++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information contained in this prospectus supplement is not complete and +
+may be changed. This prospectus supplement and the accompanying prospectus +
+are not an offer to sell these securities and are not soliciting an offer to +
+buy these securities in any jurisdiction where the offer or sale is not +
+permitted +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Pursuant to Rule 424(b)(5)
Registration Statement No.
333-27141
Subject to Completion, Dated June 6, 2001
PRELIMINARY PROSPECTUS SUPPLEMENT
(To Prospectus Dated June 6, 2001)
$
[LOGO OF IOS CAPITAL(SM)]
% Notes due 20
-------------
IOS Capital, Inc. is offering $ of its % Notes due 20 . We will pay
interest on the notes on June and December of each year, beginning
December , 2001.
The notes will be unsecured and rank equally with all of our other existing
and future unsecured, senior indebtedness. The notes will only be issued in
book-entry form in denominations of $1,000. The notes will not be redeemable
prior to their scheduled maturity.
Investing in the notes involves risks. See "Risk Factors" beginning on page
S-7 of this prospectus supplement.
Per Note Total
-------- ---------
Public offering price............... % $
Underwriting discount............... % $
Proceeds, before expenses, to IOS
CAPITAL............................ % $
The public offering price set forth above does not include accrued interest,
if any. Interest on the notes will accrue from June , 2001.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
Lehman Brothers Inc. is offering the notes subject to various conditions. The
notes will be delivered to investors on or about June , 2001 in book-entry
form only through the facilities of The Depository Trust Company.
-------------
LEHMAN BROTHERS
June , 2001
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Summary.................................................................... S-3
Risk Factors............................................................... S-7
Use of Proceeds............................................................ S-8
Capitalization............................................................. S-9
Description of Notes....................................................... S-10
Underwriting............................................................... S-13
PROSPECTUS
About This Prospectus...................................................... 3
Where You Can Find More Information........................................ 3
Forward-Looking Statements................................................. 4
IOS........................................................................ 5
Relationship with IKON Office Solutions, Inc............................... 5
Ratio of Earnings to Fixed Charges......................................... 7
Use of Proceeds............................................................ 7
Description of Debt Securities............................................. 7
Plan of Distribution....................................................... 14
Legal Matters.............................................................. 15
Experts.................................................................... 15
------------------
This document is in two parts. The first part is this prospectus supplement,
which describes the specific terms of this offering. The second part is the
accompanying prospectus, which gives more general information, some of which
may not apply to this offering.
IF THE DESCRIPTION OF THE OFFERING VARIES BETWEEN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION IN THIS
PROSPECTUS SUPPLEMENT.
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not authorized anyone to provide you with additional or different
information. If anyone provides you with additional, different or inconsistent
information, you should not rely on it. We are offering to sell the notes, and
seeking offers to buy the notes, only in jurisdictions where offers and sales
are permitted. You should not assume that the information we have included in
this prospectus supplement or the accompanying prospectus is accurate as of
any date other than the date of this prospectus supplement or the accompanying
prospectus or that any information we have incorporated by reference is
accurate as of any date other than the date of the document incorporated by
reference. Our business, financial condition, results of operations and
prospects may have changed since that date. In this prospectus supplement and
the accompanying prospectus, unless otherwise indicated, the "Company," "IOS,"
"we," "us" and "our" refer to IOS Capital, Inc. and its subsidiaries.
Our principal executive offices are located at 1738 Bass Road, Macon, GA
31210 and our telephone number is (478) 471-2300.
------------------
S-2
SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information appearing elsewhere in this
prospectus supplement, the accompanying prospectus and the documents we
incorporate by reference.
IOS Capital, Inc.
IOS Capital, Inc., formerly known as IKON Capital, Inc., was formed in 1987
to provide lease financing to customers of IKON Office Solutions, Inc.
("IKON"). We are a wholly-owned subsidiary of IKON.
We are engaged in the business of arranging lease financing exclusively for
office equipment marketed by IKON's U.S. marketplaces. Our ability to offer
lease financing on equipment leased by IKON more closely ties IKON to its
customer base. During fiscal 2000, we arranged financing of 72% of new
equipment sold by IKON's U.S. marketplaces. We and IKON intend to seek to
increase this percentage in the future, as leasing enhances IKON's overall
profit margin on equipment and is considered an important part of IKON's
customer retention strategy.
IKON Office Solutions, Inc.
IKON is a leading provider of products and services that help businesses
communicate. IKON provides customers with total business solutions for every
office, production and outsourcing need, including copiers and printers, color
solutions, distributed printing, facilities management, imaging and legal
outsourcing solutions. IKON also provides customers with network design and
consulting, e-business development, telecommunications services and technology
training.
IKON operates approximately 800 locations in the United States, Canada,
Mexico, the United Kingdom, France, Germany, Ireland and Denmark. IKON's
locations in the United States, Canada and Mexico make IKON the largest
independent distribution network of office equipment in North America.
IKON distributes the products of numerous manufacturers including Canon,
Ricoh, Hewlett-Packard and Oce. IKON also distributes products from Microsoft,
IBM, Lotus, Compaq, Cisco and Citrix. Customers include large and small
businesses, professional firms and government agencies.
IKON's strategy is to be a leader in providing innovative solutions and
services that enable its customers to communicate business information more
effectively. IKON seeks to grow its revenues by increasing its market share,
expanding market opportunities, and strengthening operating margins by
improving productivity, increasing service revenues, and lowering fixed costs.
IKON will continue to execute on the following key strategies designed to
leverage IKON's strengths and position IOS and IKON for long-term success:
. Developing its infrastructure;
. Building organizational synergy and strength;
. Leveraging expanded alliances; and
. Opening new markets with a broader range of solutions.
S-3
THE OFFERING
Issuer.................... IOS Capital, Inc.
Securities Offered........ $ aggregate principal amount of % Notes due
20 .
Maturity Date............. The notes will mature on June , 20 .
Interest Rate............. % per annum, accruing from June , 2001.
Interest Payment Dates.... June and December , beginning December , 2001.
Redemption................ The notes will not be redeemable prior to maturity
and will not be entitled to the benefit of a
sinking fund.
Ranking................... The notes will rank equal to all of our other
existing and future senior unsecured indebtedness.
Use of Proceeds........... We anticipate that our net proceeds from the sale
of the notes will be approximately $ after
deducting the underwriting discount and estimated
offering expenses. We expect to use the net
proceeds for the financing of future leasing
transactions with IOS customers, and for other
general corporate purposes.
Covenants................. The indenture limits our ability to, among other
things, incur secured debt and engage in mergers,
consolidations or similar transactions.
Governing Law............. The indenture is, and the notes will be, governed
by the laws of the State of New York.
RATIO OF EARNINGS TO FIXED CHARGES
Six Months Ended Fiscal Year Ended September 30,
---------------- --------------------------------------
March 31, 2001 2000 1999 1998 1997 1996
---------------- ------ ------ ------ ------ ------
Ratio of Earnings to
Fixed Charges.......... 1.8 1.8 2.2 1.9 1.8 1.9
For purposes of computing the ratio of earnings to fixed charges, earnings
represent pretax income from continuing operations plus fixed charges (net of
capitalized interest). Fixed charges represent interest (whether expensed or
capitalized) and one-third (the proportion deemed representative of the
interest factor) of rents from continuing operations.
S-4
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The financial data below for the five fiscal years ended September 30, 2000,
is derived from information contained in our audited consolidated financial
statements. The financial data as of and for the six months ended March 31,
2001 and 2000 is derived from our unaudited consolidated financial statements.
The results of operations for the six months ended March 31, 2001 may not be
indicative of results to be expected for any future period. You should read
this financial data in conjunction with our consolidated financial statements
and accompanying notes, which we have incorporated by reference in the
accompanying prospectus.
