Reinvestment and Stock Purchase Service

Xerox Corporation Automatic Dividend Reinvestment and Stock Purchase Service Dear Shareholder: We are pleased to send you this Brochure describing our Automatic Dividend Reinvestment and Stock Purchase Service. This Service offers our Common and Preferred shareholders an attractive opportunity to purchase additional shares of Xerox Common Stock. If you elect to participate, you will enjoy the following advantages: You may purchase Common Stock at Current Market Price by reinvesting all or a portion of you cash dividends. You may also invest in additional shares of Common Stock by making optional cash deposits. Optional cash deposits must be at least $10 and cannot total more than $5, 000 in any one month. You will pay no service charges or brokerage commissions for purchases made under the Service. The following pages of the Brochure give the complete terms and conditions of the Service in simple question and answer form. You are urged to read the Brochure carefully, since it should answer most questions you may have about the Service. If you have any further questions, please contact: A toll free telephone number is also available: (800) 828-6396. Sincerely, Paul A. Allaire Chairman

The Service The following question and answer statement defines the terms and conditions of the Automatic Dividend Reinvestment and Stock Purchase Service (the Service ) of the Company. Purpose 1. What is the purpose of the The purpose of the Service is to provide holders of record of shares of Common or Preferred Stock of the Company (the Company s stock ) with a simple and convenient method of investing cash dividends and optional cash payments in additional shares of the Company s Common Stock without payment of any brokerage commission or service charge. Participating Options 2. What options are available to participants enrolled in the As a participant: a. You may have cash dividends on any portion or all of your shares of the Company s stock automatically reinvested. b. You may make optional cash purchases of not less than $10 each up to a total of $5,000 per month, whether or not your dividends are being reinvested. Advantages 3. What are the advantages of the a. No commission or service charge will be paid by you in connection with purchases through the Service. b. Your funds will be fully invested because the Service permits fractions of shares to be credited to your account. Dividends on such fractions, as well as on full shares, will be reinvested in additional shares and such shares will be credited to your account. c. You will avoid the need for safekeeping of stock certificates for shares credited to your dividend reinvestment account. d. Quarterly statements of account reflecting all current activity, including purchases and latest balance, will simplify your record keeping. Administration 4. Who administers the Service for participants? The Company keeps records, sends statements of account to each participant, and performs other record keeping and administrative duties related to the Service. Purchases of Xerox shares will be made by The First National Bank of Boston. Purchases may be made on securities exchanges where Xerox shares are traded, in the over-the-counter market or in negotiated transactions, on such terms regarding price, delivery and otherwise as Bank of Boston may determine. The First National Bank of Boston also acts as custodial agent (the Agent ) for the Service and holds the undistributed certificates representing shares purchased for participants. The Agent may hold such certificates in its own name or in the name of a nominee. The Agent shall have no responsibility for the market value of the Company s Common Stock acquired for a participant s account. Shares purchased for you through the Service are held for you in safekeeping by or through the Agent until termination of your participation in the Service or until a written request is received from you for withdrawal of all or part of your shares. The Company may adopt rules and regulations to facilitate the administration of the Service. Participation 5. Who is eligible to enroll? If you are a shareholder and you have shares of the Company s Common or Preferred stock registered in your name, you are eligible to enroll. If your stock is registered in a name other than your own (e.g. in the name of a broker or bank nominee), and you want to enroll, you may either make appropriate arrangements for your nominee to do so, or you may become a shareholder of record by having a part or all of your shares transferred to your own name. Any fees or charges assessed by the broker or bank nominee will not be paid by the Company. You may wish to consult your bank or broker concerning any costs you might incur from them. 6. How does an eligible shareholder enroll? As a holder of record of the Company s Common or Preferred stock, you may enroll in the Service by signing the Enrollment Form and returning it to the Company. A return envelope is provided for this purpose. Where the stock is registered in more than one name (e.g. joint tenants, trustees, etc.), all registered holders must sign. 2

