Document:

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                                                                 Exhibit 4(g)(2)

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

                              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

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                                    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

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

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                                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

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                                  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

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               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):<PAGE>

                                                                 Exhibit 4(g)(3)

                    AMENDED AND RESTATED DECLARATION OF TRUST

                                       OF

                             XEROX CAPITAL TRUST II

                          Dated as of November 27, 2001

<PAGE>

                                TABLE OF CONTENTS

                                                                            Page

                                    ARTICLE I
                         INTERPRETATION AND DEFINITIONS

SECTION 1.1    Definitions.                                                   1

                                   ARTICLE II
                               TRUST INDENTURE ACT

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

                                   ARTICLE III
                                  ORGANIZATION

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

                                   ARTICLE IV
                                     SPONSOR

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

                                    ARTICLE V
                                    TRUSTEES

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

<PAGE>

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

                                   ARTICLE VI
                                  DISTRIBUTIONS

SECTION 6.1    Distributions.                                                32

                                   ARTICLE VII
                             ISSUANCE OF SECURITIES

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

                                  ARTICLE VIII
                              TERMINATION OF TRUST

SECTION 8.1    Termination of Trust.                                         38

                                   ARTICLE IX
                              TRANSFER OF INTERESTS

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

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

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

                                   ARTICLE XI
                                   ACCOUNTING

<PAGE>

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

                                   ARTICLE XII
                             AMENDMENTS AND MEETINGS

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

                                  ARTICLE XIII
            REPRESENTATIONS OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE

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

                                   ARTICLE XIV
                                  MISCELLANEOUS

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

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

<PAGE>

                              AMENDED AND RESTATED
                             DECLARATION OF TRUST OF
                             XEROX CAPITAL TRUST II

                                November 27, 2001

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

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

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

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

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

                                    ARTICLE I
                         INTERPRETATION AND DEFINITIONS

     SECTION 1.1 Definitions.

     Unless the context otherwise requires:

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

                                   ARTICLE II
                               TRUST INDENTURE ACT

     SECTION 2.1 Trust Indenture Act; Application.

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

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

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

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

     SECTION 2.2 Lists of Holders of Securities.

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

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

     SECTION 2.3 Reports by the Property Trustee.

<PAGE>

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

     SECTION 2.4 Periodic Reports to Property Trustee.

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

     SECTION 2.5 Evidence of Compliance with Conditions Precedent.

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

     SECTION 2.6 Events of Default; Waiver.

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

<PAGE>

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

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

     SECTION 2.7 Event of Default; Notice.

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

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

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

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

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

<PAGE>

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

                                   ARTICLE III
                                  ORGANIZATION

     SECTION 3.1 Name.

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

     SECTION 3.2 Office.

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

     SECTION 3.3 Purpose.

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

     SECTION 3.4 Authority.

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

     SECTION 3.5 Title to Property of the Trust.

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

<PAGE>

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

     SECTION 3.6 Powers and Duties of the Administrative Trustees.

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

     SECTION 3.8 Powers and Duties of the Property Trustee.

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

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

     (c) The Property Trustee shall:

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

<PAGE>

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

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

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

     SECTION 3.9 Certain Duties and Responsibilities of the Property Trustee.

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

     SECTION 3.10 Certain Rights of Property Trustee.

     (a) Subject to the provisions of Section 3.9:

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

<PAGE>

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

     SECTION 3.11. Delaware Trustee.

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

     SECTION 3.12 Execution of Documents.

     Unless otherwise required by applicable law, each Administrative Trustee

<PAGE>

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

     SECTION 3.13 Not Responsible for Recitals or Issuance of Securities.

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

     SECTION 3.14 Duration of Trust.

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

     SECTION 3.15 Mergers.

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

     SECTION 3.16 Compensation.

     (a) The Sponsor agrees:

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

<PAGE>

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

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

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

                                   ARTICLE IV
                                     SPONSOR

     SECTION 4.1. Sponsor's Purchase of Common Securities.

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

     SECTION 4.2. Responsibilities of the Sponsor.

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

     (a) to prepare the Offering Memorandum;

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

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

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

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

     SECTION 4.3 Right to Proceed.

<PAGE>

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

                                    ARTICLE V
                                    TRUSTEES

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

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

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

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

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

     SECTION 5.2 Delaware Trustee.

