424B3 1 y26718b3e424b3.htm FILED PURSUANT TO RULE 424(B)(3) 424B3
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(ICON LOGO)
 
Filed Pursuant to Rule 424(b)(3)
SEC File No. 333-138661
ICON LEASING FUND TWELVE, LLC
 
Up to 412,000 Shares of Limited Liability Company Interests
 
We are offering up to 400,000 shares of our limited liability company interests (the “Shares”) at a public offering price of $1,000.00 per Share, $920.00 per Share for Shares sold to our Manager, Selling Dealers or certain of their affiliates. We are also offering up to 12,000 Shares pursuant to our Distribution Reinvestment Plan (“DRIP Plan”) at a public offering price of $900.00 per Share. A minimum investment of 5 Shares ($5,000) or 4 Shares for IRAs and qualified plans ($4,000) is required. There is no minimum investment required to participate in our DRIP Plan for qualified participants.
 
Our manager is ICON Capital Corp. (the “Manager”) and we were formed as a Delaware limited liability company. We are an equipment leasing program and will primarily engage in the business of acquiring equipment subject to lease, purchasing equipment and leasing it to third-party end users and, to a lesser degree, acquiring ownership rights to items of leased equipment at lease expiration. We expect to invest at least 81.93% of the gross offering proceeds from the sale of Shares in the offering and to establish a reserve of 0.50%. The remaining 17.57% of the gross offering proceeds of the offering will pay fees and expenses related to our organization and the offering.
 
Investing in our Shares involves a high degree of risk. You should purchase our Shares only if you can afford a complete loss of your investment. See “Risk Factors” beginning on page 10, which include the following:
 
  •  All or a substantial portion of your distributions may be a return of capital and not a return on capital, which will not necessarily be indicative of our performance.
 
  •  Initially, we will be a blind pool because we have not yet identified any specific investments and all of the potential risks of an investment in our Shares cannot be assessed at this time.
 
  •  Your ability to resell your Shares may be limited by the absence of a public trading market and, therefore, you should be prepared to hold your Shares for the life of Fund Twelve, which is anticipated to be approximately 10 years.
 
  •  Uncertainties associated with the equipment leasing industry may have an adverse effect on our business and may adversely affect our ability to give you any economic return from our Shares or a complete return of your capital.
 
  •  You will have limited voting rights and will be required to rely on our Manager to make all of our management decisions and achieve our investment objectives.
 
  •  Our Manager will receive substantial fees from us, and those fees are likely to exceed the income portion of distributions made to you during our early years.
 
  •  Because we will borrow money to make our investments, losses as a result of lessee defaults may be greater than if such borrowings were not incurred.
 
  •  Our Manager’s decisions are subject to conflicts of interest.
 
Neither the Securities and Exchange Commission nor any State securities commission has approved or disapproved of these securities or determined that this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
The use of forecasts in this offering is prohibited. Any representations to the contrary and any predictions, written or oral, as to the amount or certainty of any present or future cash benefit or tax consequence which may flow from an investment in our Shares is not permitted.
 
                         
    Price
    Sales
    Proceeds to
 
Offering
  to Public     Commissions     Us  
 
Per Share
  $ 1,000     $ 100     $ 900  
Minimum Offering of 1,200 Shares
  $ 1,200,000     $ 120,000     $ 1,080,000  
Maximum Offering of 400,000 Shares
  $ 400,000,000     $ 40,000,000     $ 360,000,000  
DRIP Plan per Share
  $ 900     $     $ 900  
DRIP Plan of 12,000 Shares
  $ 10,800,000     $     $ 10,800,000  
 
ICON Securities Corp., which is an affiliate of our Manager, will act as the dealer-manager for this offering of Shares. Broker-dealers selling our Shares are not required to sell any specific number of our Shares, but will use their best efforts to sell our Shares. None of our Shares will be sold unless a minimum of $1,200,000 is received within one year from the start of the offering. We will deposit subscriptions in a bank escrow account until $1,200,000 is received. If the minimum offering is not achieved, the escrow agent will send a refund of your investment with any interest earned thereon and without deduction for escrow expenses. Investors (other than Pennsylvania investors) who invest prior to the minimum offering size being achieved will receive, upon admission into Fund Twelve, a one-time distribution equal to the initial distribution rate, as determined by us, for each day their funds were held in escrow but without any interest on their escrow funds. The last date on which our Shares may be sold is May 7, 2009. There is currently no public market for our Shares, and we do not expect one to develop. Our Shares will not be listed on any national securities exchange.
 
Notice to Pennsylvania investors: Because the minimum amount of this offering is less than $20,000,000 (a maximum to minimum offering ratio of 20:1), you are cautioned to carefully evaluate our ability to fully accomplish our stated objectives and to inquire as to the current dollar volume of investments.
 
ICON SECURITIES CORP.
Dealer-Manager
 
The date of this prospectus is May 7, 2007.


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WHO SHOULD INVEST
 
Considerations
 
Our Shares are an illiquid asset. There is currently no public market for our Shares, and we do not expect one to develop. Our Shares will not be listed on any national securities exchange. Therefore, you should purchase our Shares only if you have adequate financial means, do not need liquidity and are able to make a long-term investment of up to 10 years. Our Shares are not an appropriate investment if you must rely on our cash distributions as an essential source of income to meet your necessary living expenses or if you are seeking to shelter other sources of income from taxation.
 
Investment in our Shares involves substantial risks. You should carefully consider the information in the “Risk Factors” section and all other information included in this prospectus before investing in our Shares, including the lack of a public market in which to sell our Shares, the limited availability of repurchase, the unfavorable formula by which the repurchase price will be calculated and the resulting long-term nature of an investment in our Shares. See “Risk Factors.”
 
You must meet the suitability requirements described below to invest in our Shares. Our Manager and the Selling Dealer have a duty to make reasonable efforts to determine that an investment in our Shares is suitable for you. To verify that you meet such standards, we will rely upon your representations as to suitability on the Subscription Agreement. When evaluating your suitability for this investment using the standards listed below, keep in mind that net worth does not include the value of your home furnishings, personal automobiles or your home. The assets included in your net worth calculation must be valued at their fair market value.
 
You must meet our basic suitability requirements to invest. In general, you must have either:
 
(1) a net worth of at least $60,000 plus $60,000 of annual gross income; or
 
(2) a net worth of at least $225,000.
 
If you are a resident of Arizona, Iowa, Kentucky, Massachusetts, Michigan, Missouri, Nebraska, Ohio or Pennsylvania, your investment may not exceed 10% of your net worth. If you are a resident of New Hampshire, you must have either (a) a net worth of at least $250,000 or (b) a net worth of at least $125,000 and an annual gross income of at least $50,000 in order to invest. If you are a resident of Iowa, Kansas, Kentucky or Ohio you must have either (a) a net worth of at least $250,000 or (b) a net worth of at least $70,000 and an annual gross income of at least $70,000 in order to invest. If you are a resident of Alaska, you must have either (a) a net worth of at least $150,000, or (b) a net worth of $65,000 and an annual gross income of at least $65,000 in order to invest.
 
It is recommended by the Office of the Kansas Securities Commissioner that Kansas investors not invest, in the aggregate, more than 10% of their liquid net worth in this and similar direct participation investments. Liquid net worth is defined as that portion of net worth which consists of cash, cash equivalents and readily marketable securities.
 
