an
express trust, and any recovery of judgment shall be for the ratable benefit of
the holders of the Securities.

               In any proceedings brought by the Trustee (and also any
proceedings involving the interpretation of any provision of this Indenture to
which the Trustee shall be a party) the Trustee shall be held to represent all
the holders of the Securities, and it shall not be necessary to make any holders
of the Securities parties to any such proceedings.

               SECTION 5.03. Application of Moneys Collected by Trustee.

               Any moneys and properties collected by the Trustee shall be
applied in the order following, at the date or dates fixed by the Trustee for
the distribution of such moneys and properties, upon presentation of the
Securities in respect of which moneys have been collected, and stamping thereon
the payment, if only partially paid, and upon surrender thereof if fully paid:

               First: To the payment of costs and expenses of collection
applicable to the Securities and reasonable compensation to the Trustee, its
agents, attorneys and counsel, and of all other expenses and liabilities
incurred, and all advances made, by the Trustee except as a result of its
negligence or bad faith;

<PAGE>

               Second: To the payment of all Senior Indebtedness of the Company
if and to the extent required by Article XVII;

               Third: To the payment or delivery of the amounts then due and
unpaid upon Securities for principal of (and premium, if any), Redemption Price,
Purchase Price or Change in Control Purchase Price and interest on the
Securities, in respect of which or for the benefit of which money has been
collected, ratably, without preference of priority of any kind, according to the
amounts due on such Securities; and

               Fourth: To the Company.

               SECTION 5.04. Proceedings by Securityholders.

               No holder of any Security shall have any right by virtue of or by
availing of any provision of this Indenture to institute any suit, action or
proceeding in equity or at law upon or under or with respect to this Indenture
or for the appointment of a receiver or trustee, or for any other remedy
hereunder, unless such holder previously shall have given to the Trustee written
notice of an Event of Default and of the continuance thereof with respect to the
Securities specifying such Event of Default, as hereinbefore provided, and
unless also the holders of not less than 25% in aggregate principal amount of
the Securities then outstanding shall have made written request upon the Trustee
to institute such action, suit or proceeding in its own name as Trustee
hereunder and shall have offered to the Trustee such reasonable security or
indemnity as it may require against the costs, expenses and liabilities to be
incurred therein or thereby, and the Trustee for 60 days after its receipt of
such notice, request and offer of indemnity shall have failed to institute any
such action, suit or proceeding, it being understood and intended, and being
expressly covenanted by the taker and holder of every Security with every other
taker and holder and the Trustee, that no one or more holders of Securities
shall have any right in any manner whatever by virtue of or by availing of any
provision of this Indenture to affect, disturb or prejudice the rights of any
other holder of Securities, or to obtain or seek to obtain priority over or
preference to any other such holder, or to enforce any right under this
Indenture, except in the manner herein provided and for the equal, ratable and
common benefit of all holders of Securities.

               Notwithstanding any other provisions in this Indenture, however,
the right of any holder of any Security to receive payment of the principal of
(premium, if any) and interest on such Security, on or after the same shall have
become due and payable, or to institute suit for the enforcement of any such
payment, shall not be impaired or affected without the consent of such holder
and by accepting a Security hereunder it is expressly understood, intended and
covenanted by the taker and holder of every Security with every other such taker
and holder and the Trustee, that no one or more holders of Securities shall have
any right in any manner whatsoever by virtue or by availing itself of any
provision of this Indenture to affect, disturb or prejudice the rights of the
holders of any other Securities, or to obtain or seek to obtain priority over or
preference to any other such holder, or to enforce any right under this
Indenture, except in the manner herein provided and for the equal, ratable and
common benefit of all holders of Securities. For the protection and enforcement
of the provisions of this Section, each and every Securityholder and the Trustee
shall be entitled to such relief as can be given either at law or in equity.

<PAGE>

               The Company and the Trustee acknowledge that so long as the
Securities are held by the Property Trustee, pursuant to the Declaration, the
holders of Trust Preferred Securities are entitled, in the circumstances and
subject to the limitations set forth therein, to commence a Direct Action with
respect to any Event of Default under this Indenture and the Securities.

               SECTION 5.05. Proceedings by Trustee.

               In case an Event of Default occurs with respect to Securities and
is continuing, the Trustee may in its discretion proceed to protect and enforce
the rights vested in it by this Indenture by such appropriate judicial
proceedings as the Trustee shall deem most effectual to protect and enforce any
of such rights, either by suit in equity or by action at law or by proceeding in
bankruptcy or otherwise, whether for the specific enforcement of any covenant or
agreement contained in this Indenture or in aid of the exercise of any power
granted in this Indenture, or to enforce any other legal or equitable right
vested in the Trustee by this Indenture or by law.

               SECTION 5.06. Remedies Cumulative and Continuing.

               All powers and remedies given by this Article V to the Trustee or
to the Securityholders shall, to the extent permitted by law, be deemed
cumulative and not exclusive of any other powers and remedies available to the
Trustee or the holders of the Securities, by judicial proceedings or otherwise,
to enforce the performance or observance of the covenants and agreements
contained in this Indenture or otherwise established with respect to the
Securities, and no delay or omission of the Trustee or of any holder of any of
the Securities to exercise any right or power accruing upon any Event of Default
occurring and continuing as aforesaid shall impair any such right or power, or
shall be construed to be a waiver of any such default or an acquiescence
therein; and, subject to the provisions of Section 5.04, every power and remedy
given by this Article V or by law to the Trustee or to the Securityholders may
be exercised from time to time, and as often as shall be deemed expedient, by
the Trustee or by the Securityholders.

               SECTION 5.07. Direction of Proceedings and Waiver of Defaults by
Majority of Securityholders.

               The holders of a majority in aggregate principal amount of the
Securities at the time outstanding shall have the right to direct the time,
method, and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on the Trustee; provided,
however, that (subject to the provisions of Section 6.01) the Trustee shall have
the right to decline to follow any such direction if the Trustee shall determine
that the action so directed would be unjustly prejudicial to the holders not
taking part in such direction or if the Trustee being advised by counsel
determines that the action or proceeding so directed may not lawfully be taken
or if the 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 Trustee in personal liability. Prior to any declaration accelerating
the maturity of the Securities, the holders of a majority in aggregate principal
amount of the Securities at the time outstanding may on behalf of the holders of
all of the Securities waive any past default or Event of Default and its
consequences

<PAGE>

except a default (a) in the payment of principal of or premium, if any,
Redemption Price, Purchase Price, Change in Control Purchase Price or interest
on any of the Securities or delivery of Common Stock or other consideration upon
conversion or purchase or (b) in respect of covenants or provisions hereof which
cannot be modified or amended without the consent of the holder of each Security
affected; provided, however, that if the Securities are held by the Property
Trustee, such waiver or modification to such waiver shall not be effective until
the holders of a majority in aggregate liquidation amount of Trust Securities
shall have consented to such waiver or modification or amendment; provided
further, that if the consent of the holder of each affected Security is
required, such waiver shall not be effective until each holder of the Trust
Securities shall have consented to such waiver. Upon any such waiver, the
default covered thereby shall be deemed to be cured for all purposes of this
Indenture and the Company, the Trustee and the holders of the Securities shall
be restored to their former positions and rights hereunder, respectively; but no
such waiver shall extend to any subsequent or other default or impair any right
consequent thereon. Whenever any default or Event of Default hereunder shall
have been waived as permitted by this Section 5.07, said default or Event of
Default shall for all purposes of the Securities and this Indenture be deemed to
have been cured and to be not continuing.

               SECTION 5.08. Notice of Defaults.

               The Trustee shall, within 90 days after the occurrence of a
default with respect to the Securities mail to all Securityholders, as the names
and addresses of such holders appear upon the Security Register, notice of all
defaults known to the Trustee, unless such defaults shall have been cured before
the giving of such notice (the term "defaults" for the purpose of this Section
5.08 being hereby defined to be the events specified in clauses (a), (b), (c),
(d), (e) and (f) of Section 5.01, not including periods of grace, if any,
provided for therein, and irrespective of the giving of written notice specified
in clause (d) of Section 5.01); and provided that, except in the case of default
in the payment or delivery of any amounts due and payable on any of the
Securities, the Trustee shall be protected in withholding such notice if and so
long as the board of directors, the executive committee, or a trust committee of
directors and/or Responsible Officers of the Trustee in good faith determines
that the withholding of such notice is in the interests of the Securityholders;
and provided further, that in the case of any default of the character specified
in Section 5.01(d) no such notice to Securityholders shall be given until at
least 45 days after the occurrence thereof but shall be given within 60 days
after such occurrence.

               SECTION 5.09. Undertaking to Pay Costs.

          All parties to this Indenture agree, and each holder of any Security
by his acceptance thereof shall be deemed to have agreed, that any court may in
its discretion require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees and
expenses, against any party litigant in such suit, having due regard to the
merits and good faith of the claims or defenses made by such party litigant; but
the provisions of this Section 5.09 shall not apply to any suit instituted by
the Trustee, to any suit instituted

<PAGE>

by any Securityholder, or group of Securityholders, holding in the aggregate
more than 10% in aggregate principal amount of the Securities outstanding, or to
any suit instituted by any Securityholder for the enforcement of the payment of
the principal of (or premium, if any) or interest on any Security against the
Company on or after the same shall have become due and payable.

                                   ARTICLE VI

                             CONCERNING THE TRUSTEE

               SECTION 6.01. Duties and Responsibilities of Trustee.

               With respect to the holders of the Securities issued hereunder,
the Trustee, prior to the occurrence of an Event of Default and after the curing
or waiving of all Events of Default which may have occurred, undertakes to
perform such duties and only such duties as are specifically set forth in this
Indenture. In case an Event of Default has occurred (which has not been cured or
waived) the Trustee shall exercise such of the rights and powers vested in it by
this Indenture, and use the same degree of care and skill in their exercise, as
a prudent man would exercise or use under the circumstances in the conduct of
his own affairs.

               No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that

               (a) prior to the occurrence of an Event of Default and after the
curing or waiving of all Events of Default which may have occurred

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

                    (2) in the absence of bad faith on the part of the Trustee,
     the 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 Trustee and conforming to the requirements of
     this Indenture; but, in the case of any such certificates or opinions which
     by any provision hereof are specifically required to be furnished to the
     Trustee, the Trustee shall be under a duty to examine the same to determine
     whether or not they conform to the requirements of this Indenture;

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

               (c) the 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 Securityholders pursuant to Section 5.07, relating to the time,
method and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee, under this
Indenture.

<PAGE>

               None of the provisions contained in this Indenture shall require
the 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 there is reasonable ground for believing that
the repayment of such funds or liability is not reasonably assured to it under
the terms of this Indenture or adequate indemnity against such risk is not
reasonably assured to it.

               SECTION 6.02. Reliance on Documents, Opinions, etc.

               Except as otherwise provided in Section 6.01:

               (a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, note, debenture or other
paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;

               (b) any request, direction, order or demand of the Company
mentioned herein may be sufficiently evidenced by an Officers' Certificate
(unless other evidence in respect thereof be herein specifically prescribed)
certified by the Secretary or an Assistant Secretary of the Company;

               (c) the Trustee may consult with counsel of its selection and any
advice or Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken or suffered omitted by it hereunder in
good faith and in accordance with such advice or Opinion of Counsel;

               (d) the Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request, order or
direction of any of the Securityholders, pursuant to the provisions of this
Indenture, unless such Securityholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby;

               (e) the Trustee shall not be liable for any action taken or
omitted by it in good faith and believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this Indenture; nothing
contained herein shall, however, relieve the Trustee of the obligation, upon the
occurrence of an Event of Default (that has not been cured or waived), to
exercise such of the rights and powers vested in it by this Indenture, and to
use the same degree of care and skill in their exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs;

               (f) the 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, consent, order, approval, bond,
debenture, coupon or other paper or document, unless requested in writing to do
so by the holders of a majority in aggregate principal amount of the outstanding
Securities; provided, however, that if the payment within a reasonable time to
the Trustee of the costs, expenses or liabilities likely to be incurred by it in
the making of such investigation is, in the opinion of the Trustee, not
reasonably assured to the Trustee by the security afforded to it by the terms of
this Indenture,

<PAGE>

the Trustee may require reasonable indemnity against such expense or liability
as a condition to so proceeding; and

               (g) the Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents
(including any Authenticating Agent) or attorneys, and the Trustee shall not be
responsible for any misconduct or negligence on the part of any such agent or
attorney appointed by it with due care.