Six Months Ended
March 31, Fiscal Year Ended September 30,
---------------------- ----------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ---------- ----------
(In thousands, except ratios)
(unaudited)
Summary of Operations:
Revenues:
Lease finance income... $ 155,747 $ 137,044 $ 280,610 $ 225,647 $ 223,131 $ 170,505 $ 121,148
Rental income.......... 16,407 18,336 36,187 39,483 38,749 24,012 14,607
Interest on IKON income
tax deferrals(1)...... -- 8,504 16,773 16,764 15,734 12,134 8,677
Other income........... 12,060 9,720 24,854 17,076 11,653 7,638 6,692
---------- ---------- ---------- ---------- ---------- ---------- ----------
184,214 173,604 358,424 298,970 289,267 214,289 151,124
Expenses:
Interest............... 83,458 72,777 149,014 114,961 109,737 83,536 60,255
Lease default, net of
recovery income....... 6,582 8,383 20,333 -- -- -- --
Depreciation........... 13,715 15,333 30,233 33,602 32,702 19,830 13,362
General and
administrative........ 15,364 14,624 31,058 33,624 40,236 41,960 28,565
---------- ---------- ---------- ---------- ---------- ---------- ----------
119,119 111,117 230,638 182,187 182,675 145,326 102,182
Gain on sale of lease
receivables............ -- 76 76 26,454 2,724 2,602 5,720
Income before income
taxes.................. 65,095 62,563 127,862 143,237 109,316 71,565 54,662
Provision for income
taxes.................. 26,038 25,025 48,446 54,910 46,194 28,984 23,150
Net income.............. $ 39,057 $ 37,538 $ 79,416 $ 88,327 $ 63,122 $ 42,581 $ 31,512
Balance Sheet Data:
Investments in leases:
Direct financing
leases, net of lease
default reserve(2).... $3,182,837 $2,727,174 $2,899,456 $2,311,820 $2,003,625 $1,642,665 $1,143,114
Less: Unearned income.. (513,945) (431,500) (458,606) (374,269) (343,211) (286,769) (203,459)
---------- ---------- ---------- ---------- ---------- ---------- ----------
2,668,892 2,295,674 2,440,850 1,937,551 1,660,414 1,355,896 939,655
Funded leases, net...... 227,140 367,775 367,389 465,188 592,827 485,658 313,250
---------- ---------- ---------- ---------- ---------- ---------- ----------
2,896,032 2,663,449 2,808,239 2,402,739 2,253,241 1,841,554 1,252,905
Cash.................... 3,154 1,947 3,998 1,335 2,621 -- --
Restricted cash......... 129,130 76,551 91,914 29,625 -- -- --
Accounts receivable..... 90,060 74,926 101,689 76,805 63,066 55,589 48,334
Due from IKON........... -- -- -- -- 52,060 4,463 --
Prepaid expenses and
other assets........... 6,510 6,076 6,160 10,018 14,224 13,436 15,582
Leased equipment--
operating rentals at
cost, less accumulated
depreciation(3)........ 38,598 49,418 42,993 59,681 76,551 50,945 31,341
Property and equipment
at cost, less
accumulated
depreciation(4)........ 8,558 9,397 9,097 10,395 11,491 12,330 6,889
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total assets........... $3,172,042 $2,881,764 $3,064,090 $2,590,598 $2,473,254 $1,978,317 $1,355,051
S-5
Six Months Ended
March 31, Fiscal Year Ended September 30,
---------------------- ------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ---------- ----------
(In thousands, except ratios)
(unaudited)
Liabilities and
Shareholder's Equity:
Accounts payable and
accrued expenses...... $ 95,218 $ 71,595 $ 55,327 $ 66,371 $ 60,819 $ 53,124 $ 44,801
Accrued interest....... 11,175 18,298 15,521 23,481 33,467 27,785 20,870
Due to IKON............ 312,592 108,908 22,834 112,649 -- -- 24,330
Notes payable to
banks................. 7,685 -- -- -- 100,000 25,000 58,000
Medium term notes...... 287,500 864,850 568,500 1,242,850 1,849,750 1,542,250 969,900
Lease-backed notes..... 1,572,765 1,052,682 1,267,641 622,948 -- -- --
Asset securitization
conduit financing..... 308,000 250,000 582,795 -- -- -- --
Deferred income taxes.. 144,201 115,463 139,626 129,869 95,115 64,177 45,750
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total liabilities...... $2,739,136 $2,481,796 $2,652,244 $2,198,168 $2,139,151 $1,712,336 $1,163,651
Shareholder's equity:
Common stock--$.01 par
value, 1,000 shares
authorized, issued,
and outstanding
Contributed capital.... $ 149,415 $ 149,415 $ 149,415 $ 149,415 $ 149,415 $ 144,415 $ 112,415
Retained earnings...... 301,488 250,553 262,431 243,015 184,688 121,566 78,985
Accumulated other
comprehensive loss.... (17,997) -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total shareholder's
equity................ $ 432,906 $ 399,968 $ 411,846 $ 392,430 $ 334,103 $ 265,981 $ 191,400
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total liabilities and
shareholder's equity.. $3,172,042 $2,881,764 $3,064,090 $2,590,598 $2,473,254 $1,978,317 $1,355,051
Other Financial Data:
EBITDA(5).............. $ 166,857 $149,093 $ 291,933 $ 276,824 $ 237,898 $ 160,176 $ 120,269
EBITDA/Fixed charge
coverage(6)........... 1.99 1.92 1.92 2.28 2.06 1.79 1.89
Total debt/EBITDA(7)... 7.46 7.63 8.36 7.15 7.98 9.76 8.75
Total debt/book
value(8).............. 5.75 5.69 5.93 5.04 5.68 5.88 5.50
- --------
(1) The interest on the IKON income tax deferrals program was terminated
effective October 1, 2000. See "Relationship with IKON Office Solutions,
Inc.--Interest on Income Tax Deferrals" in the accompanying prospectus for
additional information.
(2) Lease default reserve amounted to $58,576 at March 31, 2001 and $66,841 at
March 31, 2000 and $62,266 at September 30, 2000. There was no lease
default reserve recorded in 1999, 1998, 1997 and 1996, because the reserve
was recorded by IKON.
(3) Accumulated depreciation amounted to $50,921 and $55,955 at March 31, 2001
and 2000, respectively, and $55,595, $51,055, $43,411, $33,598 and $17,624
at September 30, 2000, 1999, 1998, 1997 and 1996, respectively.
(4) Accumulated depreciation amounted to $9,788 and $8,260 at March 31, 2001
and 2000, respectively, and $8,981, $7,384, $5,596, $3,771 and $2,536 at
September 30, 2000, 1999, 1998, 1997 and 1996, respectively.
(5) EBITDA represents income before interest expense, income tax, depreciation,
and amortization. We have reported EBITDA because we believe EBITDA is a
measure commonly reported and widely used by investors as an indicator of a
company's operating performance and ability to incur and service debt. We
believe EBITDA assists investors in comparing a company's performance on a
consistent basis without regard to depreciation and amortization, which can
vary significantly depending upon accounting methods or nonoperating
factors such as historical cost. EBITDA is not a calculation based on
generally accepted accounting principles and should not be considered an
alternative to net income in measuring our performance or used as an
exclusive measure of cash flow because it does not consider the impact of
working capital growth, capital expenditures, debt principal reductions and
other sources and uses of cash which are disclosed in our Consolidated
Statements of Cash Flows. Investors should carefully consider the specific
items included in our computation of EBITDA. While EBITDA has been
disclosed herein to permit a more complete comparative analysis of our
operating performance and debt servicing ability relative to other
companies, investors should be cautioned that EBITDA as reported by us may
not be comparable in all instances to EBITDA as reported by other
companies. EBITDA amounts may not be fully available for management's
discretionary use, due to certain requirements to conserve funds for
capital expenditures, debt service and other commitments.
(6) Fixed charges represent interest (whether expensed or capitalized) and one-
third (the proportion deemed representative of the interest factor) of
rents from continuing operations.
(7) Total debt includes amounts due to (from) IKON, notes payable to banks,
medium term notes, lease-backed notes and asset securitization conduit
financing.
(8) Book value represents total shareholder's equity.
S-6
RISK FACTORS
An investment in the notes involves significant risks. You should carefully
consider the following risk factors before you decide to buy the notes. You
should also carefully read and consider all of the information we have
included, or incorporated by reference, in this prospectus supplement and the
accompanying prospectus before you decide to buy the notes.
Changes in interest rates may reduce our net income
We incur debt to fund the origination of leases for IKON's customers. The
interest rates charged on the debt are based on current market conditions and
include variable measures of interest rates such as LIBOR. While we do not
enter into swap agreements for trading purposes, we do enter into interest
rate swap agreements to mitigate unfavorable variations in interest rates and
to achieve fixed rates on variable rate debt. However, there is no certainty
that the counterparties to the swap agreements that we enter into will satisfy
the terms of the agreements.
Changes in our credit ratings may impact our business
We act as servicer pursuant to the agreements through which our leases have
been securitized, and receive substantial payments in return for acting as
servicer. If our credit rating is downgraded to Ba2 by Moody's or to BB by
Standard & Poor's, Ambac Assurance Corporation, the insurer of these lease
securitizations, can designate a new servicer under these agreements, in which
case we would no longer receive these payments. Additionally, we have
revolving asset securitization conduit arrangements with various financial
institutions. If our credit rating is downgraded to Bal by Moody's or to BB+
by Standard & Poor's, each of these financial institutions can decline to
accept additional lease assets into their conduit arrangements and may remove
us as servicer under their conduit arrangements.