You may obtain an Enrollment Form at any time by writing to: or by calling the Company toll free at (800) 828-6396 7. When may an eligible shareholder enroll? Eligible shareholders may enroll in the Service at any time. A shareholder s participation commences with the receipt by the Company of the shareholder s signed Enrollment Form, provided that the Form is received on or prior to the record date for the dividend payment, or before the 1st day of the month for optional cash payment. Otherwise, participation commences on either the next dividend payment date or the next cash investment date for optional cash payments. While the Company intends to pay quarterly dividends on the Common Stock on or about the 1st of January, April, July, and October, there can be no assurance as to the declaration of future dividends since they necessarily depend upon the Company s future earnings, its financial requirements and other factors. 8. What does the Enrollment Form provide? The Enrollment Form provides for the purchase of additional shares of the Company s Common Stock through the following investment options: a. FULL DIVIDEND REINVESTMENT directs the Agent to invest, in accordance with the Service, all of your cash dividends on all shares then or subsequently registered in your name, and also permits you to make optional cash payments, for the purchase of additional shares in accordance with the terms and conditions of the Service. b. PARTIAL DIVIDEND REINVESTMENT directs the Agent to invest the cash dividends on only that number of shares registered in the participant s name and specified by the participant in the appropriate space on the Enrollment Form, and also permits the participant to make optional cash payments in accordance with the terms and conditions of the Service. c. OPTIONAL CASH PURCHASES ONLY permits you to make optional cash payments for the purchase of additional shares in accordance with the terms and conditions of the Service, without reinvesting dividends on those shares held by you. You may select any of these options. In each case, cash dividends on all of the shares held by the Agent for your account will be reinvested in accordance with the terms and conditions of the Service, including dividends on such shares purchased with optional cash payments. 9. How may a participant change options under the As a participant, you may change your investment options at any time by requesting a new Enrollment Form and returning it to the Company at the address set forth in question 6. (See also questions 7 and 8). Purchases 10. What will be the price of shares purchased through the The purchase price per share of the Company s Common Stock purchased by you in the Service will be the average price of all shares purchased by Bank of Boston with the proceeds then being invested concurrently. A participant s funds may be commingled with other participant s funds when conducting transactions though the Service. 11. How many shares will be purchased for participants? The number of shares purchased for you depends on the amount of your dividends or optional cash payments and the purchase price per share. Your account will be credited with the number of shares, including fractions computed to three decimal places, equal to your total amount invested divided by the applicable purchase price per share. Optional Cash Purchases 12. How does the cash purchase option work? Optional cash payments received from you prior to a dividend payment date or the cash investment date (see questions 13 and 14) will be applied to the purchase of additional shares on the dividend payment date or the cash investment date. Purchases will be made at the purchase price as set forth in question 10. Cash dividends payable on all shares credited to your dividend reinvestment account, whether these shares were purchased with your reinvested dividends or optional cash payments, will be automatically reinvested in additional shares at the purchase price as defined.

13. How are optional cash purchases made? The option to make cash purchases is available to you only after enrolling in the Service by signing an Enrollment Form. If you elect to participate, you will be sent an optional cash payment transmittal form, which can be used for the initial cash purchase by returning it together with a check or money order payable to the Xerox Corporation. Thereafter, optional cash purchases may be made though the use of appropriate forms sent to you by the Company with each statement. The same amount of money need not be sent each month and there is no obligation to make optional cash purchases each month. Each optional cash payment made by you must be at least $10, and such purchases cannot, in any one month, exceed a total of $5,000 for any participant. Optional cash payments must be received by the Company prior to a dividend payment date or the cash investment date. All cash purchases will appear on the periodic statement of your account. The Company reserves the right to refuse to accept optional cash payments when, in the Company s sole judgment, participation in the Service is being abused. An example of abuse is establishment of multiple shareholder accounts for the purpose of escaping the $5,000 monthly limit. 14. When will optional cash payments received by the Company be invested? Optional cash payments will normally be invested on or about the 1st of each month (the cash investment date ). Cash contributions received by Xerox after a record date will be invested with the forthcoming dividend. Cash contributions received prior to a record date will be applied to a purchase of Xerox shares on the first business day of the next month after receipt by Xerox. Under no circumstances will interest be paid on optional cash payments. Therefore, we strongly urge you to transmit your optional cash payments so that they are received by the Company just before the first day of the month. However, you should allow sufficient time for such optional cash payments to be invested with your dividends (See question 7, 10, 12, and 13). 15. Under what circumstances will optional cash payments be returned? Optional cash payments received by the Company will be returned to you upon written request received at least 48 hours prior to the dividend payment date or the cash investment date. Costs 16. Are there any out-of-pocket costs to participants in connection with purchases through the No. There are no brokerage fees or commissions on shares purchased through the Service. However, you will be charged for brokerage commissions if you elect to sell. any or all of the shares in your account. (See question 27). If your shares are held in the name of a broker or a bank, said broker or bank may charge you a fee. You may wish to check their policy. (See question 5). The Company will not pay these fees. Shareholders must pay all fees charged by their broker or bank. Taxes 17. What are the Federal income tax consequences of participation in the A participant will be treated for Federal income tax purposes as having received, on each dividend payment date, the full amount of the cash dividend payable on that date with respect to shares registered in his name and shares held for the dividend reinvestment account under the Service, even though that amount was not actually received by the participant in cash, but instead was applied to the purchase of new shares for the account. Participants are required to report their pro rata share of brokerage commissions paid by Xerox as additional dividend income. This will be reported to participants annually in their Form 1099 issued by Xerox. A participant s cost basis for shares purchased with reinvested dividends or with optional cash payments may be determined from information contained in the participant s transaction confirmation statement. In the case of those foreign shareholders whose dividends are subject to United States income tax withholding, the Agent will, to the extent permitted by law, invest in Common Stock an amount equal to the dividends less the amount of tax required to be withheld. The regular statements of account confirming purchases made for foreign participants will indicate the amount of tax withheld. 18. How are income tax withholding provisions applied to foreign shareholders? If you are a foreign shareholder whose dividends are subject to United States income tax withholding, the amount of tax to be withheld will be deducted from the amount of dividends to determine the amount of dividends to reinvest. 4