               SECTION 6.03. No Responsibility for Recitals, etc.

               The recitals contained herein and in the Securities (except in
the certificate of authentication of the Trustee or the Authenticating Agent)
shall be taken as the statements of the Company and the Trustee and the
Authenticating Agent assume no responsibility for the correctness of the same.
The Trustee and the Authenticating Agent make no representations as to the
validity or sufficiency of this Indenture or of the Securities. The Trustee and
the Authenticating Agent shall not be accountable for the use or application by
the Company of any Securities or the proceeds of any Securities authenticated
and delivered by the Trustee or the Authenticating Agent in conformity with the
provisions of this Indenture.

               SECTION 6.04. Trustee, Authenticating Agent, Paying Agents,
Transfer Agents or Registrar May Own Securities.

               The Trustee or any Authenticating Agent or any paying agent or
any transfer agent or any Security registrar, in its individual or any other
capacity, may become the owner or pledgee of Securities with the same rights it
would have if it were not Trustee, Authenticating Agent, paying agent, transfer
agent or Security registrar.

               SECTION 6.05. Moneys to be Held in Trust.

               Subject to the provisions of Section 11.04, all moneys received
by the Trustee or any paying agent shall, until used or applied as herein
provided, be held in trust for the purpose for which they were received, but
need not be segregated from other funds except to the extent required by law.
The Trustee and any paying agent shall be under no liability for interest on any
money received by it hereunder except as otherwise agreed in writing with the
Company. So long as no Event of Default shall have occurred and be continuing,
all interest allowed on any such moneys shall be paid from time to time upon the
written order of the Company, signed by an Officer of the Company.

               SECTION 6.06. Compensation and Expenses of Trustee.

               The Company, as borrower, covenants and agrees to pay to the
Trustee from time to time, and the Trustee shall be entitled to, such
compensation as shall be agreed to in writing between the Company and the
Trustee (which shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust), and the Company will pay or
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any of the provisions of this Indenture (including the reasonable compensation
and the expenses and disbursements of its counsel and of all persons not
regularly in its employ) except any such expense, disbursement or advance as may
arise from its gross negligence or bad faith. The Company

<PAGE>

also covenants to indemnify each of the Trustee or any predecessor Trustee (and
its officers, agents, directors and employees) for, and to hold it harmless
against, any and all loss, damage, claim, liability or expense including taxes
(other than taxes based on the income of the Trustee) incurred without gross
negligence or bad faith on the part of the Trustee and arising out of or in
connection with the acceptance or administration of this trust, including the
costs and expenses of defending itself against any claim of liability in the
premises. The obligations of the Company under this Section 6.06 to compensate
and indemnify the Trustee and to pay or reimburse the Trustee for expenses,
disbursements and advances shall constitute additional indebtedness hereunder.
Such additional indebtedness shall be secured by a lien prior to that of the
Securities upon all property and funds held or collected by the Trustee as such,
except funds held in trust for the benefit of the holders of particular
Securities.

               Without prejudice to any other rights available to the Trustee
under applicable law, when the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 5.01(e) or Section
5.01(f), the expenses (including the reasonable charges and expenses of its
counsel) and the compensation for the services are intended to constitute
expenses of administration under any applicable federal or state bankruptcy,
insolvency or other similar law.

               The provisions of this Section shall survive the termination of
this Indenture and the resignation or removal of the Trustee.

               SECTION 6.07. Officers' Certificate as Evidence.

               Except as otherwise provided in Sections 6.01 and 6.02, whenever
in the administration of the provisions of this Indenture the Trustee shall deem
it necessary or desirable that a matter be proved or established prior to taking
or omitting any action hereunder, such matter (unless other evidence in respect
thereof is herein specifically prescribed) may, in the absence of gross
negligence or bad faith on the part of the Trustee, be deemed to be conclusively
proved and established by an Officers' Certificate delivered to the Trustee, and
such certificate, in the absence of negligence or bad faith on the part of the
Trustee, shall be full warrant to the Trustee for any action taken or omitted by
it under the provisions of this Indenture upon the faith thereof.

               SECTION 6.08. Conflicting Interest of Trustee.

               If the Trustee has or shall acquire any "conflicting interest"
within the meaning of Section 310(b) of the Trust Indenture Act, the Trustee and
the Company shall in all respects comply with the provisions of Section 310(b)
of the Trust Indenture Act. The Declaration and Indenture shall be deemed to be
specifically described in this Indenture for the purposes of clause (i) of the
first proviso contained in Section 310(b) of the Trust Indenture Act.

               SECTION 6.09. Eligibility of Trustee.

               The Trustee hereunder shall at all times 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 other Person permitted to act as trustee by the Commission authorized under
such laws to exercise corporate trust powers, having a

<PAGE>

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 aforesaid supervising or examining authority, then for the purposes of
this Section 6.09 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. The Company may not, nor may any Person
directly or indirectly controlling, controlled by, or under common control with
the Company, serve as Trustee. In case at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section 6.09, the Trustee
shall resign immediately in the manner and with the effect specified in Section
6.10.

               SECTION 6.10. Resignation or Removal of Trustee.

               (a) The Trustee, or any trustee or trustees hereafter appointed,
may at any time resign by giving written notice of such resignation to the
Company and by mailing notice thereof to the holders of the Securities at their
addresses as they shall appear on the Security Register. Upon receiving such
notice of resignation, the Company shall promptly appoint a successor trustee or
trustees by written instrument, in duplicate, one copy of which instrument shall
be delivered to the resigning Trustee and one copy to the successor trustee. If
no successor trustee shall have been so appointed and have accepted appointment
within 60 days after the mailing of such notice of resignation to the
Securityholders, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee, or any Securityholder
who has been a bona fide holder of a Security for at least six months may,
subject to the provisions of Section 5.09, on behalf of himself and all others
similarly situated, petition any such court for the appointment of a successor
trustee Such court may thereupon, after such notice, if any, as it may deem
proper and prescribe, appoint a successor trustee.

               (b) In case at any time any of the following shall occur:

                     (1) the Trustee shall fail to comply with the provisions of
      Section 6.08 after written request therefor by the Company or Securities
      for at least six months, or

                     (2) the Trustee shall cease to be eligible in accordance
      with the provisions of Section 6.09 and shall fail to resign after written
      request therefor by the Company or by any such Securityholder, or

                    (3) the Trustee shall become incapable of acting, or shall
     be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its
     property shall be appointed, or any public officer shall take charge or
     control of the Trustee or of its property or affairs for the purpose of
     rehabilitation, conservation or liquidation, then, in any such case, the
     Company may remove the Trustee and appoint a successor trustee by written
     instrument, in duplicate, one copy of which instrument shall be delivered
     to the Trustee so removed and one copy to the successor trustee, or,
     subject to the provisions of Section 5.09, any Securityholder who has been
     a bona fide holder of a Security for at least six months may, on behalf of
     himself and all others similarly situated, petition any court of competent
     jurisdiction for the removal

<PAGE>

      of the Trustee and the appointment of a successor trustee. Such court may
      thereupon, after such notice, if any, as it may deem proper and prescribe,
      remove the Trustee and appoint a successor trustee.

               (c) The holders of a majority in aggregate principal amount of
the Securities at the time outstanding may at any time remove the Trustee and
nominate a successor trustee, which shall be deemed appointed as successor
trustee unless within 10 days after such nomination the Company objects thereto
or if no successor trustee shall have been so appointed and shall have accepted
appointment within 30 days after such removal, in which case the Trustee so
removed or any Securityholder, upon the terms and conditions and otherwise as in
subsection (a) of this Section 6.10 provided, may petition any court of
competent jurisdiction for an appointment of a successor trustee.

               (d) Any resignation or removal of the Trustee and appointment of
a successor trustee pursuant to any of the provisions of this Section 6.10 shall
become effective upon acceptance of appointment by the successor trustee as
provided in Section 6.11.

               SECTION 6.11. Acceptance by Successor Trustee.

               Any successor trustee appointed as provided in Section 6.10 shall
execute, acknowledge and deliver to the Company and to its predecessor trustee
an instrument accepting such appointment hereunder, and thereupon the
resignation or removal of the retiring trustee shall become effective and such
successor trustee, without any further act, deed or conveyance, shall become
vested with all the rights, powers, duties and obligations of its predecessor
hereunder, with like effect as if originally named as trustee herein; but,
nevertheless, on the written request of the Company or of the successor trustee,
the trustee ceasing to act shall, upon payment of any amounts then due it
pursuant to the provisions of Section 6.06, execute and deliver an instrument
transferring to such successor trustee all the rights and powers of the trustee
so ceasing to act and shall duly assign, transfer and deliver to such successor
trustee all property and money held by such retiring trustee thereunder. Upon
request of any such successor trustee, the Company shall execute any and all
instruments in writing for more fully and certainly vesting in and confirming to
such successor trustee all such rights and powers. Any trustee ceasing to act
shall, nevertheless, retain a lien upon all property or funds held or collected
by such trustee to secure any amounts then due it pursuant to the provisions of
Section 6.06.

               No successor trustee shall accept appointment as provided in this
Section 6.11 unless at the time of such acceptance such successor trustee shall
be qualified under the provisions of Section 6.08 and eligible under the
provisions of Section 6.09.

               Upon acceptance of appointment by a successor trustee as provided
in this Section 6.11, the Company shall mail notice of the succession of such
trustee hereunder to the holders of Securities at their addresses as they shall
appear on the Security Register. If the Company fails to mail such notice within
10 days after the acceptance of appointment by the successor trustee, the
successor trustee shall cause such notice to be mailed at the expense of the
Company.

               SECTION 6.12. Succession by Merger, etc.

<PAGE>

               Any corporation into which the Trustee 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 Trustee shall be a party, or
any corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder without
the execution or filing of any paper or any further act on the part of any of
the parties hereto.

               In case at the time such successor to the Trustee shall succeed
to the trusts created by this Indenture any Securities shall have been
authenticated but not delivered, any such successor to the Trustee may adopt the
certificate of authentication of any predecessor trustee, and deliver such
Securities so authenticated; and in case at that time any of the Securities
shall not have been authenticated, any successor to the Trustee may authenticate
such Securities either in the name of any predecessor hereunder or in the name
of the successor trustee; and in all such cases such certificates shall have the
full force which the Securities or this Indenture elsewhere provides that the
certificate of the Trustee shall have; provided, however, that the right to
adopt the certificate of authentication of any predecessor Trustee or
authenticate Securities in the name of any predecessor Trustee shall apply only
to its successor or successors by merger, conversion or consolidation.

               SECTION 6.13. Limitation on Rights of Trustee as a Creditor.

               The Trustee shall comply with Section 311(a) of the Trust
Indenture Act, excluding any creditor relationship described in Section 311(b)
of the Trust Indenture Act. A Trustee who has resigned or been removed shall be
subject to Section 311(a) of the Trust Indenture Act to the extent included
therein.

               SECTION 6.14. Authenticating Agents.

               There may be one or more Authenticating Agents appointed by the
Trustee upon the request of the Company with power to act on its behalf and
subject to its direction in the authentication and delivery of Securities issued
upon exchange or transfer thereof as fully to all intents and purposes as though
any such Authenticating Agent had been expressly authorized to authenticate and
deliver Securities; provided, that the Trustee shall have no liability to the
Company for any acts or omissions of the Authenticating Agent with respect to
the authentication and delivery of Securities.