Our success is dependent upon the success of our parent, IKON Office
Solutions, Inc.
IKON is responsible for the origination of substantially all of our leases,
and IKON also provides us with administrative services. Our business,
therefore, is substantially dependent on IKON. Factors which could have an
adverse effect on IKON's ability to originate equipment leases include, but
are not limited to:
. Competition. IKON operates in a highly competitive environment. There are
a number of companies worldwide with significant financial resources
which compete with IKON to provide similar products and services, such as
Xerox, Danka, Canon, Ricoh and Oce. Competition is based largely upon
technology, performance, pricing, quality, reliability, distribution and
customer service and support. The financial pressures faced by some of
IKON's competitors may cause them to engage in uneconomic pricing
practices. This may cause the prices that IKON is able to charge in the
future for its products and services to be less than IKON has
historically charged. IKON's future success is based in large part upon
its ability to successfully compete in its current markets and expand
into additional products and services segments.
. Transition to digital. The analog segment of the office equipment market
continues to decline as the office equipment industry transitions to
digital technology. This transition represents a significant
technological change in IKON's industry with ramifications that cannot be
fully foreseen. Some of the digital products placed by IKON replace or
compete with the analog products placed by IKON. If we do not adapt
successfully to these changes, our results may suffer.
. Vendor relationships. IKON's access to equipment, parts and supplies is
dependent upon close relationships with its vendors and its ability to
purchase products from these vendors on competitive terms. From time to
time, IKON may seek to strengthen its relationship with one or more of
its vendors. Any change in IKON's relationship with any one or more of
its vendors could adversely affect IKON's relationships with its other
vendors. Any deterioration in relationships with, or in the financial
condition of, IKON's significant vendors, including Canon, Ricoh and Oce,
could have an adverse impact on IKON's ability to originate new equipment
leases as well as its ability to provide effective customer and technical
support.
. Failure to integrate operations. IKON's success is dependent on its
ability to integrate acquired companies and their operations. IKON may
not be successful in managing the integration of acquired companies and
their operations.
S-7
Risks associated with the equipment leasing business
The equipment leasing business is subject to a variety of risks, including
technological and economic obsolescence and the creditworthiness of lessees and
their ability to meet their rental payment obligations as they become due.
While we investigate prospective lessees to ascertain whether they will be able
to meet their obligations under proposed leases, the ability of our lessees to
meet their lease obligations is subject to risks, such as general economic
conditions, over which we have little influence or control. We do not expect
future write-offs in excess of reserves, but circumstances beyond our control,
such as an economic downturn, may cause such write-offs to occur. These write-
offs would adversely impact our profitability and our ability to repay
noteholders.
Because the notes will be unsecured, your claim will be junior to that of most
of our consolidated debt
The notes will not be secured by any of our assets. Consequently, if we
become insolvent, you will not have a direct interest in any of our assets.
Most of our debt is secured and the holders of our secured debt will have a
priority claim to most of our assets in the case of our insolvency.
The notes will be solely our obligation and will not be an obligation of IKON
The notes will be our obligation and will not be an obligation of IKON.
Although IKON has agreed, pursuant to the 1996 Support Agreement between IKON
and IOS, to provide us with the financial support necessary for us to meet the
financial criteria set out in that agreement, there can be no assurance that
IKON will adhere to the terms of that agreement. In addition, debtholders'
rights under the 1996 Support Agreement are limited. Under the terms of the
1996 Support Agreement, our debtholders have the right to demand that we
enforce our rights under that agreement. Our debtholders also have the right to
proceed against IKON on our behalf for the purpose of enforcing our rights
under the 1996 Support Agreement if we fail or refuse to take timely action to
enforce our rights under that agreement following a demand by our debtholders
for enforcement. However, the 1996 Support Agreement does not give our
debtholders the right to make a claim against IKON for payment of our
obligations. Consequently, if we default on the notes, you will not have any
claim against IKON or IKON's assets.
USE OF PROCEEDS
We anticipate our net proceeds from the sale of these notes will be
approximately $ after deducting the underwriting discount and estimated
offering expenses of $ . We expect to use the net proceeds for the financing
of future sales and leasing transactions with IKON customers, and for other
general corporate purposes.
S-8
CAPITALIZATION
The following table sets forth our debt and capitalization as of March 31,
2001 and as adjusted to give effect to this offering. You should read this
table in conjunction with our consolidated financial statements and
accompanying notes which we have incorporated by reference in the accompanying
prospectus. See "Where You Can Find More Information" in the accompanying
prospectus.
As of March 31,
2001
-------------------
Actual As Adjusted
------ -----------
(in millions)
Debt:
Medium-term notes......................................... $ 287 $
Lease-backed notes........................................ 1,573 1,573
Asset securitization conduit financing.................... 308 308
Due to IKON............................................... 313 313
------ ------
Total debt.............................................. 2,481
Shareholder's Equity:
Contributed capital....................................... 149 149
Retained earnings......................................... 302 302
Accumulated other comprehensive loss...................... (18) (18)
------ ------
Total shareholder's equity.............................. 433 433
------ ------
Total debt and shareholder's equity..................... $2,914 $
====== ======
S-9
DESCRIPTION OF NOTES
This section summarizes the specific financial and legal terms of the notes
that are more generally described under "Description of Debt Securities" in the
accompanying prospectus. If anything described in this section is inconsistent
with the terms described under "Description of Debt Securities" in the
accompanying prospectus, the terms described here prevail.
General
We will issue the notes in the aggregate principal amount of $ , subject
to reopening. The notes will mature on June , 20 . We will issue the notes
only in book-entry form, in denominations of $1,000 and integral multiples of
$1,000. The notes will bear interest at the annual rate shown on the cover of
this prospectus supplement and will accrue interest from June , 2001 or from
the most recent date to which interest has been paid or provided for. Interest
will be payable twice a year, on June and December , beginning
December , 2001, to the person in whose name a note is registered at the close
of business on the or that precedes the date on which interest will
be paid.
We may, without the consent of the holders of the notes, issue additional
notes having the same ranking and the same interest rate, maturity and other
terms as the notes offered by this prospectus supplement. Any additional notes
will, together with the notes offered by this prospectus supplement, constitute
a single series of notes under the indenture.
Events of Default
In addition to the Events of Default described in the section of the
accompanying prospectus, entitled "Description of Debt Securities--Events of
Default and Notice Thereof", we will be in default under the indenture with
respect to the notes if any of the following events relating to IKON occurs and
is continuing for a period of 60 days after written notice thereof is given to
IOS by the trustee under the indenture or by the holders of an aggregate of at
least 10% in principal amount of the notes.
IOS will be in default if:
. Liens and Encumbrances
IKON or any of its consolidated subsidiaries creates or assumes any
Secured Debt on any property, now owned or acquired after the date of this
prospectus supplement, including the sale with recourse of receivables or
any sale and leaseback of any fixed assets deemed to be a lien for money
borrowed.
However, this provision shall not apply to debt secured by:
. liens existing on the date of this prospectus supplement on any
property, provided that the amount secured by any such lien is not
greater than the amount secured on the date of this prospectus
supplement,
. liens on any property existing at the time of an acquisition or
created within a period of 120 days following the acquisition to
secure or provide for the payment of any part of the purchase
price for the acquisition,
. liens securing debt of a consolidated subsidiary outstanding on
the date IKON acquires the consolidated subsidiary,
. liens for taxes, assessments, or governmental charges or statutory
liens incurred in the ordinary course of business not yet due or
being contested in good faith, provided that a reserve or other
appropriate provision has been made therefor and no foreclosure or
similar proceeding has been commenced,
. liens created after the date of this prospectus supplement in
connection with borrowing or pledges of receivables that, when
added to all sales and discounting transactions contemplated under
the heading "--Sale or Discount of Receivables and Sale-Leaseback
Transactions", do not in the aggregate exceed 10% of IKON's
consolidated net worth,
. liens arising in connection with a securitization permitted under
the heading "--Sale or Discount of Receivables and Sale-Leaseback
Transactions",
S-10
. liens incurred or deposits made in the ordinary course of business
in connection with workmen's compensation, unemployment insurance
and other types of social security, or to secure the performance
of tenders, statutory obligations, surety and appeal bonds,
performance and return-of-money bonds and other similar
obligations, or
. liens, security interests and any other encumbrances on any of
IKON's treasury shares;
. Total Debt to Total Capitalization Ratio
IKON permits the total debt of IKON and its consolidated subsidiaries
to be greater than or equal to 60% of the sum of (1) the total debt of
IKON and its consolidated subsidiaries, plus (2) the consolidated
minority interest obligations shown on its consolidated balance sheet,
plus (3) the consolidated net worth of IKON and its consolidated
subsidiaries. For purposes of calculating such ratio, (a) Finance Leasing
Subsidiaries shall be excluded from the definition of "Consolidated
Subsidiaries" (b) any adjustments resulting from the application of SFAS
133 shall be excluded from shareholders' equity and (c) in calculating
the Consolidated Net Worth of the Parent and its Consolidated
Subsidiaries non-recurring charges subsequent to June 30, 2001 shall be
added back;
. Fixed Charges Coverage Ratio
IKON permits, for any period of four consecutive fiscal quarters
ending during the period set forth below, the fixed charges coverage
ratio, not including interest expense of Finance Leasing Subsidiaries and
non-recurring charges, to be less than the ratio set forth below opposite
such period:
Period Ratio
------ -----
June 30, 2001 to June 29, 2002.............................. 1.50 to 1.00
June 30, 2002 to June 29, 2003.............................. 1.75 to 1.00
June 30, 2003 and thereafter................................ 2.00 to 1.00
. Subsidiary Debt
any of IKON's consolidated subsidiaries, directly or indirectly,
creates, assumes, or guarantees any debt in an aggregate amount
outstanding (as to all IKON's subsidiaries) at any time in excess of
12.5% of IKON's consolidated net worth plus the amount of debt
outstanding on the date of this prospectus supplement.
