Xerox 2004 Annual Report Download - page 80

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U.S. Attorney’s Office Investigation: We previously
reported that the U.S. attorney’s office in Bridgeport,
Connecticut was conducting an investigation into
matters relating to Xerox, namely accounting and
disclosure issues during the period 1998 to 2000,
particularly relating to the Company’s operations in
Latin America. The accounting matters upon which
the U.S. Attorney’s office appeared to be focusing
were the ones that were investigated by the SEC
and addressed in the Company’s restatements. The
Company cooperated with the investigation and pro-
vided documents as requested. On October 15, 2004
the U.S. Attorney’s office informed the Company that it
has completed its investigation and declined to bring
charges against the Company or any individuals in
connection with the investigation.
India: In recent years we have become aware of a
number of matters at our Indian subsidiary, Xerox
Modicorp Ltd., that occurred over a period of several
years much of which occurred before we obtained
majority ownership of these operations in mid 1999.
These matters include misappropriations of funds and
payments to other companies that mayhave been
inaccurately recorded on the subsidiary’s books and
certain improper payments in connection with sales to
government customers. These transactions were not
material to the Company’s financial statements. We
havereported these transactions to the Indian authori-
ties, the U.S. Department of Justice and to the SEC.
The private Indian investigator engaged bythe Indian
Ministry of Company Affairs has completed an
investigation of these matters. The Indian Ministry of
Company Affairs has provided our Indian subsidiary
with a portion of the investigator’s report which
addresses the previously disclosed misappropriation
of funds and improper payments and has requested
comments, which the Indian subsidiary intends to
provide in due course. The report includes allegations
that Xerox Modicorp Ltd.’s senior officials and the
Company were aware of such activities. The report
also asserts the need for further investigation into
potential criminal acts related to the improper
activities addressed by the report. The matter is now
pending in the Indian Ministry of Company Affairs.
The Company has reported these developments and
furnished a copy of the portion of the report received
by Xerox Modicorp Ltd. to the U.S. Department of
Justice and the SEC. In October 2004, we increased
our ownership interest in our Indian subsidiary to
86 percent, further increasing our controlling interest
over this subsidiary.
Note 15 – Preferred Stock
As of December 31, 2004, we have one class of
preferred stock outstanding as well as one class of
preferred stock purchase rights. In total, we are
authorized to issue approximately 22 million shares
of cumulative preferred stock, $1.00 par value.
Series C Mandatory Convertible Preferred Stock:
In June 2003, we issued 9.2 million shares of 6.25 per-
cent Series C Mandatory Convertible Preferred Stock
with a stated liquidation value of $100 per share for
net proceeds of $889. The proceeds from these securi-
ties were used to repay a portion of our indebtedness.
Annual dividends of $6.25 per share are cumulative
and payable quarterly in cash, shares of our common
stock or a combination thereof.
On July 1, 2006, each share of Series C Mandatory
Convertible Preferred Stock will automatically convert
into between 8.1301 and 9.7561 shares of our common
stock, depending on the then 20-day average market
price of our common stock. At any time prior to July 1,
2006, holders may elect to convert each share of Series C
Mandatory Convertible Preferred Stock into 8.1301
shares of our common stock. If at any time prior to
July 1, 2006, the closing price per share of our common
stock exceeds $18.45 for at least 20 trading days within
aperiod of 30 consecutive trading days, we may elect,
subject to certain limitations, to cause the conversion
of all, but not less than all, the shares of Series C
Mandatory Convertible Preferred Stock then outstanding
for shares of our common stock at a conversion rate of
8.1301 shares of our common stock for each share
of Series C Mandatory Convertible Preferred Stock.
Preferred Stock Purchase Rights: Wehave a
shareholder rights plan designed to deter coercive
or unfair takeover tactics and to prevent a person or
persons from gaining control of us without offering a
fair price to all shareholders. Under the terms of this
plan, one-half of one preferred stock purchase right
(“Right”) accompanies each share of outstanding
common stock. Each full Right entitles the holder to
purchase from us one three-hundredth of a new series
of preferred stock at an exercise price of $250. Within
the time limits and under the circumstances specified
in the plan, the Rights entitle the holder to acquire
either our common stock, the stock of the surviving
companyin a business combination, or the stock of
the purchaser of our assets, having a value of two
times the exercise price. The Rights, which expire in
April 2007, maybe redeemed prior to becoming
exercisable by action of the Board of Directors at a
redemption price of $.01per Right. The Rights are
non-voting and, until theybecome exercisable, have
no dilutive effect on the earnings per share or book
value per share of our common stock.