               Any such Authenticating Agent shall at all times be a corporation
organized and doing business under the laws of the United States or of any state
or territory thereof or of the District of Columbia authorized under such laws
to act as Authenticating Agent, having a combined capital and surplus of at
least $5,000,000 and being 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 the
requirements of such authority, then for the purposes of this Section 6.14 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. If at any time an Authenticating Agent shall cease to be eligible
in accordance with the provisions of this Section, it shall resign immediately
in the manner and

<PAGE>

with the effect herein specified in this Section. Any corporation into which any
Authenticating Agent may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, consolidation or
conversion to which any Authenticating Agent shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of any Authenticating Agent, shall be the successor of such
Authenticating Agent hereunder, if such successor corporation is otherwise
eligible under this Section 6.14 without the execution or filing of any paper or
any further act on the part of the parties hereto or such Authenticating Agent.
Any Authenticating Agent may at any time resign by giving written notice of
resignation to the Trustee and to the Company. The Trustee may at any time
terminate the agency of any Authenticating Agent by giving written notice of
termination to such Authenticating Agent and to the Company. Upon receiving such
a notice of resignation or upon such a termination, or in case at any time any
Authenticating Agent shall cease to be eligible under this Section 6.14, the
Trustee may, and upon the request of the Company shall, promptly appoint a
successor Authenticating Agent eligible under this Section 6.14, shall give
written notice of such appointment to the Company and shall mail notice of such
appointment to all Securityholders as the names and addresses of such holders
appear on the Security Register. Any successor Authenticating Agent upon
acceptance of its appointment hereunder shall become vested with all rights,
powers, duties and responsibilities of its predecessor hereunder, with like
effect as if originally named as Authenticating Agent herein.

               The Company, as borrower, agrees to pay to any Authenticating
Agent from time to time reasonable compensation for its services. Any
Authenticating Agent shall have no responsibility or liability for any action
taken by it as such in accordance with the directions of the Trustee.

               SECTION 6.15. Appointment of Conversion Agent. The Company shall
maintain in the Borough of Manhattan, The City of New York, an office or agency
where Securities may be presented for conversion (the "Conversion Agent"). The
Company may appoint the Conversion Agent and may appoint one or more additional
conversion agents in such other locations as it shall determine. The term
"Conversion Agent" includes any additional conversion agent. The Company may
change any Conversion Agent without prior notice to any holder. The Conversion
Agent shall be permitted to resign as Conversion Agent upon 30 days' written
notice to the Company. Upon such resignation, the Company shall notify the
holders of the name and address of any Conversion Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Conversion Agent, the Trustee or any Affiliate thereof designated by the Trustee
which meets the requirements of Section 6.09 hereof shall act as such. The
Company or any of its Affiliates may act as Conversion Agent.

               The Trust initially appoints Wells Fargo Bank Minnesota, National
Association as Conversion Agent for the Securities.

                                   ARTICLE VII

                         CONCERNING THE SECURITYHOLDERS

               SECTION 7.01. Action by Securityholders.

               Whenever in this Indenture it is provided that the holders

<PAGE>

of a specified percentage in aggregate principal amount of the Securities may
take any action (including the making of any demand or request, the giving of
any notice, consent or waiver or the taking of any other action) the fact that
at the time of taking any such action the holders of such specified percentage
have joined therein may be evidenced (a) by any instrument or any number of
instruments of similar tenor executed by such Securityholders in person or by
agent or proxy appointed in writing, or (b) by the record of such holders of
Securities voting in favor thereof at any meeting of such Securityholders duly
called and held in accordance with the provisions of Article VIII, or (c) by a
combination of such instrument or instruments and any such record of such a
meeting of such Securityholders.

               If the Company shall solicit from the Securityholders any
request, demand, authorization, direction, notice, consent, waiver or other
action, the Company may, at its option, as evidenced by an Officers'
Certificate, fix in advance a record date for the determination of
Securityholders entitled to give such request, demand, authorization, direction,
notice, consent, waiver or other action or to revoke any such action, but the
Company shall have no obligation to do so. If such a record date is fixed, such
request, demand, authorization, direction, notice, consent, waiver or other
action or revocation may be given before or after the record date, but only the
Securityholders of record at the close of business on the record date shall be
deemed to be Securityholders for the purposes of determining whether
Securityholders of the requisite proportion of outstanding Securities have
authorized or agreed or consented to such request, demand, authorization,
direction, notice, consent, waiver or other action, and for that purpose the
outstanding Securities shall be computed as of the record date; provided,
however, that no such authorization, agreement or consent by such
Securityholders on the record date shall be deemed effective unless it shall
become effective pursuant to the provisions of this Indenture not later than six
months after the record date.

               SECTION 7.02. Proof of Execution by Securityholders.

               Subject to the provisions of Section 6.01, 6.02 and 8.05, proof
of the execution of any instrument by a Securityholder or his agent or proxy
shall be sufficient if made in accordance with such reasonable rules and
regulations as may be prescribed by the Trustee or in such manner as shall be
satisfactory to the Trustee. The ownership of Securities shall be proved by the
Security Register or by a certificate of the Security registrar. The Trustee may
require such additional proof of any matter referred to in this Section as it
shall deem necessary.

               The record of any Securityholders' meeting shall be proved in the
manner provided in Section 8.06.

               SECTION 7.03. Who Are Deemed Absolute Owners.

               Prior to due presentment for registration of transfer of any
Security, the Company, the Trustee, any Authenticating Agent, any paying agent,
any transfer agent and any Security registrar may deem the person in whose name
such Security shall be registered upon the Security Register to be, and may
treat him as, the absolute owner of such Security (whether or not such Security
shall be overdue) for the purpose of receiving payment of or on account of the
principal of and premium, if any, Redemption Price, Purchase Price and Change in
Control Purchase Price and (subject to Section 2.06) interest on such Security
and for all other

<PAGE>

purposes; and neither the Company nor the Trustee nor any Authenticating Agent
nor any paying agent nor any transfer agent nor any Security registrar shall be
affected by any notice to the contrary. All such payments so made to any holder
for the time being or upon his order shall be valid, and, to the extent of the
sum or sums so paid, effectual to satisfy and discharge the liability for moneys
payable upon any such Security.

               SECTION 7.04. Securities Owned by Company Deemed Not Outstanding.

               In determining whether the holders of the requisite aggregate
principal amount of Securities have concurred in any direction, consent or
waiver under this Indenture, Securities which are owned by the Company or any
other obligor on the Securities or by any person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Company (other than Xerox Capital) or any other obligor on the Securities shall
be disregarded and deemed not to be outstanding for the purpose of any such
determination; provided that for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, consent or waiver, only
Securities which the Trustee actually knows are so owned shall be so
disregarded. Securities so owned which have been pledged in good faith may be
regarded as outstanding for the purposes of this Section 7.04 if the pledgee
shall establish to the satisfaction of the Trustee the pledgee's right to vote
such Securities and that the pledgee is not the Company or any such other
obligor or person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Company or any such other obligor. In
the case of a dispute as to such right, any decision by the Trustee taken upon
the advice of counsel shall be full protection to the Trustee.

               SECTION 7.05. Revocation of Consents; Future Holders Bound

               At any time prior to (but not after) the evidencing to the
Trustee, as provided in Section 7.01, of the taking of any action by the holders
of the percentage in aggregate principal amount of the Securities specified in
this Indenture in connection with such action, any holder of a Security (or any
Security issued in whole or in part in exchange or substitution therefor),
subject to Section 7.01, the serial number of which is shown by the evidence to
be included in the Securities the holders of which have consented to such action
may, by filing written notice with the Trustee at its principal office and upon
proof of holding as provided in Section 7.02, revoke such action so far as
concerns such Security (or so far as concerns the principal amount represented
by any exchanged or substituted Security). Except as aforesaid any such action
taken by the holder of any Security shall be conclusive and binding upon such
holder and upon all future holders and owners of such Security, and of any
Security issued in exchange or substitution therefor, irrespective of whether or
not any notation in regard thereto is made upon such Security or any Security
issued in exchange or substitution therefor.

                                  ARTICLE VIII

                            SECURITYHOLDERS' MEETINGS

               SECTION 8.01. Purposes of Meetings.

               A meeting of Securityholders may be called at any time and

<PAGE>

from time to time pursuant to the provisions of this Article VIII for any of the
following purposes:

               (a) to give any notice to the Company or to the Trustee, or to
give any directions to the Trustee, or to consent to the waiving of any default
hereunder and its consequences, or to take any other action authorized to be
taken by Securityholders pursuant to any of the provisions of Article V;

               (b) to remove the Trustee and nominate a successor trustee
pursuant to the provisions of Article VI;

               (c) to consent to the execution of an indenture or indentures
supplemental hereto pursuant to the provisions of Section 9.02; or

               (d) to take any other action authorized to be taken by or on
behalf of the holders of any specified aggregate principal amount of such
Securities under any other provision of this Indenture or under applicable law.

               SECTION 8.02. Call of Meetings by Trustee.

               The Trustee may at any time call a meeting of Securityholders to
take any action specified in Section 8.01, to be held at such time and at such
place in the Borough of Manhattan, The City of New York, as the Trustee shall
determine. Notice of every meeting of the Securityholders, setting forth the
time and the place of such meeting and in general terms the action proposed to
be taken at such meeting, shall be mailed to holders of Securities at their
addresses as they shall appear on the Securities Register. Such notice shall be
mailed not less than 20 nor more than 180 days prior to the date fixed for the
meeting.

               SECTION 8.03. Call of Meetings by Company or Securityholders.

               In case at any time the Company or the holders of at least 10% in
aggregate principal amount of the Securities then outstanding, shall have
requested the Trustee to call a meeting of Securityholders, by written request
setting forth in reasonable detail the action proposed to be taken at the
meeting, and the Trustee shall not have mailed the notice of such meeting within
20 days after receipt of such request, then the Company or such Securityholders
may determine the time and the place in said Borough of Manhattan for such
meeting and may call such meeting to take any action authorized in Section 8.01,
by mailing notice thereof as provided in Section 8.02.

               SECTION 8.04. Qualifications for Voting.

               To be entitled to vote at any meeting of Securityholders a person
shall (a) be a holder of one or more Securities or (b) a person appointed by an
instrument in writing as proxy by a holder of one or more Securities. The only
persons who shall be entitled to be present or to speak at any meeting of
Securityholders shall be the persons entitled to vote at such meeting and their
counsel and any representatives of the Trustee and its counsel and any
representatives of the Company and its counsel.

               SECTION 8.05. Regulations.

<PAGE>

               Notwithstanding any other provisions of this Indenture, the
Trustee may make such reasonable regulations as it may deem advisable for any
meeting of Securityholders, in regard to proof of the holding of Securities and
of the appointment of proxies, and in regard to the appointment and duties of
inspectors of votes, the submission and examination of proxies, certificates and
other evidence of the right to vote, and such other matters concerning the
conduct of the meeting as it shall think fit.

               The Trustee shall, by an instrument in writing, appoint a
temporary chairman of the meeting, unless the meeting shall have been called by
the Company or by Securityholders as provided in Section 8.03, in which case the
Company or the Securityholders calling the meeting, as the case may be, shall in
like manner appoint a temporary chairman. A permanent chairman and a permanent
secretary of the meeting shall be elected by majority vote of the meeting.

               Subject to the provisions of Section 8.04, at any meeting each
holder of Securities or proxy therefor shall be entitled to one vote for each
$50 principal amount of Securities held or represented by him; provided,
however, that no vote shall be cast or counted at any meeting in respect of any
Security challenged as not outstanding and ruled by the chairman of the meeting
to be not outstanding. The chairman of the meeting shall have no right to vote
other than by virtue of Securities held by him or instruments in writing as
aforesaid duly designating him as the person to vote on behalf of other
Securityholders. Any meeting of Securityholders duly called pursuant to the
provisions of Section 8.02 or 8.03 may be adjourned from time to time by a
majority of those present, whether or not constituting a quorum, and the meeting
may be held as so adjourned without further notice

               SECTION 8.06. Voting.