However, this provision shall not apply to:
. debt owed to IKON or to another subsidiary,
. debt of a subsidiary outstanding on the date it is acquired by
IKON,
. debt with respect to property to be used by IKON or its
subsidiaries, the interest on which is exempt from federal income
tax pursuant to (S)103 of the Internal Revenue Code of 1986, as
amended,
. debt of any foreign subsidiary that is not guaranteed by IKON or
any other subsidiary,
. debt of finance leasing subsidiaries owed to IKON or any
consolidated subsidiary,
. debt of finance leasing subsidiaries owed to any other person or
persons provided that such debt is not guaranteed by IKON or any
consolidated subsidiary, or
. debt represented by the notes or existing as of the date of this
prospectus supplement;
. Sale of Assets
IKON or any of its consolidated subsidiaries sell, lease or transfer
all or substantially all of their assets unless (i) immediately after
giving effect thereto IKON is in compliance with the covenants and
provisions of the indenture and (ii) the sale, lease or transfer does not
have any materially adverse effect on IKON's financial condition;
S-11
. Sale or Discount of Receivables and Sale-Leaseback Transactions
IKON or any of its consolidated subsidiaries, other than its finance
leasing subsidiaries, enter into any securitizations, or sell or discount
receivables with recourse, or sell and lease back fixed assets, the
aggregate amount of which, when added to any liens created in connection
with borrowing or pledges of receivables, as described under the heading
"--Liens and Encumbrances", exceed 10% of IKON's consolidated net worth;
. Limitation on Dividends and Stock Acquisitions
IKON:
. declares or pays any dividends (other than dividends payable
solely in common stock),
. makes other distributions on any class of capital stock, or
. acquires or permits any subsidiary to acquire shares of capital
stock
if, after giving effect thereto, the sum of all payments would exceed:
. 75% of consolidated net income (or 100% of consolidated net loss)
of IKON and its consolidated subsidiaries since March 31, 2001,
plus
. net cash proceeds derived from issues of stock since March 31,
2001, plus
. the aggregate principal amount of debt subsequently converted into
stock since March 31, 2001, plus
. $50 million.
However, notwithstanding the foregoing, IKON may:
. pay dividends or make mandatory sinking funds payments on
preferred stock, and
. pay any dividend on common stock within 90 days after declaration
if such payment would have been permitted at the date of
declaration; or
. Transactions with Affiliates
IKON or any of its consolidated subsidiaries enter into any
transaction with any affiliate (other than IKON or its consolidated
subsidiaries), except in the ordinary course of business and upon fair
and reasonable terms.
IOS will enter into a supplemental indenture for the purpose of adding the
events of default specified above to the events of default already set out in
the indenture solely for the benefit of the holders of the series of notes
described in this prospectus supplement.
Sinking Fund
The notes will not be entitled the benefit of a sinking fund.
Defeasance and Covenant Defeasance
In some circumstances, we may elect to discharge our obligations on the notes
through defeasance or covenant defeasance. See "Description of Debt
Securities--Defeasance" in the accompanying prospectus for more information
about how we may do this.
Redemption
The notes will not be redeemable by us prior to their scheduled maturity.
Book-Entry System
One or more global securities deposited with, or on behalf of, The Depository
Trust Company, New York, New York ("DTC") will represent the notes. The global
securities representing the notes will be registered in the name of a nominee
of DTC. Except under the circumstances described in the accompanying prospectus
under "Global Securities," we will not issue the notes in definitive form.
S-12
UNDERWRITING
Under the terms and subject to the conditions set forth in the underwriting
agreement dated June , 2001, Lehman Brothers Inc. ("Lehman") has agreed to
purchase the principal amount of the notes set forth on the cover page of this
prospectus supplement.
The underwriting agreement provides that Lehman's obligation to pay for and
accept delivery of the notes is subject to certain terms and conditions. Lehman
is obligated to take and pay for all the notes if any are taken.
Lehman proposes initially to offer part of the notes to the public at the
public offering price set forth on the cover page of this prospectus supplement
and in part to certain dealers at a price that represents a concession not in
excess of % of the principal amount of the notes. Lehman may allow, and such
dealers may reallow, a concession not in excess of % of the principal amount
of the notes to certain other dealers. After the initial offering of the notes,
the offering price and other selling terms may from time to time be varied by
Lehman.
We estimate that our total expenses of this offering, excluding the
underwriting discounts, will be approximately $ .
We do not intend to apply for listing of the notes on a national securities
exchange, but have been advised by Lehman that it presently intends to make a
market in the notes, as permitted by applicable laws and regulations. Lehman is
not obligated, however, to make a market in the notes and any such market
making may be discontinued at Lehman's sole discretion. Accordingly, no
assurance can be given as to the liquidity of, or trading markets for, the
notes.
In connection with the offering, the rules of the Securities and Exchange
Commission permit Lehman to engage in certain transactions that stabilize the
price of the notes. These transactions may consist of bids or purchases for the
purpose of pegging, fixing or maintaining the price of the notes. If Lehman
creates a short position in the notes in connection with the offering (that is,
if it sells a larger principal amount of the notes than is set forth on the
cover page of this prospectus supplement), Lehman may reduce that short
position by purchasing notes in the open market.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might otherwise be in the absence of those purchases. Neither we nor Lehman
can make any representation or prediction as to the direction or magnitude of
any effect that the transactions described above may have on the price of the
notes. In addition, neither we nor Lehman make any representation that Lehman
will in fact engage in these transactions, or that these transactions, once
begun, will not be discontinued without notice.
Lehman and its affiliates may engage in transactions with and perform
services for us, including investment and/or commercial banking services. These
transactions and services are carried out in the ordinary course of business.
We have agreed to indemnify Lehman against certain liabilities, including
liabilities under the Securities Act of 1933.
S-13
PROSPECTUS
$1,123,250,000
[LOGO of IOS CAPITAL(SM)]
Debt Securities
----------------
IOS Capital, Inc., formerly IKON Capital, Inc., will offer and sell from
time to time up to $1,123,250,000 aggregate principal amount of debt
securities. We will provide specific terms of these debt securities in
supplements to this prospectus. The terms of the debt securities will include
the initial offering price, aggregate amount of the offering, listing on any
securities exchange or quotation system, risk factors and the agents, dealers,
or underwriters, if any, to be used in connection with the sale of these debt
securities. You should read this prospectus and any supplement, together with
any and all documents incorporated by reference herein and in any supplement,
carefully before you invest.
Investing in our debt securities involves risks. See "Risk Factors" in the
accompanying prospectus supplement.
----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
----------------
The date of this Prospectus is June 6, 2001
TABLE OF CONTENTS
About This Prospectus....................................................... 3
Where You Can Find More Information......................................... 3
Forward-Looking Statements.................................................. 4
IOS......................................................................... 5
Relationship with IKON Office Solutions, Inc................................ 5
Ratio of Earnings to Fixed Charges.......................................... 7
Use of Proceeds............................................................. 7
Description of Debt Securities.............................................. 7
Plan of Distribution........................................................ 14
Legal Matters............................................................... 15
Experts..................................................................... 15
----------------
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone to provide you
with additional or different information. If anyone provides you with
additional, different or inconsistent information, you should not rely on it.