In addition, you must be either a U.S. citizen with a resident address in the United States or Puerto Rico (individuals only) or a resident alien residing in the United States in order to purchase our Shares. If, in the case of an individual, such investor is no longer a U.S. citizen, resident of the United States or Puerto Rico (individuals only), or a resident alien or if an investor otherwise is or becomes a foreign partner for purposes of Section 1446 of the Internal Revenue Code of 1986 (the “Code”) at any time during the life of Fund Twelve, we have the right, but not the obligation, to repurchase all of such investor’s Shares subject to the conditions set forth in Section 10.6 of our LLC Agreement.
 
It may be important for you to consider that, if you are unsure as to whether you meet these standards (or only meet them by a small margin), an investment in our Shares may not be prudent for you.


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Suitability Standard for Qualified Plans and IRAs
 
An IRA can purchase our Shares if the IRA owner meets both the basic suitability standard and any standard applicable in the owner’s State of residence. Pension, profit-sharing or stock bonus plans, including Keogh Plans, that meet the requirements of Section 401 of the Internal Revenue Code are called qualified plans in this prospectus. Qualified plans that are self-directed may purchase our Shares if the plan participant meets both the basic suitability standard and any standard applicable in the participant’s State of residence. Qualified plans that are not self-directed may purchase our Shares if the plan itself meets both the basic suitability standard and any relevant State standard.
 
Suitability Standard for Other Fiduciaries
 
When our Shares are purchased for fiduciary accounts other than IRAs and qualified plans, such as a trust, both the basic suitability standard and any applicable State suitability standard must be met by either the fiduciary account itself, or by the beneficiary on whose behalf the fiduciary is acting. If you are both the fiduciary and the person who directly or indirectly supplies the funds for the purchase of our Shares, then you may purchase our Shares for the fiduciary account if you meet both the basic suitability standard and any applicable State standard.
 
Additional Considerations for IRAs, Qualified Plans and Tax-Exempt Organizations
 
An investment in our Shares will not, in and of itself, create an IRA or qualified plan. To form an IRA or qualified plan, an investor must comply with all applicable provisions of the Code and the Employee Retirement Income Security Act of 1974 (“ERISA”). IRAs, qualified plans and tax-exempt organizations should consider the following when deciding whether to invest:
 
  •  any income or gain realized will be unrelated business taxable income (“UBTI”), which is subject to the unrelated business income tax;
 
  •  for qualified plans and IRAs, ownership of our Shares may cause a pro rata share of our assets to be considered plan assets for the purposes of ERISA and the excise taxes imposed by the Code;
 
  •  any entity that is exempt from federal income taxation will be unable to take full advantage of any tax benefits generated by us; and
 
  •  charitable remainder trusts that have any UBTI will be subject to an excise tax equal to 100% of such UBTI.
 
See “Risk Factors,” “Federal Income Tax Consequences — Taxation of Tax-Exempt Organizations” and “Investment by Qualified Plans and IRAs.”
 
If you are a fiduciary or investment manager of a qualified plan or IRA, or if you are a fiduciary of another tax-exempt organization, you should consider all risks and investment concerns, including those unrelated to tax considerations, in deciding whether this investment is appropriate and economically advantageous for your plan or organization. See “Risk Factors,” “Federal Income Tax Consequences” and “Investment by Qualified Plans and IRAs.”
 
Although we believe that our Shares may represent suitable investments for some IRAs, qualified plans and tax-exempt organizations, our Shares may not be suitable for your plan or organization due to the particular tax rules that apply to it. Furthermore, the investor suitability standards represent minimum requirements, and the fact that your plan or organization satisfies them does not mean that an investment would be suitable. You should consult your plan’s tax and financial advisors to determine whether this investment would be advantageous for your particular situation.


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Suitability Requirements in Connection with Transfers of Shares
 
Our Shares are subject to substantial transfer restrictions and may be transferred only under certain circumstances and then subject to certain conditions. See “Transfer of Our Shares/Withdrawal — Restrictions on the Transfer of Our Shares and Withdrawal.” One condition is that you may sell or transfer our Shares only to a recipient who meets all applicable suitability standards. If the transfer is effected through a member firm of the NASD, the member firm must be satisfied that a proposed buyer meets suitability standards for this investment. The NASD conduct rules also require the member firm to inform the proposed buyer of all pertinent facts relating to the liquidity and marketability of our Shares.


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QUESTIONS AND ANSWERS ABOUT THIS OFFERING
 
Q. What is ICON Leasing Fund Twelve, LLC?
 
A. We are an equipment leasing program. In an equipment leasing program, the capital you invest is pooled with the capital contributed by other investors. This pool of cash is then used to make investments, to pay fees and expenses and to establish a small reserve. An equipment leasing program will invest the majority of the cash it receives in items of equipment that are leased to third parties. The party that owns the equipment is commonly referred to as the owner or lessor, and the other party that uses the equipment and pays rent for its use for a specific period of time is known as the user or lessee. When the lease expires, the lessee typically purchases the equipment, extends the lease or returns the equipment to the lessor. An equipment leasing program anticipates receiving cash from both rental payments made by lessees and the sale of the equipment upon the expiration of the lease.
 
Q. What does ICON Leasing Fund Twelve, LLC do?
 
A. As is typical of equipment leasing programs, we will be a lessor of leased equipment. We will use a substantial portion of the offering proceeds to acquire equipment subject to lease, purchase equipment and lease it to third-party end users and, to a lesser degree, acquire ownership rights to items of leased equipment at lease expiration. Although the makeup of our potential leased equipment portfolio cannot be determined in advance, in other equipment leasing programs that our Manager has managed, such programs have invested in marine vessels, commercial aircraft, information technology equipment, railcars, power plants, production facilities, store fixtures and many other types of equipment. We are not able to determine who will be the future lessees of our equipment, but in our Manager’s other recent equipment leasing programs, the lessees were often Fortune 500 companies, large foreign businesses and other creditworthy businesses.
 
Q. How will our Manager select potential equipment for acquisition?
 
A. Our Manager will seek to acquire equipment subject to lease that it believes will provide us with a satisfactory rate of return. In general, the return of and return on an investment in an equipment lease, if any, is derived from (a) the receipt of periodic rental payments due under the lease, plus (b) the receipt of the proceeds of any sale or re-lease of such equipment after the end of the initial lease term.
 
With respect to (a) above, we seek to acquire equipment subject to lease with lessees that we believe to be creditworthy based on the company’s business and financial position. In our opinion, this increases the probability that all of the scheduled rental payments will be paid when due. In the case of “growth” leases (leases where a substantial portion of the cash flow and potentially a portion of the residual value has been pledged to a lender and the value will be realized upon sale or re-lease), the rental income received in cash will be less than the purchase price of the equipment. In the case of “income” type leases (leases where there is current cash flow through the term of the lease but the value at the end of the term will be minimal), the rentals due under the lease are often, in the aggregate, enough to provide a return of and a return on the purchase price of the equipment.
 
With respect to (b) above, we seek to acquire equipment subject to lease that will generate enough proceeds from either sale or re-lease that, when combined with rental payments received in cash, will provide a satisfactory rate of return. In the case of an income lease, the substantial rental payments due under the lease may limit the importance that the underlying equipment has residual value. Income leases may therefore include types of equipment not expected to have substantial future value as a consequence of technological change, wear and tear or planned obsolescence. In the case of a growth type lease, we seek to acquire items of equipment that decline in value at a slow rate by virtue of their long economic life. With respect to growth leases, the goal is to acquire the equipment with a portion of non-recourse indebtedness and utilize some or all of the lease rental payments to reduce such debt. In this manner, in our experience, the residual value may provide a return of and a return on the purchase price of the equipment even if all rental payments received during the initial term were paid to a lender.


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Q. What will be the terms of our leases?
 