               The vote upon any resolution submitted to any meeting of holders
of Securities shall be by written ballots on which shall be subscribed the
signatures of such holders or of their representatives by proxy and the serial
number or numbers of the Securities held or represented by them. The permanent
chairman of the meeting shall appoint two inspectors of votes who shall count
all votes cast at the meeting for or against any resolution and who shall make
and file with the secretary of the meeting their verified written reports in
triplicate of all votes cast at the meeting. A record in duplicate of the
proceedings of each meeting of Securityholders shall be prepared by the
secretary of the meeting and there shall be attached to said record the original
reports of the inspectors of votes on any vote by ballot taken thereat and
affidavits by one or more persons having knowledge of the facts setting forth a
copy of the notice of the meeting and showing that said notice was mailed as
provided in Section 8.02. The record shall show the serial numbers of the
Securities voting in favor of or against any resolution. The record shall be
signed and verified by the affidavits of the permanent chairman and secretary of
the meeting and one of the duplicates shall be delivered to the Company and the
other to the Trustee to be preserved by the Trustee, the latter to have attached
thereto the ballots voted at the meeting.

               Any record so signed and verified shall be conclusive evidence of
the matters therein stated.

                                   ARTICLE IX

<PAGE>

                                   AMENDMENTS

               SECTION 9.01. Without Consent of Securityholders.

               The Company and the Trustee may from time to time and at any time
amend the Indenture, without the consent of the Securityholders, for one or more
of the following purposes:

               (a) to evidence the succession of another corporation to the
Company, or successive successions, and the assumption by the successor
corporation of the covenants, agreements and obligations of the Company pursuant
to Article X hereof;

               (b) to add to the covenants of the Company such further
covenants, restrictions or conditions for the protection of the Securityholders
as the Company and the Trustee shall consider to be for the protection of the
Securityholders, and to make the occurrence, or the occurrence and continuance,
of a default in any of such additional covenants, restrictions or conditions a
default or an Event of Default permitting the enforcement of all or any of the
remedies provided in this Indenture as herein set forth; provided, however, that
in respect of any such additional covenant, restriction or condition such
amendment may provide for a particular period of grace after default (which
period may be shorter or longer than that allowed in the case of other defaults)
or may provide for an immediate enforcement upon such default or may limit the
remedies available to the Trustee upon such default;

               (c) to provide for the issuance under this Indenture of
Securities in coupon form (including Securities registrable as to principal
only) and to provide for exchangeability of such Securities with the Securities
issued hereunder in fully registered form and to make all appropriate changes
for such purpose;

               (d) to cure any ambiguity or to correct or supplement any
provision contained herein or in any supplemental indenture which may be
defective or inconsistent with any other provision contained herein or in any
supplemental indenture, or to make such other provisions in regard to matters or
questions arising under this Indenture; provided that any such action shall not
materially adversely affect the interests of the holders of the Securities;

               (e) to evidence and provide for the acceptance of appointment
hereunder by a successor trustee with respect to the Securities;

               (f) to make provision for transfer procedures, certification,
book-entry provisions, the form of restricted securities legends, if any, to be
placed on Securities, minimum denominations and all other matters required
pursuant to Section 2.07 or otherwise necessary, desirable or appropriate in
connection with the issuance of Securities to holders of Trust Preferred
Securities in the event of a distribution of Securities by the Company following
a Trust Dissolution Event;

               (g) to qualify or maintain qualification of this Indenture under
the Trust Indenture Act; or

               (h) to make any change that does not adversely affect the

<PAGE>

rights of any Securityholder in any material respect.

               The Trustee is hereby authorized to join with the Company in the
execution of any supplemental indenture to effect such amendment, to make any
further appropriate agreements and stipulations which may be therein contained
and to accept the conveyance, transfer and assignment of any property
thereunder, but the Trustee shall not be obligated to, but may in its
discretion, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise

               Any amendment to the Indenture authorized by the provisions of
this Section 9.01 may be executed by the Company and the Trustee without the
consent of the holders of any of the Securities at the time outstanding,
notwithstanding any of the provisions of Section 9.02.

               SECTION 9.02. With Consent of Securityholders.

               With the consent (evidenced as provided in Section 7.01) of the
holders of a majority in aggregate principal amount of the Securities at the
time outstanding, the Company and the Trustee may from time to time and at any
time amend the Indenture for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the holders of the Securities; provided,
however, that no such amendment or modification shall without the consent of the
holders of each Security then outstanding and affected thereby (i) change the
Maturity Date of any Security, or reduce the rate or extend the time of payment
of interest thereon, or reduce the principal amount thereof, 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 Company to purchase the
Securities in accordance with the terms thereof and of this Indenture, modify
the provisions of this Indenture relating to the subordination of the Securities
or the right to commence a Direct Action in a manner adverse to Securityholders,
or make the principal thereof or any interest or premium thereon payable in any
coin or currency other than that provided in the Securities, or impair or affect
the right of any Securityholder to institute suit for payment thereof, or (ii)
reduce the aforesaid percentage of Securities the holders of which are required
to consent to any such amendment to the Indenture or waive compliance by the
Company with any covenant or waive any past default; provided, however, that if
the Securities are held solely by the Property Trustee, such modification or
amendment shall not be effective until the holders of a majority in liquidation
amount of Trust Securities shall have consented to such amendment; provided,
further, that if the consent of the holder of each outstanding Security is
required, such amendment shall not be effective until each holder of the Trust
Securities shall have consented to such amendment.

               Upon the request of the Company accompanied by an Officer's
Certificate certified by its Secretary or Assistant Secretary authorizing the
execution of any supplemental indenture affecting such amendment, and upon the
filing with the Trustee of evidence of the consent of Securityholders as
aforesaid, the Trustee shall join with the Company in the execution of such
supplemental indenture unless such supplemental indenture affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise, in which
case the Trustee may in its discretion, but shall not be obligated to, enter
into such supplemental indenture.

<PAGE>

               Promptly after the execution by the Company and the Trustee of
any supplemental indenture pursuant to the provisions of this Section, the
Trustee shall transmit by mail, first class postage prepaid, a notice, prepared
by the Company, setting forth in general terms the substance of such
supplemental indenture, to the Securityholders as their names and addresses
appear upon the Security Register. Any failure of the Trustee to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such supplemental indenture.

               It shall not be necessary for the consent of the Securityholders
under this Section 9.02 to approve the particular form of any proposed
supplemental indenture, but it shall be sufficient if such consent shall approve
the substance thereof.

               SECTION 9.03. Compliance with Trust Indenture Act; Effect of
Supplemental Indentures.

               Any supplemental indenture executed pursuant to the provisions of
this Article IX shall comply with the Trust Indenture Act. Upon the execution of
any supplemental indenture pursuant to the provisions of this Article IX, this
Indenture shall be and be deemed to be modified and amended in accordance
therewith and the respective rights, limitations of rights, obligations, duties
and immunities under this Indenture of the Trustee, the Company and the holders
of Securities shall thereafter be determined, exercised and enforced hereunder
subject in all respects to such modifications and amendments and all the terms
and conditions of any such supplemental indenture shall be and be deemed to be
part of the terms and conditions of this Indenture for any and all purposes.

               SECTION 9.04. Notation on Securities.

               Securities authenticated and delivered after the execution of any
supplemental indenture affecting such series pursuant to the provisions of this
Article IX may bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company or the Trustee shall
so determine, new Securities so modified as to conform, in the opinion of the
Trustee and the Company, to any modification of this Indenture contained in any
such supplemental indenture may be prepared and executed by the Company,
authenticated by the Trustee or the Authenticating Agent and delivered in
exchange for the Securities then outstanding.

               SECTION 9.05. Evidence of Compliance of Supplemental Indenture to
be Furnished to Trustee.

               The Trustee, subject to the provisions of Sections 6.01 and 6.02,
may receive an Officers' Certificate and an Opinion of Counsel as conclusive
evidence that any supplemental indenture executed pursuant hereto complies with
the requirements of this Article IX.

               The Trustee may receive an Opinion of Counsel as conclusive
evidence that any supplemental indenture executed pursuant to this Article is
authorized or permitted by, and conforms to, the terms of this Article and that
it is proper for the Trustee under the provisions of this Article to join in the
execution thereof.

<PAGE>

                                    ARTICLE X

                CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE

               SECTION 10.01. Company May Merge, Consolidate or Sell Assets.

               (a) The Company 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 10.01(b).

               (b) So long as the Company holds the Xerox Debentures, the
Company may 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, limited liability company or similar
entity organized as such under the laws of any State; provided, that, if the
Company is not the successor entity:

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

                              (A) expressly assumes all of the obligations of
               the Company 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 payments
               upon liquidation, redemption and otherwise;

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

                    (iii) 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);

                    (iv) such Successor Entity has a purpose substantially
          identical to that of the Company;

                    (v) prior to such merger, consolidation, amalgamation,
          replacement, conveyance, transfer or lease, the Company has received
          an opinion of an independent counsel to the Company 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;

                              (B) following such merger, consolidation,
               amalgamation, replacement, conveyance, transfer or lease, the

<PAGE>

               Company (or the Successor Entity) will not 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
               Company (or the Successor Entity) will not be treated as an
               association or a publicly traded partnership taxable as a
               corporation for United States federal income tax purposes; and

                    (vi) Xerox 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 Debenture Guarantee.

               SECTION 10.02. Opinion of Counsel to be Given Trustee.

               The Trustee, subject to the provisions of Sections 6.01 and 6.02,
may receive an Opinion of Counsel as conclusive evidence that any consolidation,
merger, sale, conveyance, transfer or lease, and any assumption, permitted or
required by the terms of this Article X complies with the provisions of this
Article X.

                                   ARTICLE XI

                     SATISFACTION AND DISCHARGE OF INDENTURE

               SECTION 11.01. Discharge of Indenture.

               When (a) the Company shall deliver to the Trustee for
cancellation all Securities theretofore authenticated (other than any Securities
which shall have been destroyed, lost or stolen and which shall have been
replaced or paid as provided in Section 2.08) and not theretofore cancelled, or
(b) all the Securities not theretofore cancelled or delivered to the Trustee for
cancellation shall have become due and payable, or are by their terms to become
due and payable within one year or are to be called for redemption within one
year under arrangements satisfactory to the Trustee for the giving of notice of
redemption, and the Company shall deposit or cause to be deposited with the
Trustee, in trust, money, U.S. Government Obligations or a combination thereof
sufficient to pay on the Maturity Date or upon redemption all of the Securities
(other than any Securities which shall have been destroyed, lost or stolen and
which shall have been replaced as provided in Section 2.08) not theretofore
cancelled or delivered to the Trustee for cancellation, including principal and
premium, if any, and interest due or to become due to the Maturity Date or the
applicable redemption date, as the case may be, but excluding, however, the
amount of any moneys for the payment of principal of or premium, if any,
Redemption Price or Purchase Price or interest on the Securities (1) theretofore
repaid to the Company in accordance with the provisions of Section 11.04, or (2)
paid to any State or to the District of Columbia pursuant to its unclaimed
property or similar laws, and if in either case the Company shall also pay or
cause to be paid all other sums payable hereunder by the Company, then this
Indenture shall cease to be of further effect except for the provisions of
Sections 2.02, 2.07, 2.08, 3.01, 3.02, 3.04, 6.06, 6.10, 11.04 and 15.01 and
Article XVI hereof, which shall survive until such Securities shall mature and
be paid. Thereafter, Sections 6.06, 6.10 and 11.04 and Article XVI shall
survive, and the Trustee, on demand of the Company accompanied by any Officers'

<PAGE>

Certificate and an Opinion of Counsel and at the cost and expense of the
Company, shall execute proper instruments acknowledging satisfaction of and
discharging this Indenture, the Company, however, hereby agrees to reimburse the
Trustee for any costs or expenses thereafter reasonably and properly incurred by
the Trustee in connection with this Indenture or the Securities.