We are offering to sell the debt securities, and seeking offers to buy the
debt securities, only in jurisdictions where offers and sales are permitted.
You should not assume that the information we have included in this prospectus
is accurate as of any date other than the date of this prospectus or that any
information we have incorporated by reference is accurate as of any date other
than the date of the document incorporated by reference. Our business,
financial condition, results of operations and prospects may have changed
since that date.
2
ABOUT THIS PROSPECTUS
This prospectus relates to a registration statement that we filed with the
Securities and Exchange Commission ("SEC") using a "shelf" registration
process. Under the shelf registration process, we originally registered a total
dollar amount of $2,017,750,000 of our debt securities. Prior to the date of
this prospectus, we sold a total dollar amount of $894,500,000 of these debt
securities in various transactions. Using this prospectus, we may sell the
remaining debt securities registered under that shelf registration process in
any combination and in one or more offerings up to a total dollar amount of
$1,123,250,000. This prospectus provides you with a general description of the
debt securities we may offer. Each time we sell debt securities, we will
provide a prospectus supplement that will contain specific information about
the terms of that offering. The prospectus supplement may also add, update or
change information contained in this prospectus. You should read both this
prospectus and any prospectus supplement, together with any additional
information described under the heading "Where You Can Find More Information."
As used in this prospectus, "IOS," "we," "us" and "our" refer to IOS Capital,
Inc., a company organized under the laws of the State of Delaware, and its
subsidiaries.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, and other information with the
SEC pursuant to the requirements of the Securities Exchange Act of 1934. You
may read and copy any materials that we file with the SEC at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C., 20549. You may also
inspect our filings at the regional offices of the SEC located in New York, New
York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available
to the public at the SEC's web site at http://www.sec.gov. The address of the
SEC's web site is provided for the information of prospective investors and not
as an active link.
The SEC allows us to "incorporate by reference" into this prospectus the
information in documents we file with the SEC, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is considered to be a part of this
prospectus and should be read with the same care. When we update the
information contained in documents that have been incorporated by reference, by
making future filings with the SEC, the information incorporated by reference
in this prospectus is considered to be automatically updated and superceded. In
other words, in all cases, if you are considering whether to rely on
information contained in this prospectus or information incorporated by
reference into this prospectus, you should rely on the information contained in
the document that was filed later. We incorporate by reference the documents
listed below and any additional documents we file with the SEC in the future
under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of
1934 until our offering is completed:
. Our Annual Report on Form 10-K for the year ended September 30, 2000.
. Our Quarterly Report on Form 10-Q for the quarter ended December 31, 2000
and March 31, 2001.
. Our Current Reports on Form 8-K filed on October 26, 2000, November 13,
2000, February 1, 2001, May 3, 2001 and May 9, 2001.
You may request a copy of these filings, at no cost, by writing to or
telephoning the following address: Investor Relations Department, IOS Capital,
Inc., 70 Valley Stream Parkway, Malvern, Pennsylvania 19355; telephone: (610)
296-8000.
3
FORWARD-LOOKING STATEMENTS
This prospectus, any applicable prospectus supplement and the documents
incorporated by reference into this prospectus and any applicable prospectus
supplement may contain forward-looking statements. We have based these forward-
looking statements on our current expectations and projections about future
events. You can find these statements by looking for words such as "believes,"
"expects"' "anticipates," "intends," "plans," "may," "will," and "potential" or
similar expressions. These forward-looking statements are subject to risks,
uncertainties and assumptions about us. Some of the factors that may cause
actual results to differ materially from those contemplated by the forward-
looking statements include, but are not limited to:
. risks and uncertainties relating to conducting operations in a
competitive environment and a changing industry;
. our ability to access capital and our debt service requirements
(including sensitivity to fluctuation in interest rates);
. general economic conditions;
. our ability to recoup the full amount due on the leases that we enter
into (such as lessee defaults or factors impeding recovery efforts); and
. IKON's business results.
Other factors that could cause actual results to differ materially from those
anticipated are discussed in our periodic filings with the SEC.
When considering these forward-looking statements, you should keep in mind
the risk factors discussed in any prospectus supplement and in the documents we
have incorporated by reference.
4
IOS
IOS Capital, Inc., formerly known as IKON Capital, Inc., was formed in 1987.
We are engaged in the business of arranging lease financing exclusively for
office equipment marketed by IKON's U.S. marketplaces. We are a Delaware
corporation. Our principal executive offices are located at 1738 Bass Road,
Macon, Georgia 31210 and our telephone number is: (478) 471-2300.
RELATIONSHIP WITH IKON OFFICE SOLUTIONS, INC.
As a captive finance subsidiary of IKON, we derive our customer base from the
business sourced by IKON locations throughout the United States. There are
several agreements and programs between us and IKON, which are described below.
The 1996 Support Agreement
IOS and IKON are parties to an agreement (the "1996 Support Agreement") dated
October 22, 1996, which requires IKON to maintain 100% direct or indirect
ownership of us unless: (i) all of our outstanding debt has been repaid, or
(ii) approval of two-thirds of our debtholders (not including IKON, IOS or
affiliates of IKON or IOS) for all amounts outstanding covered by this Support
Agreement is obtained. The 1996 Support Agreement also provides that IKON will
make payments to us as necessary to permit us (i) to maintain a pre-tax
interest coverage ratio (income before interest expense and taxes divided by
interest expense) of at least 1.25, (ii) to maintain a tangible net worth of at
least $1.00 and (iii) to maintain a debt to equity ratio not in excess of 6 to
1. Our agreements with the holders of our debt securities and other lenders
entered into after June 1, 1994, generally prohibit us from assigning, amending
or terminating the 1996 Support Agreement unless either (i) all of our
outstanding debt is repaid or (ii) the approval of at least two-thirds of the
holders of our debt securities and lenders is obtained.
Cash Management Program
We participate in IKON's domestic cash management program. Under this
program, we have an account with IKON through which cash in excess of current
operating requirements is temporarily placed on deposit. Similarly, amounts are
periodically borrowed from IKON. Interest is paid (or charged) by IKON on these
amounts. We were in a net average deposit position with IKON during each of
fiscal 2000, 1999 and 1998 and earned interest income of approximately $2.3
million, $6.0 million and $5.3 million, respectively.
Management Fee
Included in our general and administrative expenses are corporate overhead
expenses charged by IKON of $1.5 million in fiscal year 2000 and $0.6 million
in each of fiscal 1999 and 1998. These corporate charges represent our estimate
of costs incurred by IKON on behalf of IOS. The increase in corporate charges
in fiscal 2000 is due to the increase in legal, treasury, tax, and marketing
support provided by IKON as a result of the increase in the Company's financing
activity.
Federal Income Tax Allocation Agreement
IKON and IOS are parties to a Federal Income Tax Allocation Agreement dated
June 30, 1989, in which we consented to the filing of consolidated federal
income tax returns with IKON. IKON agrees to collect from, or pay to, us our
allocated share of any consolidated federal income tax liability or refund
applicable to any period for which we are included in IKON's consolidated
federal income tax return.
Interest on Income Tax Deferrals
We provide substantial tax benefits to IKON through the use of the
installment sales method on equipment financed through us. Taxes deferred by
IKON due to this tax treatment totaled a cumulative amount of $493 million
5
at the end of fiscal 2000. In each of fiscal 2000, 1999 and 1998, IKON paid us
interest on the portion of these tax deferrals which arose from inter-company
sales at a rate consistent with our weighted average outside borrowing rate of
interest. As a result, we earned interest at an average rate of 6.7% in fiscal
2000 for a total of approximately $16.8 million, 6.6% in fiscal 1999 for a
total of approximately $16.8 million and 6.5% in fiscal 1998 for a total of
approximately $15.7 million. As of October 1, 2000, IKON ceased paying us
interest on income tax deferrals.
Lease Bonus Program
We sponsored a lease bonus subsidy program which provided incentives to IKON
marketplaces when IKON customers leased equipment from us. The focus of the
bonus subsidy program was to reimburse IKON for third party lease payoffs
incurred when buying out the equipment leases of a competitor. During fiscal
1999 and 1998, bonus payments made to IKON marketplaces or IKON totaled $12.0
and $16.4 million, respectively. Effective October 1, 1999, IOS and IKON agreed
to terminate this program.