If you are a foreign shareholder, your optional cash payments must be in United States dollars and will be invested in the same manner as payments from other participants. Reports to Participants 19. What kind of reports will be sent to participants in the As soon as practical after each dividend payment date or cash investment date, a statement of account will be mailed to you by the Company. These statements are your continuing record or current activity and should be retained for tax purposes. In addition, you will receive any new or revised Brochure for the Service and copies of other communications sent to holders of the Company s stock, including the Company s Interim Reports, Annual Report, the Notice of Annual Meeting, Proxy Statement and the information you will need for reporting your dividend income for Federal income tax purposes. Dividends on Fractions of Shares 20. Will participants be credited with dividends on fractions of shares? Yes. Dividends on fractions of shares, as well as on whole shares, will be credited to your account and will be reinvested in additional shares. Certificates; Transfers; Withdrawal of Shares; Sale of Shares 21. When will certificates be issued to participants for shares of Common Stock purchased through the Certificates for shares held through the Service will be issued to participants only upon written request. Shares purchased through dividend reinvestment or cash investment will be issued and held in the name of the Agent until the shareholder gives the Company written instructions to deliver certificates for full shares held through the Service. The shareholder may obtain a certificate for any number of full shares held for him by the Agent. Approximately one week may be required to process the request and make delivery of the certificates, except that in a month where a dividend record date occurs, approximately two to three weeks may be required. 22. In whose name will certificates be registered when issued to participants? Unless the participant otherwise directs, certificates will be issued in the name in which the participant s account is maintained. If a participant requests a certificate to be issued in a name other than that of the account registration name, his request must bear his signature. If the account is registered in multiple names, all signatures must appear on the request. In both cases, the signature(s) must be guaranteed by a member of an SEC recognized signature guarantee program such as the Securities Transfer Agents Medallion Program. Upon a participant s death, the Company will follow the instructions of the decedent s personal representative upon submission of appropriate proof of his authority. 23. Can shares held by the Agent be pledged as collateral? No. To be pledged, a certificate for the shares must first be issued to the participant. (See question 21). 24. How can a shareholder have his stock certificates be held by the Agent for safekeeping? Any shareholder can have his certificates for shares of the Company s Common Stock held in the name of the Agent for safekeeping, free of charge. The certificates must be sent to,,, Providence, RI 02940-6057. These certificates should be marked in the transfer to section with the statement For deposit to my Dividend Reinvestment Account Only. These certificates should not be endorsed. The Company will send the shareholder an acknowledgment of the receipt of his certificates. 25. When a participant transfers or sells nonparticipating shares, will dividends on his participating shares continue to be reinvested? Yes. The Agent will continue to reinvest all dividends on the shares in the Service until he requests withdrawal of such shares in writing. Optional cash investments can also continue to be made. 26. Can a participant transfer some of his participating shares and still participate in the Yes. As long as he retains some participating shares in the Service (full or fractional), dividends on such shares will be reinvested. 27. Can a participant sell shares held through the Yes, a participant may request at any time to sell full shares credited to the dividend reinvestment account or, upon termination of participation in the Service, may elect to sell some or all shares held for his account.