               SECTION 11.02. Deposited Moneys to be Held in Trust by Trustee.

               Subject to the provisions of Section 11.04, all moneys and U.S.
Government Obligations deposited with the Trustee pursuant to Section 11.01
shall be held in trust and applied by it to the payment, either directly or
through any paying agent (including the Company if acting as its own paying
agent), to the holders of the particular Securities for the payment of which
such moneys or U.S. Government Obligations have been deposited with the Trustee,
of all sums due and to become due thereon for principal, premium, if any,
Redemption Price or Purchase Price and interest.

               SECTION 11.03. Paying Agent to Repay Moneys Held.

               Upon the satisfaction and discharge of this Indenture all moneys
then held by any paying agent of the Securities (other than the Trustee) shall,
upon written demand of the Company, be repaid to it or paid to the Trustee, and
thereupon such paying agent shall be released from all further liability with
respect to such moneys.

               SECTION 11.04. Return of Unclaimed Moneys.

               Any moneys or U.S. Government Obligations deposited with or paid
to the Trustee or any paying agent for payment of the principal of or premium,
if any, Redemption Price or Purchase Price or interest on Securities and not
applied but remaining unclaimed by the holders of Securities for two years after
the date upon which the principal of or premium, if any, Redemption Price or
Purchase Price or interest on such Securities, as the case may be, shall have
become due and payable, shall be repaid to the Company by the Trustee or such
paying agent on Company Request; and the holder of any of the Securities shall
thereafter look only to the Company for any payment which such holder may be
entitled to collect and all liability of the Trustee or such paying agent with
respect to such moneys shall thereupon cease.

               SECTION 11.05. Defeasance Upon Deposit of Moneys or U.S.
Government Obligations.

               (a) The Company shall be deemed to have been Discharged (as
defined below) from its respective obligations with respect to the Securities
upon satisfaction of the applicable conditions set forth below with respect to
such Securities:

                    (i) The Company shall have deposited or caused to be
     deposited irrevocably with the Trustee or the Defeasance Agent as trust
     funds in trust, specifically pledged as security for, and dedicated solely
     to, the benefit of the holders of the Securities of such series (A) money
     in an amount, or (B) U.S. Government Obligations which through the payment
     of interest and principal in respect thereof in accordance with their terms
     will provide, not later than one day before the due date of any payment,
     money in an amount, or (C) a combination of (A) and

<PAGE>

     (B), sufficient, in the opinion (with respect to (B) and (C)) of a
     nationally recognized firm of independent public accountants expressed in a
     written certification thereof delivered to the Trustee and the Defeasance
     Agent, if any, to pay and discharge each installment of principal of, and
     interest and premium, if any, Purchase Price or Redemption Price on the
     outstanding Securities on the dates such amounts are due;

                    (ii) no Event of Default or event which with notice or lapse
     of time would become an Event of Default with respect to the Securities
     shall have occurred and be continuing on the date of such deposit; and

                    (iii) the Company shall have delivered to the Trustee and
     the Defeasance Agent, if any, an Opinion of Counsel to the effect that
     holders of the Securities of such series will not recognize income, gain or
     loss for United States Federal income tax purposes as a result of the
     exercise of the option under this Section 11.05 and will be subject to
     United States federal income tax on the same amount and in the same manner
     and at the same times as would have been the case if such option had not
     been exercised.

               (b) "Discharged" means that the Company shall be deemed to have
paid and discharged the entire indebtedness represented by, and obligations
under, the Securities and to have satisfied all the obligations under this
Indenture relating to the Securities (and the Trustee, at the expense of the
Company, shall execute proper instruments acknowledging the same), except (A)
the rights of holders of Securities of such series to receive, from the trust
fund described in clause (1) above, payment of all amounts due and payable on
such Securities when such payments are due; (B) the Company's obligations with
respect to such Securities under Sections 2.07, 2.08, 3.08, 3.09, 5.03, 11.04
and 15.01 and Article XVI hereof; and (C) the rights, powers, trusts, duties and
immunities of the Trustee hereunder.

               (c) "Defeasance Agent" means another financial institution which
is eligible to act as Trustee hereunder and which assumes all of the obligations
of the Trustee necessary to enable the Trustee to act hereunder. In the event
such a Defeasance Agent is appointed pursuant to this section, the following
conditions shall apply:

                    (i) The Trustee shall have approval rights over the document
     appointing such Defeasance Agent and the document setting forth such
     Defeasance Agent's rights and responsibilities;

                    (ii) The Defeasance Agent shall provide verification to the
     Trustee acknowledging receipt of sufficient money and/or U.S. Government
     Obligations to meet the applicable conditions set forth in this Section
     11.05.

                                ARTICLE XII

                      IMMUNITY OF MEMBERS AND OFFICERS

               SECTION 12.01. Indenture and Securities Solely Corporate
Obligations.

               No recourse for the payment of the principal of or premium,

<PAGE>

if any, Redemption Price, Purchase Price or Change in Control Purchase Price or
interest on any Security, or for any claim based thereon or otherwise in respect
thereof, and no recourse under or upon any obligation, covenant or agreement of
the Company in this Indenture, or in any Security, or because of the creation of
any indebtedness represented thereby, shall be had against any member, officer
or director, as such, past, present or future, of the Company or of any
successor Person to the Company, either directly or through the Company or any
successor Person to the Company, whether by virtue of any constitution, statute
or rule of law, or by the enforcement of any assessment or penalty or otherwise;
it being expressly understood that all such liability is hereby expressly waived
and released as a condition of, and as a consideration for, the execution of
this Indenture and the issue of the Securities.

                                  ARTICLE XIII

                            MISCELLANEOUS PROVISIONS

               SECTION 13.01. Successors.

               All the covenants, stipulations, promises and agreements of the
Company contained in this Indenture shall bind the Company's successors and
assigns whether so expressed or not.

               SECTION 13.02. Official Acts by Successor Entity or Person.

               Any act or proceeding by any provision of this Indenture
authorized or required to be done or performed by any member, board, committee
or Officer of the Company shall and may be done and performed with like force
and effect by the like member, board, committee or Officer of any corporation
that shall at the time be the lawful sole successor of the Company.

               SECTION 13.03. Surrender of Company Powers.

               The Company by instrument in writing delivered to the Trustee may
surrender any of the powers reserved to the Company, and thereupon such power so
surrendered shall terminate both as to the Company, as the case may be, and as
to any successor Person.

               SECTION 13.04. Addresses for Notices, etc.

               Any notice or demand which by any provision of this Indenture is
required or permitted to be given or served by the Trustee or by the holders of
Securities on the Company may be given or served by being deposited postage
prepaid by registered or certified mail in a post office letter box addressed
(until another address is filed by the Company with the Trustee for the purpose)
to the Company, c/o Xerox Corporation, 800 Long Ridge Road, P.O. Box 1600,
Stamford, CT 06904-1600, Attention: Vice President, Treasurer and Secretary. Any
notice, direction, request or demand by any Securityholder to or upon the
Trustee shall be deemed to have been sufficiently given or made, for all
purposes, if given or made in writing at the office of the Trustee, Sixth and
Marquette, MAC N9303-120, Minneapolis, Minnesota 55479, Attention: Corporate
Trust Services (unless another address is provided by the Trustee to the Company
for the purpose). Any notice or communication to a Holder shall be mailed by
first class mail to his or her address shown on the register kept by the
Registrar. Failure to mail a notice

<PAGE>

or communication to a Holder or any defect in it shall not affect its
sufficiency with respect to other Holders.

               SECTION 13.05. Governing Law.

               This Indenture and each Security shall be deemed to be a contract
made under the laws of the State of New York, and for all purposes shall be
governed by and construed in accordance with the laws of said State, without
regard to conflicts of laws principles thereof.

               SECTION 13.06. Evidence of Compliance with Conditions Precedent.

               Upon any application or demand by the Company to the Trustee to
take any action under any of the provisions of this Indenture, the Company shall
furnish to the Trustee an Officers' Certificate stating that in the opinion of
the signers all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with and an Opinion of
Counsel stating that, in the opinion of such counsel, all such conditions
precedent have been complied with.

               Each certificate or opinion provided for in this Indenture and
delivered to the Trustee with respect to compliance with a condition or covenant
provided for in this Indenture (except pursuant to Section 3.05) shall include
(1) a statement that the person making such certificate or opinion has read such
covenant or condition; (2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based; (3) a statement that, in the opinion of
such person, he has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not such covenant or
condition has been complied with; and (4) a statement as to whether or not, in
the opinion of such person, such condition or covenant has been complied with.

               SECTION 13.07. Business Days.

               In any case where the date of payment of principal of or premium,
if any, or interest on the Securities will not be a Business Day, the payment of
such principal of or premium, if any, Redemption Price, Purchase Price or Change
in Control Purchase Price or interest on the Securities need not be made on such
date but may be made on the next succeeding Business Day (except that if such
next succeeding Business Day falls in a subsequent calendar year, such payment
shall be made on the Business Day next preceding such date of payment), with the
same force and effect as if made on such date payment was originally payable,
and no interest shall accrue for the period from and after such date.

               SECTION 13.08. Trust Indenture Act to Control.

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

               SECTION 13.09. Table of Contents, Headings, etc.

               The table of contents and the titles and headings of the

<PAGE>

articles and sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.

               SECTION 13.10. Execution in Counterparts.

               This Indenture may be executed in any number of counterparts,
each of which shall be an original, but such counterparts shall together
constitute but one and the same instrument.

               SECTION 13.11. Separability.

               In case any one or more of the provisions contained in this
Indenture or in the Securities shall for any reason be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Indenture or of
the Securities, but this Indenture and the Securities shall be construed as if
such invalid or illegal or unenforceable provision had never been contained
herein or therein.

               SECTION 13.12. Assignment.

               The Company will have the right at all times to assign any of its
respective rights or obligations under this Indenture to a direct or indirect
wholly owned Subsidiary of the Company, provided that, in the event of any such
assignment, the Company will remain primarily liable for all its obligations.
Subject to the foregoing, the Indenture is binding upon and inures to the
benefit of the parties thereto and their respective successors and assigns. This
Indenture may not otherwise be assigned by the parties thereto.

               SECTION 13.13. Acknowledgement of Rights.

               The Company acknowledges that, with respect to any Securities
held by Xerox Capital or a trustee of such trust, so long as the Securities are
held by Xerox Capital, if the Property Trustee fails to enforce its rights under
this Indenture as the holder of the Securities held as the assets of Xerox
Capital any holder of Trust Preferred Securities may institute legal proceedings
directly against the Company to enforce such Property Trustee's rights under
this Indenture without first instituting any legal proceedings against such
Property Trustee or any other person or entity. Notwithstanding the foregoing,
if an Event of Default has occurred and is continuing and such event is
attributable to the failure of the Company to pay principal of or premium, if
any, Redemption Price, Purchase Price or Change in Control Purchase Price or
interest on the Securities when due, the Company acknowledges that a holder of
Trust Preferred Securities may directly institute a proceeding for enforcement
of payment to such holder of the principal of or premium, if any, Redemption
Price, Purchase Price or Change in Control Purchase Price or interest on the
Securities having a principal amount equal to the aggregate liquidation amount
of the Trust Preferred Securities of such holder on or after the respective due
date specified in the Securities.

                                   ARTICLE XIV

                                   REDEMPTION

<PAGE>

               SECTION 14.01. Optional Redemption by Company.