A. We expect our leases to meet economic and legal standards that our Manager has derived from its experience in the equipment leasing business. In general, we expect that the leases will be enforceable contracts that create non-cancelable obligations of the lessee with respect to the timely payment of rent, proper maintenance of equipment, and the return thereof in a specified condition. Often such leases will create rights for us in the event of a failure of the lessee to perform and/or payment obligations of the lessee over and above the rental obligation to cure such a failure.
 
Leases often create certain non-cancelable obligations on the part of the lessor as well. For example, leases often provide the lessee with the right to “quiet enjoyment,” in which the lessor will not interfere with the lessee’s proper use of the equipment if the lessee has complied with its obligations under the lease.
 
Q. What can you expect to happen after you make an investment in our Shares?
 
A. We have three phases of different lengths. It is very important to be aware of how we will operate during these three phases so you can evaluate this investment opportunity and have appropriate expectations.
 
We call the period when we are raising money from investors the offering period. This period will not exceed two years. The more quickly we raise money, the shorter the offering period will be. After we have raised $1,200,000, we will begin investing the offering proceeds. This investment will continue until all offering proceeds have been spent on investments, fees and expenses, and the establishment of a small reserve.
 
Upon the completion of the offering period, the operating period begins. Unless extended, it will last for five years. No new investors are admitted during this period. The operating period is when we expect to spend operating proceeds on additional investments to the extent that cash is available after distributions are made and expenses are paid.
 
In both the offering and operating periods, we plan to make monthly distributions of cash to investors. Cash is expected to be distributed in the early part of each month, commencing shortly after you make an investment and once we have raised $1,200,000. Cash distributions are expected to continue each month for the entire offering and operating periods. However, the amount and rate of cash distributions could vary and is not guaranteed.
 
Upon the completion of the operating period, the liquidation period begins. The liquidation period is likely to last for several years. It is during the liquidation period that we gradually dispose of our assets. If equipment is still on lease at the start of the liquidation period, it will typically be sold when the lease expires rather than re-leased to third parties, if market conditions permit. If our Manager believes that it would be in the best interests of our investors to reinvest the proceeds received from our investments in additional investments during the liquidation period, we may do so, but our Manager will not receive any fees in connection with such investments.
 
Q. How do our planned cash distributions compare to fixed income investments?
 
A. You should carefully review the Risk Factors section of this prospectus to see how an investment in our Shares differs from more conservative alternatives. Among other things, you are not guaranteed a return of or a return on your investment in our Shares. The amount of distributions made to you during the offering and operating periods may vary depending on the performance of our investments. The amount of distributions made to you during these periods will be determined by our Manager and at least initially will not be based on any operations or income from our leases. Such distributions are expected to be a return of capital. Distributions made to you during the liquidation period will be irregular and there is no guarantee that, when combined with prior distributions, they will add up to more than 100% of your investment. The possibility that the internal rate of return from our Shares may be more or less than the initial distribution rate, as determined by our Manager in its sole discretion, is an important difference between an investment in our Shares and fixed income alternatives. Understanding the opportunities and risks of our Shares prior to investing is very important, and you should not invest if you believe that you do not understand the opportunities and risks related to an investment in our Shares.


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Q. How does an investment in an equipment lease compare to an investment in another class of asset, such as real estate?
 
A. Equipment leases create rental income for a leasing company as does an investment in real estate. It is not possible to compare the likelihood of an equipment lease providing a satisfactory return to the likelihood of an investment in real estate providing the same. In general, the economic life of equipment will be shorter than the economic life of most real estate investments. As a result, equipment lease rentals include a return on investment for the leasing company as well as a return of investment representing the portion of equipment life that was used up during the equipment lease term. Therefore, an investment in an equipment lease can be expected to have very high rental payments but a lower residual value compared to real estate.
 
Q. Are there tax considerations of this investment of which you need to be aware?
 
A. The material federal tax consequences of an investment in our Shares are described beginning on page 53. You should consult your tax advisor if you have questions about the appropriateness of this investment for your own tax situation.
 
Investing in equipment ordinarily has the following federal tax characteristics. We will generate taxable income from rents received and equipment sales. A substantial part of this income may be offset by deductions for depreciation, interest and other expenses. The result may be that, in the offering period and early years of the operating period, you will receive cash distributions that are not fully subject to income tax. Distributions not fully subject to income tax during the offering period and early years of the operating period are likely to be comprised mainly of a return of capital. You will receive a Form K-1 early each year, which tells you what share of our income you will need to include on your individual tax return.
 
This is not an appropriate investment if you are seeking to shelter other sources of income from taxation, although in some instances passive losses from this investment may offset passive income. Based upon our Manager’s experience managing other equipment leasing programs, in the early years you will receive distributions, but may pay current income tax on only a portion of those distributions. By the time we are liquidated, the total tax you pay in the aggregate may likely be consistent with the tax you would pay with respect to other taxable investments. The benefit of paying taxes later instead of currently is commonly referred to as “tax deferral.” We use the term “tax deferral” to mean that, in the early years of the investment, only a small portion of the cash distributed to you will be considered a return on investment. To the extent in later years the portion considered a return on investment grows, it will be taxable at that time. This is not the same as a tax deferral commonly associated with qualified plans or IRAs where even the portion of your portfolio performance considered a return on investment is not taxable when distributed to the qualified plan or IRA and such earnings remain untaxed until withdrawn. An investment in our Shares should not be made solely because of the potential for tax deferral. In addition, in some cases other taxes may offset the deferral benefit. Again, see the tax discussion beginning on page 53, including the discussion of UBTI on page 72, which may apply if you invest in us through a qualified plan or IRA.
 
Q. Can you have your distributions redirected elsewhere each month?
 
A. Investors can specify a number of different accounts to which their distributions will be deposited. You also have the opportunity to participate in our DRIP Plan, which provides that all of the distributions you receive during the offering period are invested in additional Shares. See “Subscriptions” and “Distribution Reinvestment Plan.”


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Q. What ability will you have to sell your investment in our Shares?
 
A. An investment in our Shares is an illiquid investment, and your ability to sell our Shares will be extremely limited. You should only invest money that you can afford to have tied up for at least 10 years, net of distributions that are expected to be made to you during those years. Our Shares will not be listed on any national securities exchange at any time and we will take steps to assure that no public trading market develops for our Shares. We have a share repurchase plan that, after you have held our Shares for one year, allows you to request that we purchase your investment in our Shares from time to time, which plan is more fully described on page 86. You should assume that the financial result of a repurchase or sale, consisting of repurchase proceeds and distributions you received prior to repurchase, may be for less than your original investment.


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PROSPECTUS SUMMARY
 
The following summary highlights information contained elsewhere in this prospectus. It does not contain all of the information that you may consider important in making your investment decision and is qualified in its entirety by the more detailed information and consolidated financial statements included elsewhere in this prospectus. Therefore, you should read the entire prospectus, including the section entitled “Risk Factors,” carefully before making an investment decision.
 
In this prospectus, “we,” “us,” “our” and “Fund Twelve” refer to ICON Leasing Fund Twelve, LLC. References to our “Manager” refer to ICON Capital Corp., the manager of Fund Twelve.
 
Our Company
 
We are a newly formed Delaware limited liability company. We will operate as an equipment leasing program in which the capital you invest is pooled with capital contributed by other investors. This pool of cash is then used to make investments, pay fees and establish a small reserve. Because we have not yet identified any specific investments to purchase, we are considered to be a “blind pool.” We will primarily acquire equipment subject to lease, purchase equipment and lease it to third-party end users and, to a lesser degree, acquire ownership rights to items of leased equipment at lease expiration. Some of our equipment leases will be acquired for cash and will be expected to provide current cash flow, which we refer to as “income” leases. For the other equipment leases, we will finance the majority of the purchase price. We refer to these leases as “growth” leases. These growth leases will generate little or no current cash flow because substantially all of the rental payments received from a lessee will service the indebtedness associated with acquiring or financing the lease. We anticipate that the future value of the leased equipment will exceed our cash portion of the purchase price.
 
