  The reaction K^+Xe->K^0pX is investigated in a meson-exchange model including
rescattering of the secondary protons with the aim to analyze the evidence for
the Theta^+(1540) resonance reported by the DIANA collaboration. We confirm
that the kinematical cuts introduced by the DIANA collaboration efficiently
suppress the background to the K^+n->K^0p reaction which may contribute to the
Theta^+(1540) production. We find that these kinematical cuts do not produce a
narrow structure in the K^0p effective mass spectra near 1540 MeV. We study the
effect of a narrow Theta^+ resonance of both positive and negative parity in
comparison with the DIANA data. We show that the K^+Xe->K^0pX calculations
without Theta^+ contribution as well as the results obtained with a Theta^+
width of 1 MeV are in comparably good agreement with the DIANA results. More
dedicated experiments are called for to establish this exotic baryon resonance.