               Upon the repayment of the Xerox Debentures in whole or in part,
at maturity or upon early redemption (either at the option of Xerox or pursuant
to a Special Event), the proceeds from such repayment by Xerox shall be
simultaneously applied by the Trustee (subject to, prior to the occurrence of a
Trust Dissolution Event, 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 redemption of the Xerox Debentures prior
to December 4, 2004 upon the occurrence and continuation of a Special Event, the
Regular Redemption Price and (ii) in the case of the optional redemption of the
Xerox Debentures on or after December 4, 2004, the Special Redemption Price.

               If the Securities are only partially redeemed pursuant to this
Section 14.01, the Securities will be redeemed pro rata or by lot or by any
other method utilized by the Trustee; provided, that if at the time of
redemption the Securities are registered as a Global Security, the Depositary
shall determine, in accordance with its procedures, the principal amount of such
Securities held for the account of its participants to be redeemed. The
applicable Redemption Price shall be paid prior to 12:00 noon, New York time, on
the date of such redemption or at such earlier time as the Company determines,
provided that the Company shall deposit with the Trustee an amount sufficient to
pay the applicable Redemption Price by 10:00 a.m., New York time, on the date
such Redemption Price is to be paid.

               SECTION 14.02. No Sinking Fund.

               The Securities are not entitled to the benefit of any sinking
fund.

               SECTION 14.03. Notice of Redemption; Selection of Securities.

               In the event Xerox shall desire to exercise the right to redeem
all, or, as the case may be, any part of the Xerox Debentures in accordance with
their terms, the date fixed for redemption for the Securities shall be the date
for redemption of the Xerox Debentures.

               The Company shall forward the notice of such redemption at least
30 and not more than 60 days prior to the date fixed for redemption to the
holders of Securities so to be redeemed as a whole or in part at their last
addresses as the same appear on the Security Register. Such mailing shall be by
first class mail. The notice if mailed in the manner herein provided shall be
conclusively presumed to have been duly given, whether or not the holder
receives such notice. In any case, failure to give such notice by mail or any
defect in the notice to the holder of any Security designated for redemption as
a whole or in part shall not affect the validity of the proceedings for the
redemption of any other Security.

               Each such notice of redemption shall specify the CUSIP number of
the Securities to be redeemed, the date fixed for redemption, the Redemption
Price at which the Securities are to be redeemed (or the method by which such
Redemption Price is to be calculated), the place or places of payment, that
payment will be made upon presentation and surrender of the Securities, that
interest accrued to but excluding the date fixed for

<PAGE>

redemption will be paid as specified in said notice, and that on and after said
date interest thereon or on the portions thereof to be redeemed will cease to
accrue. If less than all the Securities are to be redeemed the notice of
redemption shall specify the numbers of the Securities to be redeemed. In case
any Security is to be redeemed in part only, the notice of redemption shall
state the portion of the principal amount thereof to be redeemed and shall state
that on and after the date fixed for redemption, upon surrender of such
Security, a new Security or Securities in principal amount equal to the unpaid
portion thereof will be issued.

               By 10:00 a.m. New York time on the redemption date specified in
the notice of redemption given as provided in this Section, the Company will
deposit with the Trustee or with one or more paying agents an amount of money
sufficient to prepay on the redemption date all the Securities so called for
redemption.

               The Company will give the Trustee notice not less than 45 days
prior to the redemption date (unless a shorter time shall be satisfactory to the
Trustee) as to the aggregate principal amount of Securities to be redeemed and
the Trustee shall select, in such manner as in its sole discretion it shall deem
appropriate and fair, the Securities or portions thereof (in integral multiples
of $50, except as otherwise set forth in the applicable form of Security) to be
redeemed.

               SECTION 14.04. Payment of Securities Called for Redemption.

               If notice of redemption has been given as provided in Section
14.03, the Securities or portions of Securities with respect to which such
notice has been given shall become due and payable on the date and at the place
or places stated in such notice at the applicable Redemption Price (subject to
the rights of holders of Securities on the close of business on a regular record
date in respect of an Interest Payment Date occurring on or prior to the
redemption date), and on and after said date (unless the Company shall default
in the payment of such Securities at the applicable Redemption Price) interest
on the Securities or portions of Securities so called for redemption shall cease
to accrue. On presentation and surrender of such Securities at a place of
payment specified in said notice, the said Securities or the specified portions
thereof shall be redeemed by the Company at the applicable Redemption Price
(subject to the rights of holders of Securities on the close of business on a
regular record date in respect of an Interest Payment Date occurring on or prior
to the redemption date).

               Upon presentation of any Security redeemed in part only, the
Company shall execute and the Trustee shall authenticate and make available for
delivery to the holder thereof, at the expense of the Company, a new Security or
Securities of authorized denominations, in principal amount equal to the
remaining portion of the Security so presented.

               SECTION 14.05. Conversion Arrangement on Call for Redemption. In
connection with any redemption of Securities, the Company may arrange for the
purchase and conversion of any Securities called for redemption by an agreement
with one or more investment banking institutions or other purchasers to purchase
such Securities by paying to the Trustee in trust for the Securityholders, on or
prior to 10:00 a.m. New York City time on the applicable date fixed for
redemption, an amount that, together with any amounts deposited with the Trustee
by the Company for the redemption of

<PAGE>

such Securities, is not less than the Redemption Price of such Securities
Notwithstanding anything to the contrary contained in this Article XIV, the
obligation of the Company to pay the Redemption Prices of such Securities shall
be deemed to be satisfied and discharged to the extent such amount is so paid by
such purchasers. If such an agreement is entered into, any Securities not duly
surrendered for conversion by the holders thereof may, at the option of the
Company, be deemed, to the fullest extent permitted by law, acquired by such
purchasers from such holders and (notwithstanding anything to the contrary
contained in Article XVI) surrendered by such purchasers for conversion, all as
of immediately prior to the close of business on the second Business Day prior
to the date fixed for redemption, subject to payment of the above amount as
aforesaid. The Trustee shall hold and pay to the Holders whose Securities are
selected for redemption any such amount paid to it for purchase and conversion
in the same manner as it would moneys deposited with it by the Company for the
redemption of Securities. Without the Trustee's prior written consent, no
arrangement between the Company and such purchasers for the purchase and
conversion of any Securities shall increase or otherwise affect any of the
powers, duties, responsibilities or obligations of the Trustee as set forth in
this Indenture, and the Company agrees to indemnify the Trustee from, and hold
it harmless against, any loss, liability or expense arising out of or in
connection with any such arrangement for the purchase and conversion of any
Securities between the Company and such purchasers, including the costs and
expenses incurred by the Trustee in the defense of any claim or liability
arising out of or in connection with the exercise or performance of any of its
powers, duties, responsibilities or obligations under this Indenture.

                                   ARTICLE XV

                                    PURCHASE

               SECTION 15.01. Purchase of Securities at Option of the Holder.

               (a) The Company shall purchase, at the option of the Holder, the
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
the principal amount thereof, plus accrued and unpaid interest thereon to but
excluding the applicable Purchase Date (the "Purchase Price"), upon satisfaction
of the conditions, and in the manner specified in Article XV of the Xerox
Indenture.

               So long as the Securities are held by the Property Trustee, if
holders of the Trust Securities require Xerox Capital to purchase all or a
portion of their Trust Securities on a Purchase Date, Xerox will be required, in
accordance with Article XV of the Xerox Indenture, to purchase an equivalent
principal amount of the Xerox Debentures then held by the Company at such
Purchase Price. The Company will be obligated to use the same consideration
received in connection with any such purchase to purchase a Like Amount of
Securities on the applicable Purchase Date.

               (b) After a Trust Dissolution Event, the Securities shall be
purchased by the Company on any Purchase Date at the Purchase Price, at the
option of the Holder thereof, upon satisfaction of the conditions, and in the
manner specified in Article XV of the Xerox Indenture.

               SECTION 15.02. Purchase of Securities at Option of the

<PAGE>

Holder upon a Change in Control.

               (a) If on or prior to December 4, 2004 there shall have occurred
a Change in Control, each holder of Securities may require the Company to
purchase all or a portion of such Securities, at the option of the Holder, at a
price equal to the principal amount thereof, plus accrued and unpaid interest
thereon to but excluding the applicable purchase date (the "Change in Control
Purchase Price"), upon satisfaction of the conditions, and in the manner
specified in Article XV of the Xerox Indenture.

               So long as the Securities are held by the Property Trustee, if
holders of the Trust Securities require Xerox Capital to purchase all or a
portion of their Trust Securities on a Change in Control Purchase Date, Xerox
will be required, in accordance with Article XV of the Xerox Indenture, to
purchase an equivalent principal amount of the Xerox Debentures then held by the
Company at such Change in Control Purchase Price. The Company will be obligated
to use the same consideration received in connection with any such purchase to
purchase a Like Amount of Securities on the applicable purchase date.

               (b) After a Trust Dissolution Event, the Securities shall be
purchased by the Company on the applicable purchase date specified in Article XV
of the Xerox Indenture at the Change in Control Purchase Price, at the option of
the Holder thereof, upon satisfaction of the conditions, and in the manner
specified in Article XV of the Xerox Indenture.

                                   ARTICLE XVI

                                   CONVERSION

               The Securities will be convertible into fully paid and
nonassessable shares of Common Stock at an initial rate of 5.4795 shares of
Common Stock per $50 principal amount, subject to certain adjustments set forth
in Article XVI of the Xerox Indenture (as so adjusted, the "Conversion Rate"),
in accordance with the conditions and procedures set forth in Article XVI of the
Xerox Indenture.

               So long as the Securities are held by the Property Trustee, if
holders of the Trust Securities elect to convert all or a portion of such Trust
Securities, the Company, as holder of the Xerox Debentures, shall, upon receipt
of notice from the conversion agent under the Declaration of a notice of
conversion thereunder, elect to convert a Like Amount of the Xerox Debentures
then held by it into shares of Common Stock at the Conversion Rate by delivering
to the conversion agent under the Xerox Indenture a notice of conversion
thereunder. The Company will be obligated to deliver the shares of Common Stock
received from Xerox in connection with any such conversion to holders of such
converted Trust Securities. Upon any such conversion, a Like Amount of
Securities shall be deemed to have been paid in full in the manner provided for
in the eighth paragraph of Section 16.02 of the Xerox Indenture

               On and after the date on which Trust Securities are no longer
outstanding, in order to convert Securities into Common Stock, a Holder, or its
authorized agent, shall submit to the Conversion Agent an irrevocable Notice of
Conversion to direct the Company to, (i) elect to convert a Like Amount of Xerox
Debentures then held by the Company into

<PAGE>

shares of Common Stock by delivering to the conversion agent under the Xerox
Indenture an irrevocable Notice of Conversion setting forth the number of
Securities to be converted and the name or names in which the shares of Common
Stock are to be issued and (ii) deliver such Common Stock to the Trustee for
distribution to such Holder. The Company will be obligated to deliver the shares
of Common Stock received from Xerox in connection with any such conversion to
holders of such converted Securities. Upon such delivery, the Conversion Agent
shall notify the Trustee of such conversion whereupon a Like Amount of
Securities shall be deemed to have been paid in full in the manner provided for
in the eighth paragraph of Section 16.02 of the Xerox Indenture.

               The Company hereby agrees not to convert any Xerox Debentures
held by it except pursuant to, (i) so long as the Securities are held by the
Property Trustee, a notice of conversion delivered to the conversion agent by a
holder of Trust Securities and (ii) on and after the date on which the Trust
Securities are no longer outstanding, a Notice of Conversion delivered to the
Conversion Agent by a Holder. If any Trust Securities are outstanding, the
Holder agrees that it will not elect to convert any of its Securities other than
as provided in this Section.

               Upon surrender of a Security that is converted in part, the
Company shall execute, and the Trust shall authenticate and deliver to the
Holder, a new Security in an authorized denomination equal in principal amount
to the unconverted portion of the Security so surrendered.

                                  ARTICLE XVII

                           SUBORDINATION OF SECURITIES

               SECTION 17.01. Agreement to Subordinate.