Lease Defaults
Prior to October 1, 1999, IOS and IKON followed an operating arrangement that
required, in the event of default, the IKON marketplaces to repurchase the
equipment at the net investment value of the lease on the default date. Default
is defined as any receivable becoming 120 days past due or otherwise being
reasonably declared uncollectible by us. At September 30, 1999 and 1998, all of
our accounts receivable and direct financing leases, including residual values,
were subject to these repurchase terms. In view of this arrangement, we made no
provision for uncollectable receivables. Effective October 1, 1999, we began a
shared recourse arrangement with the IKON marketplaces. This arrangement
provides for net losses resulting from lease defaults to be shared equally
between us and the IKON marketplaces. The lease default reserve is maintained
by us and the provisions for lease default are shared between us and the IKON
marketplaces. On October 1, 1999, lease default reserves of approximately $74
million and the related deferred tax liability of approximately $29 million
were transferred to us from the IKON marketplaces. During fiscal 2000, a
provision for lease defaults of approximately $58 million was recorded to
increase the reserve. Of this provision, approximately $20 million was recorded
as an expense on our books and approximately $38 million was recorded as an
expense on the books of the IKON marketplaces. Lease write-offs of
approximately $70 million were recorded to reduce the reserve. As a result of
the above, the lease default reserve at September 30, 2000 was $62 million.
6
RATIO OF EARNINGS TO FIXED CHARGES
Six Months Ended Fiscal Year Ended September 30,
---------------- --------------------------------------
March 31, 2001 2000 1999 1998 1997 1996
---------------- ------ ------ ------ ------ ------
Ratio of Earnings to
Fixed Charges.......... 1.8 1.8 2.2 1.9 1.8 1.9
For purposes of computing the ratio of earnings to fixed charges, earnings
represent pretax income from continuing operations plus fixed charges (net of
capitalized interest). Fixed charges represent interest (whether expensed or
capitalized) and one-third (the proportion deemed representative of the
interest factor) of rents from continuing operations.
USE OF PROCEEDS
We intend to use the net proceeds from the sale of the debt securities for
the financing of future sales and leasing transactions with IKON customers, and
for other general corporate purposes. We expect to incur additional
indebtedness in connection with our financing operations. However, the amount,
timing and precise nature of such indebtedness have not yet been determined and
will depend upon the volume of our business, the availability of credit and
general market conditions.
DESCRIPTION OF DEBT SECURITIES
The following description sets forth the material terms and provisions of the
debt securities to which any prospectus supplement may relate. The particular
terms of the debt securities offered by any prospectus supplement and the
extent, if any, to which the general provisions described below may apply to
the debt securities so offered will be described in the prospectus supplement
relating to such debt securities.
Offered debt securities (as defined below) are to be issued under an
indenture, dated as of June 30, 1995, and a First Supplemental indenture, dated
June 4, 1997, between IOS and The Chase Manhattan Bank (formerly Chemical Bank)
as trustee. The statements under this caption relating to the debt securities
and the indenture are summaries and do not purport to be complete. Such
summaries make use of terms defined in the indenture and are qualified in their
entirety by express reference to the indenture and the cited provisions
thereof, a copy of which is filed as an exhibit to the registration statement
to which this prospectus relates. We will enter into supplemental indentures as
necessary to provide for the particular terms of a series of debt securities.
General
Each prospectus supplement will describe the following terms relating to a
series of debt securities:
. the title of the debt securities;
. any limit on the aggregate principal amount of the offered debt
securities that may be issued;
. whether any of the debt securities will be issuable in whole or in part
in temporary or permanent global form or in the form of book-entry debt
securities;
. that maturity date(s) of the debt securities;
. the annual interest rate(s) (which may be fixed or variable) or the
method for determining the rate(s) and the date(s) interest will begin to
accrue on the debt securities, the date(s) interest will be payable, and
the regular record dates for interest payment dates or the method for
determining the date(s);
. the place(s) where payments with respect to the debt securities shall be
payable;
. the date, if any, after which, and the price(s) at which, the series of
debt securities may, pursuant to any optional redemption provisions, be
redeemed at our option, and other related terms and provisions;
. if applicable, the terms and conditions upon which the debt securities
may be repayable prior to final maturity at the option of the holder
thereof (which option may be conditional);
7
. the denominations in which the series of debt securities will be issued,
if other than denominations of $1,000 and any integral multiple thereof;
. any mandatory or optional sinking fund or similar provisions respecting
the debt securities;
. if applicable, the price at which, the periods within which, and the
terms and conditions upon which we may, pursuant to any optional or
mandatory redemption provisions, be redeem the debt securities;
. the currency or currency units in which payment of the principal of,
premium, if any, and interest on the debt securities shall be payable;
. any index used to determine the amount of payments of the principal of,
premium, if any, and interest on the debt securities and the manner in
which such amounts shall be determined;
. the person to whom any interest shall be payable, if other than the
person in whose name the debt securities are registered on the regular
record date for such interest;
. the portion of the principal amount of the debt securities, if other than
the principal amount thereof, payable upon acceleration and maturity
thereof; and
. any other terms (which terms shall not be inconsistent with the
applicable indenture) of the debt securities.
The applicable prospectus supplement will describe any special United States
federal tax consequences and any other special considerations with respect to
the debt securities.
Certain Restrictions
1996 Support Agreement. The indenture provides that we will:
. observe and perform in all material respects all covenants or agreements
of IOS contained in the 1996 Support Agreement;
. to the extent possible, cause IKON to observe and perform in all material
respects all covenants or agreements of IKON contained in the 1996
Support Agreement; and
. not waive compliance under, amend in any material respect or terminate
the 1996 Support Agreement; provided, however, that the 1996 Support
Agreement may be amended or terminated if either:
(i) all the outstanding debt of IOS is repaid or
(ii) the approval of holders of not less than 66 2/3% in principal amount
of the Outstanding Securities of each series issued under the
indenture is obtained.
Restrictions on Liens and Encumbrances
We will not create, assume or guarantee any Secured Debt without making
effective provision for securing the debt securities (and, if we shall so
determine, any other indebtedness of or guaranteed by IOS), equally and
ratably with such Secured Debt.
This covenant does not apply to debt secured by:
. certain mortgages, pledges, liens, security interests or encumbrances in
connection with the acquisition, construction or improvement of any fixed
asset or other physical or real property by IOS,
. mortgages, pledges, liens, security interests or encumbrances on property
existing at the time of acquisition thereof, whether or not assumed by
IOS,
. mortgages, pledges, liens, security interests or encumbrances on property
of a corporation existing at the time such corporation is merged into or
consolidated with IOS or at the time of sale, lease or other disposition
of the properties of a corporation or firm as an entirety or
substantially as an entirety to IOS,
. mortgages, including mortgages, pledges, liens, security interests or
encumbrances, on property of IOS in favor of the United States of
America, any state thereof, or any other country, or any agency,
instrumentality or
8
political subdivision thereof, to secure certain payments pursuant to any
contract or statute or to secure certain payments pursuant to any contract
or statute or to secure indebtedness incurred for the purpose of financing
all or any part of the purchase price or the cost of construction or
improvement of the property subject to such mortgages,
. any extension, renewal or replacement (or successive extensions, renewals
or replacements), in whole or in part, of any mortgage, pledge, lien or
encumbrance referred to above, inclusive, or
. any mortgage, pledge, lien, security interest, or encumbrance securing
indebtedness owing by IOS to one or more wholly owned Subsidiaries.
Notwithstanding the above, IOS may, without securing the debt securities,
create, assume or guarantee Secured Debt which would otherwise be subject to
the foregoing restrictions, provided that, after giving effect thereto, the
aggregate amount of all Secured Debt then outstanding (not including Secured
Debt permitted under the foregoing exceptions) at such time does not exceed 5%
of the Consolidated Net Tangible Assets.
Consolidation, Merger or Sale
We are generally permitted to consolidate or merge with another company or
firm. We are also permitted to sell substantially all of our assets to another
firm, or to buy substantially all of the assets of another firm. However, we
may not take any of these actions unless all of the following conditions are
met:
. In the event we merge out of existence or sell our assets, the other firm
may not be organized under a foreign country's laws (that is, it must be
a corporation, partnership or trust organized under the laws of a State
or the District of Columbia or under federal law) and it must agree to be
legally responsible for the Securities.
. It is possible that the merger, sale of assets or other transaction would
cause some of our property to become subject to a mortgage or other legal
mechanism giving lenders preferential rights in that property over other
lenders or over our general creditors if we fail to pay them back. We
have promised to limit these preferential rights on our property, called
"Secured Debt", as discussed previously under "Certain Restrictions--
Restrictions on Liens and Encumbrances". If a merger or other transaction
would create any Secured Debt on our property, we must comply with that
Restrictive Covenant. We would do this either by deciding that the
Secured Debt were permitted, or by following the requirements of the
Restrictive Covenant to provide equivalent or higher-ranking security on
the same property to you and the other direct Holders of the Securities.