Life of the Fund
 
We divide the life of the fund into three distinct phases:
 
  (1)  Offering Period:  We expect to invest most of the net proceeds from this offering in items of equipment that will be subject to a lease. We anticipate the offering of our Shares will close no later than two years from the date of this prospectus.
 
  (2)  Operating Period:  After the close of the offering period, we expect to continue to reinvest the cash generated from our initial investments to the extent that cash is not needed for our expenses, reserves and distributions to members. We anticipate that the operating period will extend until five years from the date we complete this offering. However, our Manager may, at its discretion, extend the operating period for up to an additional three years.
 
  (3)  Liquidation Period:  After the operating period, we will then sell our assets in the ordinary course of business. If our Manager believes it would benefit our members to reinvest the proceeds received from our investments in additional investments during the liquidation period, we may do so, but our Manager will not receive any additional acquisition fees in connection with such reinvestments. Our goal is to complete the liquidation period in three years after the end of the operating period, but it may take longer to do so. Accordingly, you should expect to hold your Shares for at least 10 years from the time you invest.
 
Investment Objectives
 
We have four investment objectives:
 
  (1)  Invest in Leased Equipment:  to invest at favorable prices in equipment and other property subject to leases with creditworthy lessees.


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  (2)  Make Cash Distributions:  to make monthly cash distributions, beginning the month after the first investor is admitted as a member.
 
  (3)  Diversify to Reduce Risk:  to select individual investments that, when evaluated as a group, represent a diversified portfolio of equipment and other property subject to leases. We intend to emphasize investments in long-lived, low-obsolescence equipment to reduce the impact of economic depreciation and, to a lesser degree, emphasize investments where high rental rates compensate us for the expected economic depreciation of the underlying equipment. We believe that a diverse portfolio comprised of various types of equipment, a range of maturity dates and creditworthy lessees makes it less likely that changes in any one market sector or a lessee’s default or bankruptcy will significantly impact us.
 
  (4)  Provide a Favorable Total Return:  to achieve “payout,” which is the time when the aggregate amount of cash distributions we pay to our investors equals the sum of the members’ aggregate capital contributions, plus an 8.0% cumulative annual return on their aggregate unreturned capital contributions, compounded daily.
 
Summary of Risk Factors
 
Investing in our Shares involves a high degree of risk. Accordingly, you should read the entire prospectus, including the section entitled “Risk Factors” and the summary below, before making an investment decision.
 
  •  All or a substantial portion of your distributions may be a return of capital and not a return on capital, which will not necessarily be indicative of our performance.
 
  •  Initially, we will be a blind pool because we have not yet identified any specific investments and all of the potential risks of an investment in our Shares cannot be assessed at this time.
 
  •  Your ability to resell your Shares may be limited by the absence of a public trading market and, therefore, you should be prepared to hold your Shares for the life of Fund Twelve, which is anticipated to be approximately 10 years.
 
  •  Uncertainties associated with the equipment leasing industry may have an adverse effect on our business and may adversely affect our ability to give you any economic return from our Shares or a complete return of your capital.
 
  •  You will have limited voting rights and will be required to rely on our Manager to make all of our management decisions and achieve our investment objectives.
 
  •  Our Manager will receive substantial fees from us, and those fees are likely to exceed the income portion of distributions made to you during our early years.
 
  •  Because we will borrow money to make our investments, losses as a result of lessee defaults may be greater than if such borrowings were not incurred.
 
  •  Our Manager’s decisions are subject to conflicts of interest.
 
Industry Overview
 
We believe that domestic equipment leasing volume is correlated to overall business investments in equipment. According to information published by the Equipment Leasing and Finance Association (“ELFA”), a leasing industry trade association, total domestic business investment in equipment increased annually from $375.5 billion in 1991 to a peak of $796.0 billion in 2000. Similarly, during the same period, total domestic equipment leasing volume increased annually from $120.2 billion in 1991 to a peak of $247.0 billion in 2000. The economy in the United States experienced a downturn from 2001 through 2003, resulting in a decrease in equipment leasing volume from $216.0 billion in 2001 to $182.0 billion in 2003. Since then, the economy in the United States, including business investments in equipment and equipment leasing volume, has been recovering. According to the ELFA, in 2006, domestic business investment in equipment is forecasted to


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rebound to an estimated $794.0 billion with a corresponding increase in equipment leasing volume to an estimated $220.0 billion.
 
We believe that as the economy builds momentum, the demand for productive equipment generally builds, and equipment lease financing volume generally increases, because equipment leasing allows companies to:
 
  (1)  Conserve cash and borrowing capacity.  Leasing permits companies to finance 100% of the purchase price of equipment and allows them to conserve cash and borrowing capacity for other purposes (such as research and development) while still having the use of business essential equipment.
 
  (2)  Deduct lease payments for tax purposes as a business expense.  When a company borrows money to finance equipment purchases, only the interest portion of the loan is typically tax deductible.
 
  (3)  Maximize flexibility.  A lease can allow a business to upgrade its equipment more easily and quickly than owning, enabling the company to stay on the cutting edge of technology. Alternatively, businesses retain operating flexibility in leasing, which is valuable if their long-term demand for the particular equipment is unknown.
 
  (4)  Receive favorable accounting treatment.  Acquiring equipment with borrowed funds requires companies to carry debt on their financial statements, which may conflict with the goals of the business or financial ratio restrictions placed on such companies by lenders. If the lease obligation is accounted for as an “off-balance sheet” transaction in the financial statements, companies may have greater flexibility with respect to meeting lender restrictions and achieving their business objectives.
 
Our Manager
 
ICON Capital Corp. was formed in 1985. In addition to the primary services related to our acquisition and disposition of equipment, our Manager will provide services relating to the day-to-day management of our equipment. These services include:
 
  •  collecting payments due from the lessees;
 
  •  remarketing equipment that is off-lease;
 
  •  inspecting equipment;
 
  •  serving as a liaison with lessees;
 
  •  supervising equipment maintenance; and
 
  •  monitoring performance by lessees of their obligations, including payment of rent and all operating expenses.
 
Our Manager’s current executive management team, led by Thomas W. Martin, our Chairman and Chief Executive Officer, Michael A. Reisner, Executive Vice President and Chief Financial Officer and Mark Gatto, Executive Vice President and Chief Acquisitions Officer, has worked together since 2001. They have extensive equipment leasing experience, with over 35 years in selecting, acquiring, leasing, financing, managing and remarketing (re-leasing and selling) equipment. Mr. Martin would be considered our “promoter.” For more information regarding each of Messrs. Martin, Reisner and Gatto, see “Management.”
 
We believe our Manager is one of the leading sponsors of registered direct investment programs and is the leading sponsor of equipment leasing programs. According to the Monitor, Inc. (“Monitor”), our Manager is the fifth largest independent equipment leasing company in the United States. To date, our Manager has sponsored equipment leasing programs that have raised approximately $1.0 billion in equity from more than 30,000 investors. In addition, our Manager has had the sole management responsibility for almost $2 billion invested by equipment leasing programs sponsored by it since its inception. See “Management” and “Other Programs Sponsored by Our Manager” for more information.


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As of December 31, 2006, our Manager sponsors and manages six other public equipment leasing programs. Our Manager is also the sole shareholder of ICON Securities Corp., the dealer-manager of this offering. The following diagram shows our Manager’s relationship to some of our affiliates.
 