               The Securities issued hereunder will be subordinate and junior in
right of payment to all Senior Indebtedness. No payment of principal (including
upon redemption), premium, if any, or interest on the Securities may be made at
any time when (i) any Senior Indebtedness is not paid when due, (ii) any
applicable grace period with respect to such default has ended and such default
has not been cured or waived or ceased to exist, or (iii) the maturity of any
Senior Indebtedness has been accelerated because of a default.

               No provision of this Article XVII shall prevent the occurrence of
any Default or Event of Default hereunder.

               SECTION 17.02. Default on Senior Indebtedness.

               In the event that, any payment shall be received by the Trustee
when such payment is prohibited by Section 17.01, such payment shall be held in
trust for the benefit of, and shall be paid over or delivered to, the holders of
Senior Indebtedness or their respective representatives, or to the trustee or
trustees under any indenture pursuant to which any of such Senior Indebtedness
may have been issued, as their respective interests may appear, but only to the
extent that the holders of the Senior Indebtedness (or their representative or
representatives or a trustee) notify the Trustee in writing, within 90 days of
such payment of the amounts then due and owing on such Senior Indebtedness and
only the amounts specified in such notice to the Trustee shall be paid to the
holders of such Senior Indebtedness.

<PAGE>

               SECTION 17.03. Liquidation; Dissolution; Bankruptcy.

               Upon any distribution of assets to creditors upon any
liquidation, dissolution, winding up, reorganization, assignment for the benefit
of creditors, marshaling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of the Company, all Senior Indebtedness must be paid in
full before the holders of the Securities are entitled to receive or retain any
payment in respect thereof; and upon any such dissolution or winding-up or
liquidation or reorganization or assignment, any payment by the Company, or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, to which the Securityholders or the Trustee would be
entitled to receive from the Company, except for the provisions of this Article
XVII, shall be paid by the Company or by any receiver, trustee in bankruptcy,
liquidating trustee, agent or other Person making such payment or distribution,
or by the Securityholders or by the Trustee under the Indenture if received by
them or it, directly to the holders of Senior Indebtedness of the Company (pro
rata to such holders on the basis of the respective amounts of Senior
Indebtedness held by such holders, as calculated by the Company) or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing such Senior Indebtedness
may have been issued, as their respective interests may appear, to the extent
necessary to pay all such Senior Indebtedness in full, in money or money's
worth, after giving effect to any concurrent payment or distribution to or for
the holders of such Senior Indebtedness, before any payment or distribution is
made to the Securityholders or to the Trustee.

               In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, prohibited by the foregoing, shall be received by the
Trustee before all Senior Indebtedness is paid in full, or provision is made for
such payment in money in accordance with its terms, such payment or distribution
shall be held in trust for the benefit of and shall be paid over or delivered to
the holders of such Senior Indebtedness or their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing such Senior Indebtedness may have been issued,
as their respective interests may appear, as calculated by the Company, for
application to the payment of all Senior Indebtedness remaining unpaid to the
extent necessary to pay all such Senior Indebtedness in full in money in
accordance with its terms, after giving effect to any concurrent payment or
distribution to or for the benefit of the holders of such Senior Indebtedness.

               For purposes of this Article XVII, the words "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, the payment of which
is subordinated at least to the extent provided in this Article XVII with
respect to the Securities to the payment of Senior Indebtedness that may at the
time be outstanding, provided that (i) such Senior Indebtedness is assumed by
the new corporation, if any, resulting from any such reorganization or
readjustment, and (ii) the rights of the holders of such Senior Indebtedness are
not, without the consent of such holders, altered by such reorganization or
readjustment. The consolidation of the Company with, or the merger of the
Company into, another Person or the

<PAGE>

liquidation or dissolution of the Company following the sale, conveyance,
transfer or lease of its property as an entirety, or substantially as an
entirety, to another Person upon the terms and conditions provided for in
Article X of this Indenture shall not be deemed a dissolution, winding-up,
liquidation or reorganization for the purposes of this Section 17.03 if such
other Person shall, as a part of such consolidation, merger, sale, conveyance,
transfer or lease, comply with the conditions stated in Article X of this
Indenture.

               SECTION 17.04. Subrogation.

               Subject to the payment in full of all Senior Indebtedness, the
rights of the Securityholders shall be subrogated to the rights of the holders
of such Senior Indebtedness to receive payments or distributions of cash,
property or securities of the Company, as the case may be, applicable to such
Senior Indebtedness until the principal of (and premium, if any) and interest on
the Securities shall be paid in full; and, for the purposes of such subrogation,
no payments or distributions to the holders of such Senior Indebtedness of any
cash, property or securities to which the Securityholders or the Trustee would
be entitled except for the provisions of this Article XVII, and no payment over
pursuant to the provisions of this Article XVII to or for the benefit of the
holders of such Senior Indebtedness by Securityholders or the Trustee, shall, as
between the Company, its creditors other than holders of Senior Indebtedness of
the Company, and the holders of the Securities, be deemed to be a payment by the
Company to or on account of such Senior Indebtedness. It is understood that the
provisions of this Article XVII are and are intended solely for the purposes of
defining the relative rights of the holders of the Securities, on the one hand,
and the holders of such Senior Indebtedness on the other hand.

               Nothing contained in this Article XVII or elsewhere in this
Indenture or in the Securities is intended to or shall impair, as between the
Company, its creditors other than the holders of Senior Indebtedness of the
Company, and the holders of the Securities, the obligation of the Company, which
is absolute and unconditional, to pay to the holders of the Securities the
principal of (and premium, if any) and interest on the Securities as and when
the same shall become due and payable in accordance with their terms, or is
intended to or shall affect the relative rights of the holders of the Securities
and creditors of the Company, as the case may be, other than the holders of
Senior Indebtedness of the Company, as the case may be, nor shall anything
herein or therein prevent the Trustee or the holder of any Security from
exercising all remedies otherwise permitted by applicable law upon default under
the Indenture, subject to the rights, if any, under this Article XVII of the
holders of such Senior Indebtedness in respect of cash, property or securities
of the Company, as the case may be, received upon the exercise of any such
remedy.

               SECTION 17.05. Trustee to Effectuate Subordination.

               Each Securityholder by such Securityholder's acceptance thereof
authorizes and directs the Trustee on such Securityholder's behalf to take such
action as may be necessary or appropriate to effectuate the subordination
provided in this Article XVII and appoints the Trustee such Securityholder's
attorney-in-fact for any and all such purposes.

               SECTION 17.06. Notice by the Company.

<PAGE>

               The Company shall give prompt written notice to a Responsible
Officer of the Trustee of any fact known to the Company that would prohibit the
making of any payment of monies to or by the Trustee in respect of the
Securities pursuant to the provisions of this Article XVII. Notwithstanding the
provisions of this Article XVII or any other provision of this Indenture, the
Trustee shall not be charged with knowledge of the existence of any facts that
would prohibit the making of any payment of monies to or by the Trustee in
respect of the Securities pursuant to the provisions of this Article XVII,
unless and until a Responsible Officer of the Trustee assigned to the Principal
Office of the Trustee shall have received written notice thereof from the
Company or a holder or holders of Senior Indebtedness or from any trustee
therefor; and before the receipt of any such written notice, the Trustee,
subject to the provisions of Article VI of this Indenture, shall be entitled in
all respects to assume that no such facts exist; provided, however, that if the
Trustee shall not have received the notice provided for in this Section 17.06 at
least two Business Days prior to the date (i) upon which by the terms hereof any
money may become payable for any purpose (including, without limitation, the
payment of the principal of (or premium, if any) or interest on any Security),
or (ii) moneys are deposited in trust pursuant to Article XI, then anything
herein contained to the contrary notwithstanding, the Trustee shall have full
power and authority to receive such money and to apply the same to the purposes
for which they were received, and shall not be affected by any notice to the
contrary that may be received by it within two Business Days prior to such date.

               The Trustee, subject to the provisions of Article VI of this
Indenture, shall be entitled to conclusively rely on the delivery to it of a
written notice by a Person representing himself to be a holder of Senior
Indebtedness of the Company (or a trustee or representative on behalf of such
holder), as the case may be, to establish that such notice has been given by a
holder of such Senior Indebtedness or a trustee or representative on behalf of
any such holder or holders. In the event that the Trustee determines in good
faith that further evidence is required with respect to the right of any Person
as a holder of such Senior Indebtedness to participate in any payment or
distribution pursuant to this Article XVII, the Trustee may request such Person
to furnish evidence to the reasonable satisfaction of the Trustee as to the
amount of such Senior Indebtedness held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and any other
facts pertinent to the rights of such Person under this Article XVII, and, if
such evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.

               Upon any payment or distribution of assets of the Company
referred to in this Article XVII, the Trustee and the Securityholders shall be
entitled to rely upon any order or decree entered by any court of competent
jurisdiction in which such insolvency, bankruptcy, receivership, liquidation,
reorganization, dissolution, winding up or similar case or proceeding is
pending, or a certificate of the trustee in bankruptcy, liquidating trustee,
custodian, receiver, assignee for the benefit of creditors, agent or other
person making such payment or distribution, delivered to the Trustee or to the
Securityholders, for the purpose of ascertaining the persons entitled to
participate in such payment or distribution, the holders of Senior Indebtedness
and other indebtedness of the Company, the amount thereof or payable thereon,
the amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to

<PAGE>

this Article XVII.

               SECTION 17.07. Rights of the Trustee; Holders of Senior
Indebtedness.

               The Trustee in its individual capacity shall be entitled to all
the rights set forth in this Article XVII in respect of any Senior Indebtedness
at any time held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder.

               With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article XVII, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness and, subject to the
provisions of Article VI of this Indenture, the Trustee shall not be liable to
any holder of Senior Indebtedness if it shall pay over or deliver to
Securityholders, the Company or any other Person money or assets to which any
holder of Senior Indebtedness shall be entitled by virtue of this Article XVII
or otherwise.

               Nothing in this Article XVII shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 6.06.

               SECTION 17.08. Subordination May Not Be Impaired.

               (a) No right of any present or future holder of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith, by any such holder,
or by any noncompliance by the Company with the terms, provisions and covenants
of this Indenture, regardless of any knowledge thereof that any such holder may
have or otherwise be charged with.

               (b) Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Indebtedness may, at any time and from time to
time, without the consent of or notice to the Trustee or the Securityholders,
without incurring responsibility to the Securityholders and without impairing or
releasing the subordination provided in this Article XVII or the obligations
hereunder of the holders of the Securities to the holders of Senior
Indebtedness, do any one or more of the following: (i) change the manner, place
or terms of payment or extend the time of payment of, or renew or alter, such
Senior Indebtedness, or otherwise amend or supplement in any manner such Senior
Indebtedness or any instrument evidencing the same or any agreement under which
such Senior Indebtedness is outstanding; (ii) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing such
Senior Indebtedness; (iii) release any Person liable in any manner for the
collection of such Senior Indebtedness; and (iv) exercise or refrain from
exercising any rights against the Company and any other Person.

               Wells Fargo Bank Minnesota, National Association hereby accepts
the trusts in this Indenture declared and provided, upon the terms and
conditions hereinabove set forth.

<PAGE>

               IN WITNESS WHEREOF, the parties hereto have caused this Indenture
to be duly executed by their respective officers thereunto duly authorized, as
of the day and year first above written.

                            XEROX FUNDING LLC II


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


                            WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION,
                            as Trustee


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

                                    EXHIBIT A

                           (FORM OF FACE OF SECURITY)

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

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

               THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS

<PAGE>

OR ANY OTHER APPLICABLE SECURITIES LAW. NEITHER THIS SECURITY NOR ANY INTEREST
OR PARTICIPATION HEREIN 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.