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

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

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

<PAGE>

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

     SECTION 5.3 Property Trustee; Eligibility.

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

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

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

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

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

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

     (e) The initial Property Trustee shall be:

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

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

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

<PAGE>

     SECTION 5.5 Administrative Trustees.

The initial Administrative Trustees shall be:

                         Gregory B. Tayler
                         Timothy MacCarrick
                         Navin M. Chheda

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

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

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

     SECTION 5.6 Delaware Trustee.

     The initial Delaware Trustee shall be:

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

     SECTION 5.7 Appointment, Removal and Resignation of Trustees.

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

     SECTION 5.8 Vacancies among Trustees.

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

     SECTION 5.9 Effect of Vacancies.

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

     SECTION 5.10 Meetings.

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

     SECTION 5.11 Delegation of Power.

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

<PAGE>

Section 3.6, or making any other governmental filing; and

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

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

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

                                   ARTICLE VI
                                  DISTRIBUTIONS

SECTION 6.1 Distributions.

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

                                   ARTICLE VII
                             ISSUANCE OF SECURITIES

     SECTION 7.1 General Provisions Regarding Securities.

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

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

<PAGE>

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

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

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

     SECTION 7.2 Execution and Authentication.

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

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

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

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

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

     SECTION 7.3 Form and Dating.

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

<PAGE>

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

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

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

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

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

<PAGE>

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

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

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

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

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

     SECTION 7.5 Paying Agent to Hold Money in Trust.

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

<PAGE>

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

     SECTION 7.6 Replacement Securities.

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

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

     SECTION 7.7 Outstanding Trust Preferred Securities.

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

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

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

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

     SECTION 7.8 Trust Preferred Securities in Treasury.

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

     SECTION 7.9 Temporary Securities.

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

<PAGE>

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

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

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

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

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

     SECTION 7.10 Cancellation.

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

<PAGE>

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

     SECTION 7.11 CUSIP Numbers.

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

                                  ARTICLE VIII
                              TERMINATION OF TRUST

     SECTION 8.1 Termination of Trust.

     (a) The Trust shall automatically terminate:

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

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

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

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

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

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

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

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

<PAGE>

     with Annex I;

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

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

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

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

                                   ARTICLE IX
                              TRANSFER OF INTERESTS

     SECTION 9.1 Transfer of Securities.

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

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

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

     SECTION 9.2 Transfer Procedures and Restrictions

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

<PAGE>

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

     (g) Legend.

<PAGE>

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

<PAGE>

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

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

     (j) No Obligation of the Property Trustee.

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

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

     SECTION 9.3 Deemed Security Holders.

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

     SECTION 9.4 Book Entry Interests.

<PAGE>

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

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

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

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

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

     SECTION 9.5 Notices to Clearing Agency.

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

     SECTION 9.6 Appointment of Successor Clearing Agency.

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

                                    ARTICLE X
                           LIMITATION OF LIABILITY OF

<PAGE>

                    HOLDERS OF SECURITIES, TRUSTEES OR OTHERS

     SECTION 10.1 Liability.

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

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

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

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

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

     SECTION 10.2 Exculpation.

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

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

     SECTION 10.3 Fiduciary Duty.

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

<PAGE>

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

     (b) Unless otherwise expressly provided herein:

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

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

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

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

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

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

     SECTION 10.4 Indemnification.

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

<PAGE>

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

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

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

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

<PAGE>

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

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

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

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

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

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

<PAGE>

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

     SECTION 10.5 Outside Businesses.

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

                                   ARTICLE XI
                                   ACCOUNTING

     SECTION 11.1 Fiscal Year.

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

     SECTION 11.2 Certain Accounting Matters.

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

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

<PAGE>

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

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

     SECTION 11.3 Banking.

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

     SECTION 11.4 Withholding.

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

                                   ARTICLE XII
                             AMENDMENTS AND MEETINGS

     SECTION 12.1 Amendments.

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

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

                                   ARTICLE XII
                       REPRESENTATIONS OF PROPERTY TRUSTEE
                              AND DELAWARE TRUSTEE

     SECTION 13.1 Representations and Warranties of Property Trustee.