 
Investor Suitability
 
You must meet our basic suitability requirements to invest in our Shares. In general, you must either have:
 
(1) a net worth of at least $60,000 plus $60,000 of annual gross income; or
 
(2) a net worth of at least $225,000.
 
In addition, you must be either a U.S. citizen with a resident address in the United States or Puerto Rico (individuals only) or a resident alien residing in the United States in order to purchase our Shares. If, in the case of an individual, such investor is no longer a U.S. citizen, resident of the United States or Puerto Rico (individuals only), or a resident alien or if an investor otherwise is or becomes a foreign partner for purposes of Section 1446 of the Code at any time during the life of Fund Twelve, we have the right, but not the obligation, to repurchase all of such investor’s Shares subject to the conditions set forth in Section 10.6 of our LLC Agreement.
 
Certain State Requirements:  If you are a resident of Arizona, Iowa, Kentucky, Massachusetts, Michigan, Missouri, Nebraska, Ohio or Pennsylvania, your investment may not exceed 10% of your net worth. If you are a resident of New Hampshire, you must have (a) a net worth of at least $250,000 or (b) a net worth of at least $125,000, and an annual gross income of at least $50,000 in order to invest. If you are a resident of Iowa, Kansas, Kentucky or Ohio, you must have either (a) a net worth of at least $250,000 or (b) a net worth of at least $70,000 and an annual gross income of at least $70,000 in order to invest. If you are a resident of Alaska, you must have either (a) a net worth of at least $150,000, or (b) a net worth of $65,000 and an annual gross income of at least $65,000 in order to invest.
 
It is recommended by the Office of the Kansas Securities Commissioner that Kansas investors not invest, in the aggregate, more than 10% of their liquid net worth in this and similar direct participation investments. Liquid net worth is defined as that portion of net worth which consists of cash, cash equivalents and readily marketable securities.
 
Who Should Invest:  You should only invest if you:
 
  •  are prepared to hold this investment for at least 10 years;
 
  •  have no need for this investment to be liquid except for cash that you may receive from monthly distributions; and


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  •  are prepared to assume the risks associated with this investment. See the section of this prospectus entitled “Who Should Invest” and “Subscriptions,” and the Subscription Agreement, for a more detailed explanation of these requirements.
 
Minimum Investment:  The minimum number of Shares you must purchase is five. For IRAs and qualified plans, you must purchase at least four Shares.
 
Additional Information
 
Our Manager’s principal executive offices are located at 100 Fifth Avenue, Fourth Floor, New York, New York 10011 and its telephone number is (212) 418-4700. Our Manager’s website address is http://www.iconcapital.com. The information contained on our Manager’s website is not part of this prospectus. For more information about our Manager, see “Management,” “Other Programs Sponsored by Our Manager” and “Conflicts of Interest.”


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The Offering
 
 
The information provided below, unless otherwise indicated, does not include any Shares to be sold pursuant to our DRIP Plan.
 
Offering A minimum of 1,200 Shares and a maximum of up to 400,000 Shares.
 
Offering Share Price $1,000.00 per Share; $920.00 per Share for Shares sold to our Manager, Selling Dealers or certain of their affiliates; $900.00 per Share pursuant to our DRIP Plan.
 
Escrow(1) We will deposit and hold your investment in an interest-bearing escrow account at a national bank until:
 
• the minimum offering size of $1,200,000 has been achieved; or
 
• one year after the offering begins, whichever comes first.
 
While your investment is held in escrow, your money will be invested in savings or money-market accounts bearing interest at prevailing rates. This will occur from the time the investment is deposited with the escrow agent until:
 
• you are admitted as a member; or
 
• one year from the time the offering period began, whichever comes first.
 
Investors (other than Pennsylvania investors) who invest prior to the minimum offering size being achieved will receive, upon admission into Fund Twelve, a one-time distribution equal to the initial distribution rate, as determined by us, for each day their funds were held in escrow but without any interest on their escrow funds.
 
Estimated Use of Proceeds Assuming only the minimum number of our Shares (1,200) in the offering is sold, we expect we will:
 
• invest at least 80.0% of the gross offering proceeds we receive from investors in equipment;
 
• retain 0.50% of the gross offering proceeds in a reserve; and
 
• use the remaining 19.50% of the gross offering proceeds to pay fees and expenses relating to our organization and the offering.
 
Assuming the maximum number of our Shares (400,000) in the offering is sold, we expect we will:
 
• invest at least 81.93% of the gross offering proceeds we receive from investors in equipment;
 
• retain 0.50% of the gross offering proceeds in a reserve; and
 
• use the remaining 17.57% of the gross offering proceeds to pay fees and expenses relating to our organization and the offering.
 
See “Estimated Use of Proceeds” for more information.


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Compensation of our Manager and Certain Non-Affiliates Our Manager, its affiliates, including ICON Securities Corp., and certain non-affiliates (namely, Selling Dealers) will receive fees and compensation from the offering of our Shares, including the following, which we believe are the most significant items of compensation:
 
• Sales Commission:  We will pay up to 8.0% of the gross offering proceeds to unaffiliated broker-dealers.
 
• Underwriting Fees:  We will pay 2.0% of the gross offering proceeds to ICON Securities Corp., an affiliate of our Manager.
 
• O&O Expense Allowance:  We will pay our Manager up to 1.44% of the gross offering proceeds (assuming all 400,000 of our Shares are sold in the offering) for fees and expenses relating to our organization and the offering.
 
• Acquisition Fees:  We will pay our Manager Acquisition Fees of 3.0% of the purchase price we pay for each item of equipment or direct or indirect interest in equipment we acquire.
 
• Management Fees:  We will pay our Manager Management Fees of between 2.0% and 7.0% of the gross rental payments from our leases.
 
• Distributions:  We will initially pay our Manager 1.0% from the cash distributions paid from our operations and sales, subject to adjustment based on us achieving a targeted return.
 
• Re-Leasing Fees:  We may pay our Manager Re-Leasing Fees of 2.0% of the gross rental payments from the re-leasing of our equipment portfolio, up to a maximum of 7% when combined with the Management Fees.
 
• Re-Sale Fees:  We may pay our Manager Re-Sale Fees of up to 3.0% of the purchase price we pay for each item of equipment or direct or indirect interest in equipment acquired from us.
 
See “Compensation of our Manager and Certain Non-Affiliates” for more information about the fees we will pay our Manager, its affiliates and certain non-affiliates.
 
Conflicts of Interest We will be subject to conflicts of interest because of our relationship to our Manager. These conflicts may include:
 
• the lack of arm’s-length negotiations in determining our Manager’s compensation;
 
• the substantial fees our Manager and its affiliates will earn for the management of our business;
 
• competition with other equipment leasing programs that our Manager sponsors for the acquisition, lease or sale of equipment;
 
• competition for management services with other leasing programs that our Manager or its affiliates sponsor; and


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• our Manager’s decisions regarding whether to borrow to purchase equipment and when to sell equipment, since it may receive additional fees as a result of these decisions.
 
Management Responsibility Our Manager will act with integrity, in good faith and exercise its best business judgment in conducting our business. However, we will indemnify our Manager for many of its acts on our behalf, and our Manager will be permitted to take actions that may involve a conflict of interest between us and the other programs it sponsors.
 
Federal Income Tax Consequences This prospectus contains a discussion of the material federal income tax issues pertinent to you, including whether we will be taxed as a partnership or as a corporation. We have obtained an opinion from our counsel concerning our classification for federal income tax purposes as a partnership. See “Federal Income Tax Consequences” for more information.
 