Events of Default and Notice Thereof
The following are events of default under the indenture with respect to debt
securities of any series:
. failure to pay principal of or premium, if any, on any debt securities of
that series when due;
. failure to pay any interest on any debt securities of that series when
due, continued for 30 days;
. failure to deposit any sinking fund payment, when due, in respect of any
debt securities of that series;
. default in the performance, or breach, of any term or provision of the
covenant described under "Certain Restrictions--1996 Support Agreement";
. our failure to perform any other covenant in the indenture (other than a
covenant included in the indenture solely for the benefit of a series of
debt securities other than that series), continued for 60 days after
written notice given to IOS by the trustee or the holders of at least 10%
in the principal amount of the debt securities outstanding and affected
thereby;
. default in payment of principal in excess of $15,000,000 or acceleration
of any indebtedness for money borrowed in excess of $15,000,000 by IOS
(including a default with respect to debt securities of any series other
than that series), if such indebtedness has not been discharged or become
no longer due and payable or such acceleration has not been rescinded or
annulled, within 10 days after written notice given to IOS by the trustee
or the holders of at least 10% in principal amount of the outstanding
debt securities of such series;
9
. certain events in bankruptcy, insolvency or reorganization of IOS;
. certain events in bankruptcy, insolvency or reorganization of IKON or one
of its subsidiaries if such event affects any significant part of the
assets of IOS or any of its subsidiaries; and
. any other event of default provided with respect to debt securities of
such series.
If an event of default with respect to debt securities of any series at the
time outstanding shall occur and be continuing, either the trustee or the
holders of at least 25% in principal amount of the outstanding debt securities
of that series may declare the principal amount (or, if the debt securities of
that series are Original Issue Discount Securities (as defined in the
indenture), such portion of the principal amount as may be specified in the
terms of that series) of all debt securities to be due and payable immediately;
provided, however, that under certain circumstances the holders of a majority
in aggregate principal amount or outstanding debt securities of that series may
rescind and annul such declaration and its consequences.
Reference is made to the applicable prospectus supplement relating to any
series of debt securities which are Original Issue Discount Securities for the
particular provisions relating to the principal amount of such Original Issue
Discount Securities due upon acceleration upon the occurrence of an event of
default and the continuation thereof.
The indenture provides that the trustee, within 90 days after the occurrence
of a default with respect to any series of debt securities, shall give to the
holders of debt securities of that series notice of all uncured defaults known
to it (the term default to mean the events specified above without grace
periods), provided that, except in the case of default in the payment of
principal of (or premium, if any) or interest, if any, on any debt securities,
the trustee shall be protected in withholding such notice if it in good faith
determines that the withholding of such notice is in the interest of the
holders of debt securities.
We will be required to furnish to the trustee an annual statement by certain
officers of IOS to the effect that to the best of their knowledge we are not in
default in the fulfillment of any of our obligations under the indenture or, if
there has been a default in the fulfillment of any such obligation, specifying
each such default.
The holders of a majority in principal amount of the outstanding debt
securities of any series affected will have the right, subject to certain
limitations, to direct the time, method and place of conducting any proceeding
for any remedy available to the trustee, exercising any trust or power
conferred on the trustee with respect to the debt securities of such series,
and to waive certain defaults.
Under the indenture, record dates may be set for acts of the holders with
respect to events of default, declaring an acceleration, or rescission and
annulment thereof, the direction of the time, method and place of conducting
any proceeding for any remedy available to the trustee, exercising any trust or
power conferred on the trustee, or waiving any default.
The indenture provides that in determining whether the holders of the
requisite principal amount of the outstanding debt Securities have given any
request, demand, authorization, direction, notice, consent or waiver thereunder
. the principal amount of an Original Issue Discount Security that shall be
deemed to be outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
acceleration of the maturity thereof, and
. the principal amount of a debt security or debt securities denominated in
a foreign currency or a composite currency shall be the U.S. dollar
equivalent, determined on the basis of the rate of exchange on the
business day immediately preceding the date of original issuance of such
debt securities by IOS in good faith, of the principal amount of such
debt securities (or, in the case of an Original Issue Discount Security,
the U.S. dollar equivalent, determined based on the rate of exchange
prevailing on the business day immediately preceding the date of original
issuance of such debt securities, of the amount determined as provided
above).
10
The indenture provides that in case an event of default shall occur and be
continuing, the trustee shall exercise such of its rights and powers under the
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. Subject to such provisions, the trustee will be under no
obligation to exercise any of its rights or powers under the indenture at the
request of any of the holders of debt securities unless it is offered
reasonable security or indemnity against the costs, expenses and liabilities
that it might incur.
The covenants contained in the indenture and the debt securities would not
necessarily afford Holders of the debt securities protection in the event of a
highly leveraged or other transaction involving IOS that may adversely affect
Holders.
Modification of The Indenture
IOS and the trustee may modify the indenture with the consent of the holders
of not less than 66 2/3% in aggregate principal amount of each series of
Outstanding Securities issued under the indenture which are affected by the
modification or amendment. However, consent of each holder of such Outstanding
Securities affected is required for modifications which:
. change the stated maturity date of the principal of (or premium, if any)
or any installment of interest, if any, on any such Securities;
. reduce the principal amount of (or premium, if any) or the interest, if
any, on any such Securities or the principal amount due upon acceleration
of an Original Issue Discount Security;
. change the place or currency of payment of principal of (or premium, if
any) or interest, if any, on any such Securities;
. impair the right to institute suit for the enforcement of any such
payment on or with respect to any such Securities;
. reduce the above-stated percentage of holders of Securities necessary to
modify or amend the indenture; or
. modify the foregoing requirements or reduce the percentage of Outstanding
Securities necessary to waive compliance with certain provisions of the
indenture or for waiver of certain defaults. A record date may be set for
any Act of the holders with respect to consenting to any amendment.
Defeasance and Covenant Defeasance
We may elect either:
(a) to defease and be discharged from any and all obligations with respect
to the debt securities; or
(b) to be released from our obligations described above under "Certain
Restrictions" and below under "Events of Default" with respect to the
debt securities, only:
(1) upon the deposit with The Chase Manhattan Bank, in trust, of money
and/or U.S. Government Obligations, which through the payment of
interest and principal of the U.S. Government Obligations in
accordance with their terms will provide money in an amount
sufficient to pay any installment of principal and premium, if any
and interest on the debt securities on the stated maturity of the
payments in accordance with the terms of the indenture and the debt
securities;
(2) upon delivery to The Chase Manhattan Bank of an opinion of counsel
to the effect that the deposit and related defeasance or release
will not cause the holders of the debt securities to recognize
income, gain or loss for federal income tax purposes;
(3) at the time of defeasance or release no Event of Default will have
happened or be continuing or with respect to any such event
specified in Section 501(7) or (8) of the indenture at any time and
to the 90th day after the date of such defeasance or release; and
(4) certain other conditions are satisfied.
11
Book-Entry, Delivery and Form
Unless otherwise stated in any prospectus supplement:
The Depository Trust Company, New York, New York ("DTC") will act as
depositary. The debt securities of a series will be represented by one or more
global debt securities that will be deposited with, or on behalf of, DTC and
registered in the name of DTC's nominee.
When the global debt securities are issued, DTC or its nominee will credit
the accounts of persons holding interests in the global debt securities with
the respective principal or face amounts of the book-entry debt securities,
represented by the global debt securities. Ownership of beneficial interests in
the global debt securities will be limited to participants and to persons that
may hold interests through institutions, known as "participants," that have
accounts with DTC. Ownership of beneficial interests by participants in the
global debt securities will be shown on, and the transfer of that owners
interest will be effected only through, records maintained by DTC or its
nominee for the global debt securities. Ownership of beneficial interests in
the global debt securities by persons that hold through a participant will be
shown on and the transfer of that ownership interest within that participant
will be effected only through, records maintained by that participant.
The total amount of any principal and interest due on any global debt
security on any interest payment date or at maturity will be made available to
the trustee on that date. As soon as possible after that date, the trustee will
make the payments to DTC. Neither we, the trustee, the paying agent, our agent
nor the trustee's agent will have any responsibility or liability for any
aspect of DTC's records relating to or payments made on account of beneficial
ownership interests in the global debt securities or for maintaining,
supervising or reviewing any of DTC's records relating to the beneficial
ownership interests.
DTC has advised us that, upon receipt of any payment of principal or of
interest on the global debt securities, DTC will immediately credit, through
its book-entry registration and transfer system, the accounts of participants
with payments in amount proportionate to their respective beneficial interests
in the principal amount of the global debt securities as shown on DTC's
records. Payments by participants to owners of beneficial interests in the
global debt securities held through these participants will be governed by
standing instructions and customary practices, as is now the case with debt
securities held for customer accounts registered in "street name," and will be
the sole responsibility of these participants.