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

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

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

<PAGE>

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

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

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

     SECTION 13.2 Representations and Warranties of Delaware Trustee.

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

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

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

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

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

                                   ARTICLE XIV
                                  MISCELLANEOUS

     SECTION 14.1 Notices.

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

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

<PAGE>

Trust may give notice of to the Holders):

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

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

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

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

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

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

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

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

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

     SECTION 14.2 Governing Law.

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

<PAGE>

     SECTION 14.3 Intention of the Parties.

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

     SECTION 14.4 Headings.

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

     SECTION 14.5 Successors and Assigns.

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

     SECTION 14.6 Partial Enforceability.

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

     SECTION 14.7 Counterparts.

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

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

                                Gregory B. Tayler, as Administrative Trustee

                                Timothy MacCarrick, as Administrative Trustee

                                Navin M. Chheda, as Administrative Trustee

                                WILMINGTON TRUST COMPANY,
                                as Delaware Trustee

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

                                WELLS FARGO BANK MINNESOTA, NATIONAL
                                  ASSOCIATION,

<PAGE>

                                as Property Trustee

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

                                XEROX CORPORATION,
                                as Sponsor

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

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

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

     1.   Designation and Number.

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

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

<PAGE>

     2. Distributions.

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

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

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

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

<PAGE>

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

     3. Liquidation Distribution Upon Dissolution.

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

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

     4. Conversion.

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

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

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

<PAGE>

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

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

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

<PAGE>

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

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

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

     5. Redemption and Distribution.

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

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

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

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

<PAGE>

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

Period                        Percentage

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

<PAGE>

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

               The delivery of such Trust Security to the Paying Agent prior

<PAGE>

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

<PAGE>

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

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

     8. Voting Rights -- Trust Preferred Securities.

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

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

<PAGE>

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

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

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

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

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

     9. Voting Rights -- Common Securities.

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

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

<PAGE>

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

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

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

               Any approval or direction of Holders of Common Securities may

<PAGE>

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

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

     10. Amendments to Declaration and Xerox Funding Indenture.

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

<PAGE>

enforcement of any such payment on or after such date.

     11. Pro Rata.

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

     12. Ranking.

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

     13. Acceptance of Trust Securities Guarantee and Indentures.

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

     14. No Preemptive Rights.

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

     15. Miscellaneous.

          These terms constitute a part of the Declaration.

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

<PAGE>

                                   EXHIBIT A-1

                  FORM OF TRUST PREFERRED SECURITY CERTIFICATE

                               [FORM OF SECURITY]

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

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

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

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

<PAGE>

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

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

                Certificate Evidencing Trust Preferred Securities
                                       of
                             Xerox Capital Trust II

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

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

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

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

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

<PAGE>

                                           XEROX CAPITAL TRUST II

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

                PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION

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

Dated: November 27, 2001

                                           WELLS FARGO BANK MINNESOTA,
                                           NATIONAL ASSOCIATION,
                                           as Property Trustee

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

                          [FORM OF REVERSE OF SECURITY]

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

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

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

<PAGE>

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

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

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

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

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

     The Trust Preferred Securities are convertible into shares of common

<PAGE>

stock of the Sponsor as provided in the Declaration.

                              NOTICE OF CONVERSION

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

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

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

           Date:

                in whole

                in part

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

<PAGE>

                               FORM OF ASSIGNMENT

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

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

                    (Insert address and zip code of assignee)

and irrevocably appoints

                                                       agent to transfer

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

Date:

Signature:

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

Signature Guarantee/*/:

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

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

CHECK ONE BOX BELOW

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

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

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

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

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

<PAGE>

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

                                                   Signature

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

                                  SCHEDULE A/*/

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

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

* Append to Global Trust Preferred Securities only.

                                   EXHIBIT A-2
                       FORM OF COMMON SECURITY CERTIFICATE

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

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

<PAGE>

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

Certificate Number:                           Number of Common Securities

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

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

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

<PAGE>

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

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

                                    XEROX CAPITAL TRUST II

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

                        [FORM OF REVERSE OF SECURITY]

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

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

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

<PAGE>

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

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

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

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

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

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

                              NOTICE OF CONVERSION

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

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

<PAGE>

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

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

                                    Date:

                                    in whole

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

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