LLC Agreement The relationship between you and our Manager is governed by our LLC Agreement. You should be particularly aware that under our LLC Agreement:
 
• you will have limited voting rights;
 
• our Shares will not be freely transferable; and
 
• the fiduciary duty of our Manager has been modified because of its sponsorship of other similar equipment leasing programs.
 
Distribution Reinvestment Plan You may elect to have all of the cash distributions that you receive from us reinvested into our additional Shares at a purchase price of $900.00 per Share, which represents the public offering price minus the Sales Commission and Underwriting Fees. In addition, until $200,000,000 in gross offering proceeds have been received, members of our Manager’s two most recent offerings, ICON Leasing Fund Eleven, LLC, and ICON Income Fund Ten, LLC, who meet specified criteria may elect to invest all of their distributions from those funds in our Shares pursuant to our DRIP Plan. Our DRIP Plan is intended to last only through the offering period. See “Distribution Reinvestment Plan” for more information.
 
Subscriptions You must fill out a Subscription Agreement (Exhibit C to this prospectus) in order to purchase our Shares. By signing the Subscription Agreement, you will be making the representations and warranties contained in the Subscription Agreement and you will be bound by all of the terms of the Subscription Agreement and of our LLC Agreement.
 
Plan of Distribution Our initial closing of the offering for our Shares will be held after subscriptions for at least 1,200 Shares have been received by the escrow agent (excluding subscriptions from residents of Pennsylvania). At that time, subscribers for at least that number of Shares may be admitted as members. After the initial closing, we intend to hold daily closings until the offering is completed or terminated.


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(1) If you are a Pennsylvania resident, your investment is further subject to the conditions that (i) it must be held in escrow until at least $20,000,000 (5.0% of the offering of $400,000,000) has been received; and (ii) you are offered the opportunity to rescind your investment if $20,000,000 has not been received within 120 days following the date your funds are received by the escrow agent, and every 120 days thereafter, during the offering period in Pennsylvania. In addition, your investment will be held in escrow until the end of the 120-day period following the effective date of the offering during which your money was received. During this period, aggregate subscriptions of $20,000,000 must be received and accepted for you to be admitted as a member, or you will have the option to have your investment refunded.


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RISK FACTORS
 
This investment involves a high degree of risk. You should carefully read the following risks and the other information in this prospectus before purchasing our Shares. Our business, prospects, operating results and financial condition could be adversely affected by any of the following risks. As a result, you could lose part or all of your investment in our Shares.
 
Risks Related To This Offering
 
All or a substantial portion of your distributions may be a return of capital and not a return on capital, which will not necessarily be indicative of our performance.
 
The portion of total distributions that is a return of capital and the portion which is economic return will depend upon a number of factors in our operations. The portion of your total distributions that is an economic return cannot be determined until all of our investments are disposed of, at which time you will be able to compare the total amount of all cash distributions received to your total capital invested in order to determine your economic return.
 
The Internal Revenue Service may deem the majority of your distributions to be a return of capital for tax purposes during our early years. Distributions would be deemed to be a return of capital for tax purposes to the extent that we are distributing cash in an amount greater than our taxable income. The fact that the Internal Revenue Service deems distributions to be a return of capital in part and we report an adjusted tax basis to you on Form K-1, is not an indication that we are performing greater than or less than expectations and cannot be utilized to forecast what our final return might be.
 
Initially, we will be a blind pool because we have not yet identified any specific investments and all of the potential risks of an investment in our Shares cannot be assessed at this time.
 
Initially, we will be a blind pool and you cannot assess all of the potential risks of an investment in our Shares because none of the equipment to be purchased nor the lessees to whom the equipment will be leased have been identified. You will not have advance information as to the types, ages, manufacturers, model numbers or condition of our equipment portfolio, the number of leases we will acquire, the identity, financial condition and creditworthiness of the lessees, the terms and conditions in the leases, the purchase price that will be paid for the equipment subject to lease or the expected residual value of the equipment. You must rely upon our Manager’s judgment and ability to select the equipment to purchase, evaluate the equipment’s condition, evaluate the ability of lessees to continue paying rent and negotiate purchase documents. We cannot assure you that our Manager will be able to perform such functions in a manner that will achieve our investment objectives.
 
Your ability to resell your Shares may be limited by the absence of a public trading market and, therefore, you should be prepared to hold your Shares for the life of Fund Twelve, which is anticipated to be approximately 10 years.
 
Our Shares will not be listed on any national securities exchange at any time and we will take steps to assure that no public trading market develops for our Shares. Your ability to sell or otherwise transfer your Shares, other than at a substantial discount, is extremely limited and will depend upon your ability to identify a buyer. You must view your investment in our Shares as a long-term, illiquid investment that may last for up to 10 years. See “Transfer of Our Shares/Withdrawal.”
 
If you choose to request that we repurchase your Shares, you may receive significantly less than you would receive if you were to hold your Shares for the life of Fund Twelve.
 
After you have been admitted as a member and have held your Shares for at least one year, you may request that we repurchase up to all of your Shares. We are under no obligation to do so, however, and will only have limited cash available for this purpose. If we repurchase your Shares, the repurchase price has been unilaterally set and is described in the section of this prospectus entitled “Share Repurchase Plan.” Depending


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upon when you request repurchase, the repurchase price may be less than the unreturned amount of your investment. If your Shares are repurchased, the repurchase price may provide you a significantly lower value than the value you would realize by retaining your Shares for the duration of the fund.
 
You may not receive cash distributions every month and, therefore, you should not rely on any income from your Shares.
 
You should not rely on the cash distributions from your Shares as a source of income. While we intend to make monthly cash distributions, our Manager may determine it is in our best interest to periodically change the amount of the cash distributions you receive or not make any distributions in some months. Losses from our operations of the types described in these risk factors and unexpected liabilities could result in a reduced level of distributions to you. Additionally, during the liquidation period, although we expect that lump sums will be distributed from time to time if and when financially significant assets are sold, regularly scheduled distributions will decrease because there will be fewer investments available to generate cash flow. See “Cash Distributions — Monthly Cash Distributions.”
 
If we cannot raise a significant amount of capital, our level of equipment diversification and financial performance may be adversely affected.
 
We may begin operations with a minimum capitalization of approximately $1,200,000. Our ability to diversify our equipment portfolio, and our potential to provide attractive returns, will be adversely affected by having only the minimum amount of funds at our disposal. If only the minimum number of our Shares is sold, it will be harder to diversify both our equipment portfolio and our lessees, and any single lease transaction will have a greater impact on our financial performance and results of operations. See “Estimated Use of Proceeds.”
 
Risks Related To Our Business
 
Uncertainties associated with the equipment leasing industry may have an adverse effect on our business and may adversely affect our ability to give you any economic return from our Shares or a complete return of your capital.
 
There are a number of uncertainties associated with the equipment leasing industry that may have an adverse effect on our business and may adversely affect our ability to make cash distributions to you that will, in total, be equal to a return of all of your capital, or provide for any economic return from our Shares. These include:
 
  •  changes in economic conditions, including fluctuations in demand for equipment and interest rates;
 
  •  the continuing economic life and value of the equipment upon lease expiration;
 
  •  the technological and economic obsolescence of equipment;
 
  •  potential defaults by lessees;
 
  •  supervision and regulation by governmental authorities, including the approval from certain State securities authorities for our continuing the offering of our Shares for more than one year after it commences;
 
  •  increases in our expenses, including taxes and insurance expenses.
 
You will have limited voting rights and will be required to rely on our Manager to make all of our management decisions and achieve our investment objectives.
 