If a participant requests that all or part of the shares held by the Agent through the Service be sold, the shares will be sold as promptly as practicable after the receipt by the Company of properly documented instructions which must bear the participant s signature. If the account is registered in multiple names, the request must bear the signatures of all of the owners. If the check for the proceeds from the sale is to be issued in another person s name, the signature(s) of all of the owners must be guaranteed by a commercial bank or a member firm of the New York Stock Exchange. Participants wishing to sell shares should allow sufficient time for the mail to reach the Company and for the processing of the sale. The Company cannot guarantee any sale price or commission cost. Proceeds from the sale, less any brokerage fee, will be sent to the shareholder approximately one week after the sale. For further information relating to the sale of shares see question 31. Termination of Participation 28. How does a participant terminate participation in the In order to terminate your participation in the Service, you must notify the Company in writing that you wish to do so. Such notice should be addressed to: You may terminate participation at any time. 29. When is the termination effective? Automatic reinvestment of dividends terminates for any future dividends after the Company receives the notice of termination, except for notices received in a month that a record date occurs (customarily March, June, September, and December). Terminations will be processed only once a month with such a record date, approximately on the 15th calendar day of such month. Terminations received between the 15th calendar day of the month that has a record date and the dividend payment date will be processed after the dividend payment date. After the termination becomes effective, all subsequent dividends will be paid to you by check unless you re-enroll in the Service, which you may do at any time. 30. What election can I make as to shares held in my account when I terminate participation? Upon termination, you may elect to receive: (a) stock certificates for full shares held for your account in the Service, plus a check for the proceeds from the sale of any fractional share less any brokerage fees or commissions: or (b) a check for the proceeds from the sale of all shares held for your account, including any fractional share less any brokerage fees for commissions. The gross proceeds from the sale of shares will be reported to the Internal Revenue Service and the participant after the transaction. Other Information 31. When are shares sold if a participant chooses to sell shares held in his dividend reinvestment account? As previously noted (see questions 27 and 30), a participant may request at any time to sell full shares credited to the dividend reinvestment account or, upon termination of participation in the Service, may elect to sell some or all shares held for his account. Upon receipt of satisfactory documentation, the sale generally will be made by the Agent for your account, at market price, executed on the first business day of the week for notices received in the previous week. When a notice of termination is received between an ex-dividend date (2 New York Stock Exchange trading days before a record date) and the 15th calendar day of a month in which a dividend record date occurs, the shares will be sold by the Agent on or about the 15th calendar day of the month. When a notice of termination is received between the 15th calendar day of a month in which a dividend record date occurs and the dividend payment date, the shares will be sold by the Agent for your account after the dividend payment date. Shares that are to be sold may be combined with those of other participants, in which case each participant will receive their proportionate share of proceeds. 32. What happens when a participant sells or transfers some or all of the shares registered in his name? If you are reinvesting the cash dividends on all of the shares registered in your name (i.e., if you have elected the full dividend reinvestment option described in question 8a), and you dispose of a portion of such shares, the Agent will continue to reinvest the dividends on the remainder of the shares registered in your name. 6

If you sell or transfer all shares registered in your name, the Agent will continue to reinvest the dividends on shares credited to your dividend reinvestment account, subject to your right to withdraw from the Service at any time. 33. If the Company has a rights offering how will the rights in the Service shares be handled? In the event of a rights offering, rights on shares of Common Stock credited to your dividend reinvestment account will be sold by the Agent. The proceeds of the sale will be credited to your account and used as an optional cash payment to purchase the Company s Common Stock for your account on the first dividend payment date or the cash investment date following the sale. 34. What happens if the Company issues a dividend payable in stock or declares a stock split? Any dividend payable in stock or split shares distributed by the Company on shares credited to your dividend reinvestment account will be added to your account. Stock dividends or spit shares distributed on shares registered in your name will be mailed directly to you in the same manner as to shareholders who are not participating in the Service. 35. How will a participant s shares held by the Agent be voted at shareholders meetings? Shares held by the Agent for you will be voted as you direct. A proxy card will be sent to you in connection with any annual or special meeting of shareholders, as in the case of shareholders not participating in the Service. The proxy will apply to all whole shares registered in your own name, if any, as well as to all whole shares credited to your dividend reinvestment account and, if properly signed, will be voted in accordance with the instructions that you give on the proxy card. As in the case of non-participating shareholders, if no instructions are indicated on a properly signed and returned proxy card, all of your whole shares (those registered in your name, if any, and those credited to your dividend reinvestment account) will be voted in accordance with the recommendations of the Company s management. If the proxy card is not returned or is returned unsigned, your shares would be voted only if you or a duly appointed representative vote in person at the meeting. 36. What are the responsibilities of the Company and the Agent under the The Company and the Agent will not be liable under the Service for any act done in good faith or for any good faith omission to act, including, without limitation, any claim of liability arising out of failure to terminate your account upon your death, the prices at which shares are purchased for our account, the times when purchases are made, or fluctuation in market value of the Company s stock. You should recognize that the Company cannot assure you of a profit or protect you against a loss on the shares purchased by you under the Service. 37. May the Service be changed or discontinued? Notwithstanding any other provision of the Service, the Board of Directors of the Company or a designated committee thereof reserves the right to amend, modify, suspend or terminate the Service at any time, including the period between a record date and a dividend payment date. Notice of any material amendment or modification, or of any suspension or termination, will be mailed to all participants. Upon termination of the Service, any uninvested optional cash payments will be returned, a certificate for whole shares credited to your dividend reinvestment account will be issued, and a cash payment will be made for any fraction of a share credited to your account. 38. How may shareholders obtain answers to other questions regarding the Any additional question should be addressed to: or call toll free (800) 828-6396 The terms and conditions of the Service shall be governed by the laws of the State of New York.