The global debt securities will be exchangeable for definitive debt
securities in registered form, bearing interest at the same rate, having the
same date of issuance, maturity and other terms and of differing nominations
aggregating a like amount, only if:
. DTC notifies us that it is unwilling or unable to continue as depositary
for the global debt securities or if at any time DTC ceases to be a
clearing agency registered under the Securities Exchange Act of 1934; or
. we in our sole discretion determine that the global debt securities will
be exchangeable for definitive debt securities in registered form.
If issued, the definitive debt securities will be registered in the names of
the owners of the beneficial interests in the global debt securities as
provided by DTC's relevant participants as identified by DTC. Except as
described in this paragraph, the global debt securities will not be
exchangeable, except for global debt securities of like denominations to be
registered in the name of DTC or its nominee.
So long as DTC or its nominee is the registered owner of the global debt
securities, DTC or its nominee, as the case may be, will be considered the sole
owner or holder of the global debt securities for the purposes of receiving
payment on the debt securities, receiving notices and for all other purposes
under the indenture and the debt securities. Except as provided above, owners
of beneficial interests in the global debt securities will not be entitled to
receive physical delivery of debt securities in definitive form and will not be
considered the holders of debt securities for any purpose under the indenture.
12
Accordingly, each person owning a beneficial interest in the global debt
securities must rely on DTC's procedures and, if that person is not a
participant, on the procedures of the participant through which that person
owns its interest, to exercise any rights of a holder under the indenture. The
laws of some jurisdictions require that some types of purchasers of debt
securities take physical delivery of the debt securities in definitive form.
The limits and laws described in this paragraph may impair the ability to
transfer beneficial interests in the global debt securities.
We understand that under existing industry practices, if we request any
action of holders or if an owner of a beneficial interest in a global debt
securities desires to give or take any action which a holder is entitled to
give or take under the indenture, DTC will authorize the participants holding
the relevant beneficial interests to give or take that action and the
participants will authorize beneficial owners owning through these participants
to give or take that action or will otherwise act upon the instructions of
beneficial owners owning through them.
DTC has advised us that it is:
. a limited-purpose trust company under the New York Banking Law;
. a "banking organization" within the meaning of the New York Banking Law;
. a member of the Federal Reserve System;
. a "clearing corporation" within the meaning of the New York Uniform
Commercial Code; and
. a "clearing agency" registered pursuant to the provisions of Section 17A
of the Securities Exchange Act of 1934.
DTC was created to hold securities of its participating organizations
("participants") and to facilitate the clearance and settlement of securities
transactions, such as transfers and pledges, among its participants in such
securities through electronic computerized book-entry changes in accounts of
the participants, thereby eliminating the need for physical movement of
securities certificates. Participants include securities brokers and dealers,
banks, trust companies, clearing corporations and certain other organizations,
some of whom (and/or their representatives) own DTC. Access to DTC's book-entry
system is also available to others, such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly. Persons who are not participants
may beneficially own securities held by DTC only through participants.
The Trustee and the Paying Agent
The indenture contains certain limitations on the right of the trustee, as a
creditor of IOS, to obtain payment of claims in certain cases, or to realize on
certain property received in respect of any such claim as security or
otherwise. In addition, the trustee may be deemed to have a conflicting
interest and may be required to resign as trustee if at the time of a default
under the indenture it is a creditor of IOS.
The Chase Manhattan Bank, the trustee under the indenture, maintains a
banking relationship with IOS and IKON.
Unless otherwise stated in the applicable prospectus supplement, The Chase
Manhattan Bank will act as paying agent for the debt securities.
Certain Definitions
As used in this prospectus:
The term "Secured Debt" means indebtedness for money borrowed which is
secured by a mortgage, pledge, lien, security interest or encumbrance on any
property of any character of IOS.
The term "Consolidated Net Tangible Assets" means as of any particular time
the aggregate amount of assets after deducting therefrom (a) all current
liabilities (excluding any such liability that by its terms is extendable or
renewable at the option of the obligor thereon to a time more than 12 months
after the time as of which the amount
13
thereof is being computed) and (b) all goodwill, excess of cost over assets
acquired, patents, copyrights, trademarks, trade names, unamortized debt
discount and expense and other like intangibles, all as shown in the most
recent consolidated financial statements of IOS and its Subsidiaries prepared
in accordance with generally accepted accounting principles.
The term "Subsidiary" with respect to any Person means, a corporation of
which more than 50% of the outstanding stock having ordinary voting power to
elect directors is owned directly or indirectly, by such Person or by one or
more other corporations more than 50% of such stock of which is similarly owned
or controlled.
The term "Holder" means a Person whose name a Security is registered in the
Security Register.
The term "Person" means any individual, corporation, partnership, joint
venture, trust, unincorporated organization or government or any agency or
political subdivision thereof.
The term "Security" means unsecured debentures, notes or other evidences of
indebtedness of IOS.
The term "Outstanding", when used with respect to Securities, means, as of
the date of determination, all Securities theretofore authenticated and
delivered under the indenture except in certain circumstances provided for in
the indenture.
PLAN OF DISTRIBUTION
We may sell debt securities to or through one or more underwriters or dealers
and also may sell debt securities to other investors directly or through
agents. Any such underwriter or agent involved in the offer and sale of the
debt securities will be named in the Prospectus Supplement. The underwriters or
agents may include one or more of Lehman Brothers Inc., Chase Securities Inc.,
Goldman, Sachs & Co., Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated or a group of underwriters represented by one or more of
such firms or may be one or more other firms.
Underwriters or agents may offer and sell the debt securities at a fixed
price or prices, which may be changed, or from time to time at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. In connection with the sale of the debt
securities, underwriters or agents may be deemed to have received compensation
from us in the form of underwriting discounts or commissions and may also
receive commissions from purchasers of the debt securities for whom they may
act as agent. Underwriters or agents may sell the debt securities to or through
dealers, and such dealers may receive compensation in the form of discounts,
concessions or commissions from the underwriters or commissions from the
purchasers for whom they may act as agent.
We do not expect to list the debt securities. The debt securities when first
issued will have no established trading market. Any underwriters or agents to
or through whom debt securities are sold by us for public offering and sale may
make a market in such debt securities, but such underwriters or agents will not
be obligated to do so and may discontinue any market making at any time without
notice. No assurance can be given as to the liquidity of the trading market for
any debt securities.
Any underwriters or agents participating in the distribution of the debt
securities may be deemed to be underwriters, and any discounts and commissions
received by them and any profit realized by them on resale of the debt
securities may be deemed to be underwriting discounts and commissions, under
the Securities Act of 1933. Underwriters or agents may be entitled, under
agreements entered into with us, to indemnification against or contribution
toward certain civil liabilities under the Securities Act of 1933.
During and after an offering, underwriters may purchase and sell the debt
securities in the open market. These transactions may include overallotment and
stabilizing transactions and purchases to cover syndicate short positions
created in connection with the offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the debt securities, and syndicate short positions
involve the
14
sale by the underwriters of a greater number of debt securities than they are
required to purchase from IOS in the offering. Underwriters also may impose a
penalty bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the debt securities sold in the offering for their
account may be reclaimed by the syndicate if such securities are repurchased by
the syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the debt
securities, which may be higher than the price that might otherwise prevail in
the open market.
Certain of the underwriters or agents and their associates may be customers
of, engage in transactions with and perform services for us in the ordinary
course of business.
LEGAL MATTERS
Unless otherwise indicated in the applicable prospectus supplement, the
validity of the debt securities will be passed upon for us by Don Liu, General
Counsel of IKON, and for any underwriters or agents by Sullivan & Cromwell, 125
Broad Street, New York, New York 10004. As of May 7, 2001, Mr. Liu beneficially
owned 264,880 shares of Common Stock of IKON, including 200,000 shares over
which he has the right to acquire beneficial ownership through the exercise of
stock options granted under IKON'S stock option plans. Sullivan & Cromwell from
time to time performs legal services for IKON.
EXPERTS
The consolidated financial statements incorporated in this prospectus by
reference to the Annual Report on Form 10-K for the year ended September 30,
2000, have been incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements of IOS Capital, Inc. at September 30,
1999, and for each of the two years in the period ended September 30, 1999,
incorporated herein by reference to the Annual Report on Form 10-K for the year
ended September 30, 2000, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon incorporated by reference
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
15
$
[LOGO of IOS CAPITAL(SM)]
% Notes due 20
--------------------------
Prospectus Supplement
Dated June , 2001
--------------------------
LEHMAN BROTHERS
[Lehman Brothers Backgroup Map]