Our Manager will make all of our management decisions, including determining which leased equipment we will purchase. Our success will depend upon the quality of the investment decisions our Manager makes, particularly relating to the acquisition of equipment and the re-leasing and disposition of such equipment. You are not permitted to take part in managing, establishing or changing our investment objectives or policies.


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Accordingly, you should not invest unless you are willing to entrust all aspects of our management to our Manager. An affirmative vote of members owning not less than a majority of our Shares is required to remove our Manager (or anyone else) as manager.
 
   The results of our Manager’s prior equipment leasing programs are not necessarily indicative of our future results.
 
As of December 31, 2006, six of the twelve other equipment leasing programs that our Manager sponsored have completed operations and have been liquidated. These equipment leasing programs had different investment objectives than us and were operated by individuals who have not been part of our Manager’s current management team. A brief financial summary of the performance of those liquidated programs follows.
 
                                                 
    Series A     Series B     Series C     Series D     Series E     LP Six  
 
Amount Invested
  $ 1,000.00     $ 1,000.00     $ 1,000.00     $ 1,000.00     $ 1,000.00     $ 1,000.00  
Total Distributions
    1,238.74       957.60       968.45       1,208.37       1,048.92       957.31  
Gain/Loss on Distributions
    238.74       (42.40 )     (31.55 )     208.37       48.92       (42.69 )
Year Offering Commenced
    1987       1989       1990       1991       1992       1993  
Year Offering Terminated
    1989       1990       1991       1992       1993       1995  
Year Liquidation Period Commenced
    1999       1999       2001       1997       1998       2000  
 
As noted, three of those completed equipment leasing programs did not completely return to their respective investors all of their capital and the other three completed leasing programs returned $238.74, $208.37, and $48.92 for each $1,000 invested to its investors in excess of their original investment. See “Other Programs Sponsored by Our Manager” for more detail.
 
Our Manager will receive substantial fees from us, and those fees are likely to exceed the income portion of distributions made to you during our early years.
 
We will pay our Manager and its affiliates substantial fees for our organization, selling our Shares and acquiring, managing, re-leasing and selling investments for us. In addition, we will initially pay our Manager 1.0% from the cash distributions paid from our operations and sales. The amount of these fees is likely to exceed the income portion of distributions made to you in the early years of Fund Twelve. Furthermore, we are likely to borrow a substantial portion of the purchase price of our investments. This use of indebtedness should permit us to acquire more investments than if borrowings were not utilized. As a consequence, we will pay greater fees to our Manager than if no indebtedness were incurred because the Management, Re-Leasing and Acquisition Fees are based upon the gross rental payments earned from, or the purchase price (including any indebtedness incurred) of, our investments.
 
Because we will borrow money to make our investments, losses as a result of lessee defaults may be greater than if such borrowings were not incurred.
 
Although we expect to acquire some of our investments for cash, we are likely to borrow a substantial portion of the purchase price of our investments. Additionally, there is no limit to the amount of indebtedness that we may incur when making our investments. While we believe the use of leverage will result in more acquisitions with less risk than if leverage was not utilized, there can be no assurance that the benefits of greater size and diversification of our portfolio will offset the heightened risk of loss in an individual lease transaction using leverage. Other equipment leasing programs our Manager sponsors, on average, utilized debt for 65-75% of the purchase price of their equipment portfolios. Although some of those programs are limited in the amount of debt they can incur, we are not so limited. With respect to non-recourse borrowings, if we are unable to make our loan service obligations because of a lessee default, a lender could foreclose on the investment securing the non-recourse indebtedness. This could cause us to lose all or part of our investment or


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could force us to meet loan payment obligations so as to protect our investment subject to such indebtedness and prevent it from being subject to repossession.
 
Additionally, while we expect the majority of our borrowings to be non-recourse, we may elect to incur recourse indebtedness under certain circumstances, such as a revolving credit facility, secured by certain of our assets or the assets of our affiliates that are not otherwise secured by other lenders. With recourse borrowings, the lender may have a security interest in such assets or the assets of our affiliates and the right to sell those assets to pay off the indebtedness if we default on our payment obligations. Recourse indebtedness may increase our risk of loss because we must meet the loan payment obligations regardless of the rental revenue we receive from the investment that is secured under the indebtedness.
 
Our Manager’s decisions are subject to conflicts of interest.
 
Our Manager’s decisions will be subject to various conflicts of interest arising out of its relationship to us and its affiliates. Our Manager could be confronted with decisions where it will have an economic incentive to place its interests above ours. As of December 31, 2006, our Manager sponsors, and is currently managing, six other equipment leasing programs. See “Other Programs Sponsored by Our Manager,” “Conflicts of Interest” and Exhibit B for more detailed information. These conflicts may include:
 
  •  our Manager will receive more fees for making investments if we incur indebtedness to fund these acquisitions than if indebtedness is not incurred;
 
  •  our LLC Agreement does not prohibit our Manager from competing with us for equipment acquisitions and engaging in other types of business;
 
  •  our Manager will have opportunities to earn fees for referring a prospective acquisition opportunity to purchasers other than us;
 
  •  our Manager may receive fees in connection with the turnover of our equipment portfolio;
 
  •  the dealer-manager, which is an affiliate of our Manager and not an independent securities firm, will review and perform due diligence on us and the information in this prospectus and thus cannot be considered an independent review and may not be as meaningful as a review conducted by an unaffiliated broker-dealer;
 
  •  the lack of separate legal representation for us and our Manager and lack of arm’s-length negotiations regarding compensation payable to our Manager;
 
  •  our Manager is our tax matters partner and is able to negotiate with the IRS to settle tax disputes that would bind us and our members that might not be in your best interest given your individual tax situation; and
 
  •  our Manager can make decisions as to when and whether to sell a jointly-owned asset when the co-owner is another business it manages.
 
If the value of our equipment declines more rapidly than we anticipate, our financial performance may be adversely affected.
 
A significant part of the value of most of the equipment that we will purchase is the potential value of the equipment once the lease term expires (“residual value”). Generally, leased equipment is expected to decline in value over its useful life. In acquiring equipment, we will assume a residual value for the equipment at the end of the lease that, when combined with lease payments, is expected to be enough to return the cost of our investment in the equipment and provide a rate of return despite the expected decline in the value of the equipment over the lease term. However, the residual value of the equipment at the end of a lease, and whether that value meets our expectations, will depend to a significant extent upon the following factors, many of which are beyond our control:
 
  •  our ability to acquire or, to a lesser degree, enter into lease agreements that preserve or enhance the relative value of the equipment;


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  •  our ability to maximize the value of the equipment upon the sale or re-lease when the lease expires;
 
  •  market conditions prevailing at the time the lease expires;
 
  •  the cost of new equipment at the time we are remarketing used equipment;
 
  •  the extent to which technological or regulatory developments during the lease term reduce the market for such used equipment;
 
  •  the strength of the economy; and
 
  •  the condition of the equipment when the lease expires.
 
We cannot assure you that our assumptions with respect to value will be accurate or that the equipment will not lose value more rapidly than we anticipate.
 
If leased equipment is not properly maintained, its residual value may be less than expected.
 
If a lessee fails to maintain equipment in accordance with the terms of its lease, we may have to make unanticipated expenditures to repair the equipment in order to protect our investment. In addition, some of the equipment we purchase may be used equipment. While we plan to inspect most used equipment prior to purchase, there is no assurance that an inspection of used equipment prior to purchasing it will reveal any or all defects and problems with the equipment that may occur after it is acquired by us.
 
We will seek to obtain representations from the sellers and lessees of used equipment that:
 
  •  the equipment has been maintained in compliance with the terms of their leases;
 
  •  that neither the seller, as lessor, nor the lessee, is in violation of any material terms of such leases; and
 
  •  the equipment is in good operating condition and repair and that the lessee has no defenses to the payment of rent for the equipment as a result of its condition.
 