No.                                                        CUSIP No. 98414X  AA9

                              XEROX FUNDING LLC II

            7 1/2% CONVERTIBLE JUNIOR SUBORDINATED DEBENTURE DUE 2021

               Xerox Corporation, a New York corporation (the "Company", which
term includes any successor Person under the Indenture hereinafter referred to),
for value received, hereby promises to pay to or registered assigns, the
principal sum of Dollars on November 27, 2021 (the "Maturity Date"), unless
previously paid, and to pay interest on the outstanding principal amount hereof
from November 27, 2001, or from the most recent interest payment date (each such
date, an "Interest Payment Date") to which interest has been paid or duly
provided for, quarterly in arrears on February 27, May 27, August 27 and
November 27 of each year, commencing February 27, 2002 at the rate of 7 1/2% per
annum until the principal hereof shall have become due and payable, and at the
rate of 7 1/2% per annum on any overdue principal and premium, if any, and
(without duplication and to the extent that payment of such interest is
enforceable under applicable law) on any overdue installment of interest at the
rate of 7 1/2% per annum compounded quarterly. The amount of interest payable on
any Interest Payment Date shall be computed on the basis of a 360-day year of
twelve 30-day months and, for any period less than a full calendar month, the
number of days elapsed in such month. In the event that any date on which the
principal of (or premium, if any), Purchase Price, Redemption Price, Change in
Control Purchase Price, or interest on this Security is payable is not a
Business Day, then the payment payable on such date will be made on the next
succeeding day that is a Business Day (except that if such next succeeding
Business Day falls in a subsequent calendar year, such payment shall be made on
the Business Day next preceding such date of payment), with the same force and
effect as if made on such date payment was originally payable, and no interest
shall accrue for the period from and after such date. The amount of interest
payable on any Interest Payment Date, the applicable redemption date, the
applicable Purchase Date, the Change in Control Purchase Date or the Maturity
Date shall include interest accrued from and including the Issue Date or the
last Interest Payment Date to which interest has been paid to but excluding such
Interest Payment Date, such redemption date, such Purchase Date, such Change in
Control Purchase Date or the Maturity Date, as applicable.

               The interest installment so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in the Indenture,
be paid to the person in whose name this Security (or one or more Predecessor
Securities, as defined in said Indenture) is registered at the close of business
on the regular record date for such interest installment, which shall be the
Business Day or, if none of the Securities, the Xerox Debentures or the Trust
Preferred Securities are being represented by global securities, the 15th
calendar day immediately preceding the relevant interest

<PAGE>

payment date. Any such interest installment not punctually paid or duly provided
for shall forthwith cease to be payable to the holders on such regular record
date and may be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on a special
record date to be fixed by the Trustee for the payment of such defaulted
interest, notice whereof shall be given to the holders of Securities not less
than 10 days prior to such special record date, or may be paid at any time in
any other lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in the Indenture.

               The principal of (and premium, if any), Purchase Price,
Redemption Price and Change in Control Purchase Price and interest on this
Security shall be payable at the office or agency of the Trustee maintained for
that purpose in any coin or currency of the United States of America that at the
time of payment is legal tender for payment of public and private debts;
provided, however, that, payment of interest may be made at the option of the
Company by (i) check mailed to the holder at such address as shall appear in the
Security Register or (ii) by transfer to an account maintained by the Person
entitled thereto, provided that proper written transfer instructions have been
received by the relevant record date. Notwithstanding the foregoing, so long as
the Holder of this Security is the Property Trustee, the payment of the
principal of (and premium, if any), Purchase Price, Redemption Price and Change
in Control Purchase Price and interest on this Security will be made at such
place and to such account as may be designated by the Property Trustee.

               The indebtedness evidenced by this Security is, to the extent
provided in the Indenture, subordinate and junior in right of payment to the
prior payment in full of all Senior Indebtedness, and this Security is issued
subject to the provisions of the Indenture with respect thereto. Each holder of
this Security, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his or her behalf to take
such action as may be necessary or appropriate to acknowledge or effectuate the
subordination so provided and (c) appoints the Trustee his or her
attorney-in-fact for any and all such purposes. Each holder hereof, by his or
her acceptance hereof, hereby waives all notice of the acceptance of the
subordination provisions contained herein and in the Indenture by each holder of
Senior Indebtedness, whether now outstanding or hereafter incurred, and waives
reliance by each such holder upon said provisions.

               This Security shall not be entitled to any benefit under the
Indenture hereinafter referred to, or be valid or become obligatory for any
purpose until the Certificate of Authentication hereon shall have been signed by
or on behalf of the Trustee.

               The provisions of this Security are continued on the reverse side
hereof and such provisions shall for all purposes have the same effect as though
fully set forth at this place.

               IN WITNESS WHEREOF, the Company has caused this instrument to be
executed.

<PAGE>

                            XEROX FUNDING LLC II


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


Attest:


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

                          CERTIFICATE OF AUTHENTICATION

               This is one of the Securities referred to in the within-
mentioned Indenture.

Dated November 27, 2001

WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION
as Trustee


By
---------------------------
Authorized Officer

                          (FORM OF REVERSE OF SECURITY)

               This Security is one of the Securities of the Company (herein
sometimes referred to as the "Securities"), specified in the Indenture, all
issued or to be issued under and pursuant to an Indenture, dated as of November
27, 2001 (the "Indenture"), duly executed and delivered between the Company and
Wells Fargo Bank Minnesota, National Association, as Trustee (the "Trustee"), to
which Indenture reference is hereby made for a description of the rights,
limitations of rights, obligations, duties and immunities thereunder of the
Trustee, the Company and the holders of the Securities.

               Subject to the provisions of Article XIV of the Indenture, the
Company may at its option (i) on and after the Initial Optional Redemption Date,
redeem the Securities in whole or in part, at the applicable Special Redemption
Price and (ii) if a Special Event shall occur and be continuing, redeem the
Securities in whole (but not in part) at any time prior to the Initial Optional
Redemption Date and within 90 days of the occurrence of such Special Event, at
the Regular Redemption Price.

<PAGE>

               If the Securities are only partially redeemed pursuant to Article
XIV of the Indenture, the Securities will be redeemed pro rata or by lot or by
any other method utilized by the Trustee; provided, that if at the time of
redemption the Securities are registered as a Global Security, the Depositary
shall determine, in accordance with its procedures, the principal amount of such
Securities held for the account of its participants to be redeemed. The
applicable Redemption Price shall be paid prior to 12:00 noon, New York time, on
the date of such redemption or at such earlier time as the Company determines,
provided that the Company shall deposit with the Trustee an amount sufficient to
pay the applicable Redemption Price by 10:00 a.m., New York time, on the date
such Redemption Price is to be paid.

               In the event of redemption of this Security in part only, a new
Security or Securities for the unpaid portion hereof will be issued in the name
of the holder hereof upon the cancellation hereof.

               The Securities are convertible into Common Stock of Xerox
Corporation and subject to purchase at the option of the holders hereof as
described in the Indenture.

               The Securities may be exchanged for a Like Amount of Xerox
Debentures upon the occurrence of an Exchange Event as described in the LLC
Agreement.

               In case an Event of Default, as defined in the Indenture, shall
have occurred and be continuing, the principal of all of the Securities may be
declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture.

               The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of a majority in aggregate principal
amount of the Securities at the time outstanding, as defined in the Indenture,
to execute supplemental indentures for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of the Indenture
or of modifying in any manner the rights of the holders of the Securities;
provided, however, that no such supplemental indenture shall, without the
consent of each holder of Securities then outstanding and affected thereby, (i)
change the Maturity Date of any Security, or reduce the rate or extend the time
of payment of interest thereon, or reduce the principal amount thereof, 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 Company to purchase the
Securities in accordance with the terms thereof and of this Indenture, modify
the provisions of this Indenture relating to the subordination of the Securities
or the right to commence a Direct Action, or (ii) reduce the aforesaid
percentage of Securities, the holders of which are required to consent to any
such supplemental indenture; provided, however, that if the Securities are held
solely by the Property Trustee, such amendment or modification shall not be
effective until the holders of a majority in liquidation amount of Trust
Securities shall have consented to such amendment or modification; provided,
further, that if the consent of the holder of each outstanding Security is
required, such amendment or modification shall not be effective until each
holder of the Trust Securities shall have consented to such amendment or
modification. The Indenture also contains provisions permitting the holders

<PAGE>

of a majority in aggregate principal amount of the Securities at the time
outstanding, on behalf of all of the holders of the Securities, to waive any
past default in the performance of any of the covenants contained in the
Indenture, or established pursuant to the Indenture, and its consequences,
except a default in the payment of the principal of or premium, if any,
Redemption Price, Purchase Price, Change in Control Purchase Price or interest
on any of the Securities or a default in respect of any covenant or provision
under which the Indenture cannot be modified or amended without the consent of
each holder of Securities then outstanding. Any such consent or waiver by the
holder of this Security (unless revoked as provided in the Indenture) shall be
conclusive and binding upon such Holder and upon all future holders and owners
of this Security and of any Security issued in exchange herefor or in place
hereof (whether by registration of transfer or otherwise), irrespective of
whether or not any notation of such consent or waiver is made upon this
Security.

               No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
premium, if any, and interest on this Security at the time and place and at the
rate and in the money herein prescribed.

               The Securities are issuable only in registered form without
coupons in denominations of $50.00 and any integral multiple thereof. As
provided in the Indenture and subject to the transfer restrictions limitations
as may be contained herein and therein from time to time, this Security is
transferable by the holder hereof on the Security Register of the Company, upon
surrender of this Security for registration of transfer at the office or agency
of the Company in the City and State of New York accompanied by a written
instrument or instruments of transfer in form satisfactory to the Company or the
Security registrar duly executed by the holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Securities of authorized
denominations and for the same aggregate principal amount and series will be
issued to the designated transferee or transferees. No service charge will be
made for any such transfer, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in relation
thereto.

               Prior to due presentment for registration of transfer of this
Security, the Company, the Trustee, any authenticating agent, any paying agent,
any transfer agent and the registrar may deem and treat the holder hereof as the
absolute owner hereof (whether or not this Security shall be overdue and
notwithstanding any notice of ownership or writing hereon made by anyone other
than the Security Registrar) for the purpose of receiving payment of or on
account of the principal hereof and premium, if any, and (subject to the
Indenture) interest due hereon and for all other purposes, and neither the
Company nor the Trustee nor any authenticating agent nor any paying agent nor
any transfer agent nor any registrar shall be affected by any notice to the
contrary.

               No recourse shall be had for the payment of the principal of or
premium, if any, or interest on this Security, or for any claim based hereon, or
otherwise in respect hereof, or based on or in respect of the Indenture, against
any incorporator, stockholder, officer or director, past, present or future, as
such, of the Company or of any predecessor or successor Person, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability

<PAGE>

being, by the acceptance hereof and as part of the consideration for the
issuance hereof, expressly waived and released.

               All terms used in this Security that are defined in the Indenture
shall have the meanings assigned to them in the Indenture.

               THE INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
CONFLICT OF LAW PROVISIONS THEREOF.

                              NOTICE OF CONVERSION

               To:      Wells Fargo Bank Minnesota, National Association
                        Conversion Agent for Xerox Funding LLC II

               The undersigned owner of this Security or Securities hereby
irrevocably exercises the option to convert this Security or 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 Indenture (as amended from time to time, the "Indenture"),
dated as of November 27, 2001, between Xerox Funding LLC II (the "Company") and
Wells Fargo Bank Minnesota, National Association, as Trustee. Pursuant to the
aforementioned exercise of the option to convert the Security or Securities, the
undersigned hereby directs the Conversion Agent (as that term is defined in the
Indenture) to (a) direct the Company to convert immediately an equivalent
aggregate principal amount of Xerox Debentures then held by the Company on
behalf of such Holders, into Common Stock and, if applicable, other securities,
cash or property (at the conversion rate specified in the Indenture), and (b) to
direct the Company to direct Xerox to deliver such property to the 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 Securities to be converted
($50 principal amount or
integral multiples thereof):