We would have rights against the seller of the equipment for any losses arising from a breach of representations made to us, and against the lessee for a default under the lease. However, we cannot assure you that these rights would make us whole with respect to our entire investment in the equipment or our expected returns on the equipment, including legal costs, costs of repair and lost revenue from the delay in being able to sell or re-lease the equipment due to undetected problems or issues.
 
If a lessee defaults on its lease, we could incur losses.
 
We may lease equipment to lessees that have senior debt rated below investment grade. We do not require our lessees to have a minimum credit rating. Lessees with such lower credit ratings may default on lease payments more frequently than lessees with higher credit ratings. If a lessee does not make lease payments to us when due, or violates the terms of its lease in another important way, we may be forced to terminate the lease and attempt to recover the equipment. We may do this at a time when we may not be able to arrange for a new lease or to sell the equipment right away, if at all. We would then lose the expected lease revenues and might not be able to recover the entire amount or any of our original investment in the equipment. The costs of recovering equipment upon a lessee’s default, enforcing the lessee’s obligations under the lease, and transporting, storing, repairing and finding a new lessee for the equipment may be high and may negatively affect the value of our investment in the equipment.
 
If a lessee files for bankruptcy, we may have difficulty enforcing the terms of the lease and may incur losses.
 
If a lessee files for protection under the bankruptcy laws, the remaining term of the lease could be shortened or the lease could be rejected by the bankruptcy court, which could result in, among other things, any unpaid pre-bankruptcy lease payments being cancelled as part of the bankruptcy proceeding. We may also experience difficulties and delays in recovering equipment from a bankrupt lessee that is involved in a bankruptcy proceeding or has been declared bankrupt by a bankruptcy court. If a lease is rejected in a bankruptcy, we would bear the cost of retrieving and storing the equipment, and then have to remarket the equipment. In addition, the bankruptcy court would treat us as an unsecured creditor for any amounts due under the lease.


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We may invest in options that could become worthless if the option grantor files for bankruptcy.
 
We may acquire options to purchase equipment, usually for a fixed price at a future date, which is typically at the end of a lease term. In the event of a bankruptcy by the party granting the option, we might be unable to enforce the option or recover the option price paid.
 
Leasing equipment in foreign countries may be riskier than domestic leasing and may result in losses.
 
While we expect to acquire equipment in the United States with domestic lessees, we will also lease equipment for use by domestic or foreign lessees outside of the United States. We may have difficulty enforcing our rights under a foreign lease. In addition, we may have difficulty repossessing our equipment if a foreign lessee defaults, and lease enforcement outside the United States could be more expensive. Moreover, foreign jurisdictions may confiscate equipment. Use of equipment in a foreign country will be subject to that country’s tax laws, which may impose unanticipated taxes. While we will seek to require lessees to reimburse us for all taxes imposed on the use of the equipment and require them to maintain insurance covering the risks of confiscation of the equipment, we cannot assure you that we will be successful or that insurance reimbursements will be adequate to allow for recovery of and a return on foreign investments.
 
In addition, we may lease aircraft and marine vessels that may travel to or between locations outside of the United States. Regulations in foreign countries may adversely affect our title to equipment in those countries. Foreign courts may not recognize judgments obtained in U.S. courts, and different accounting or financial reporting practices may make it difficult to judge lessees’ financial viability, heightening the risk of default and the loss of our investment in such equipment, which could have a material adverse effect on our results of operations and financial condition.
 
We could incur losses as a result of foreign currency fluctuations.
 
We have the ability to lease equipment where the rental payments are not made in U.S. dollars. In these cases, we may then enter into a contract to protect the lease from fluctuations in the currency exchange rate. These contracts, known as hedge contracts, would allow us to receive a fixed number of U.S. dollars for the rent and any other fixed, periodic payments due under the lease even if the exchange rate between the U.S. dollar and the currency of the lease changes over the lease term. If the lease payments were disrupted due to default by the lessee, we would try to continue to meet our obligations under the hedge contract by acquiring the foreign currency equivalent of the missed payments, which may be available at unfavorable exchange rates. If a lease is denominated in a major foreign currency such as the pound sterling, which historically has had a stable relationship with the U.S. dollar, we may consider hedging to be unnecessary to protect the value of the rental payments, but our assumptions concerning currency stability may turn out to be incorrect. Our investment returns could be reduced in the event of unfavorable currency fluctuation when lease payments are not made in U.S. dollars.
 
Furthermore, when we acquire a residual interest in foreign equipment, we may not be able to hedge our foreign currency exposure with respect to those residual values because the terms and conditions of such hedge contracts might not be in the best interests of our members. Even with leases requiring rental payments in U.S. dollars, the equipment may be sold at lease expiration for an amount that cannot be pre-determined to a buyer paying in a foreign currency. This could positively or negatively affect our income from such a transaction when the proceeds are converted into U.S. dollars. See “Investment Objectives and Policies — Leases — Leases Denominated in Foreign Currencies.”
 
Sellers of leased equipment could use their knowledge of the lease terms for gain at our expense.
 
We may acquire equipment subject to lease from leasing companies that have an ongoing relationship with the lessees. A seller could use its knowledge of the terms of the lease, particularly the end of lease options and date the lease ends, to compete with us. In particular, a seller may approach a lessee with an offer to substitute similar equipment at lease end for lower rental amounts. This may adversely affect our opportunity to maximize the residual value of the equipment.


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Investment in joint ventures may subject us to risks relating to our co-investors that could adversely impact the financial results of such joint ventures.
 
We may invest in joint ventures with other businesses our Manager sponsors and manages, as well as with unrelated third parties. Investing in joint ventures involves additional risks not present when acquiring leased equipment that will be wholly owned by us. These risks include the possibility that our co-investors might become bankrupt or otherwise fail to meet financial commitments, thereby obligating us to pay all of the debt associated with the joint venture, as each party to a joint venture may be required to guarantee all of the joint venture’s obligations. Alternatively, the co-investors may have economic or business interests or goals that are inconsistent with our investment objectives and want to manage the joint venture in ways that do not maximize our return. Among other things, actions by a co-investor might subject leases that are owned by the joint venture to liabilities greater than those contemplated by the joint venture agreement. Also, when none of the joint owners control a joint venture, there might be a stalemate on decisions, including when to sell the equipment or the prices or terms of a lease. Finally, while we will have the right to buy out the other joint owner’s interest in the equipment in the event of the sale, we may not have the resources available to do so.
 
We may not be able to obtain insurance for certain risks and would have to bear the cost of losses from non-insurable risks.
 
Leased equipment may be damaged or lost. Fire, weather, accidents, theft or other events can cause damage or loss of leased equipment. While our leases will generally require lessees to have comprehensive insurance and assume the risk of loss, some losses, such as from acts of war, terrorism or earthquakes may either be uninsurable or not economically feasible to insure. Furthermore, not all possible liability claims or contingencies affecting equipment can be anticipated or insured against, and, if insured, the insurance proceeds may not be sufficient to cover a loss. If such a disaster occurs to the equipment, we could suffer a total loss of any investment in the affected equipment. In leasing some types of equipment, such as pressurized railroad tank cars that may carry hazardous materials, we may be exposed to environmental tort liability. Although we will use our best efforts to minimize the possibility and exposure of such liability including by means of attempting to obtain insurance, we cannot assure you that our assets will be protected against any such claims.
 
We could suffer losses from failure to maintain equipment registration and from unexpected regulatory compliance costs.
 
Many types of transportation equipment are subject to registration requirements by U.S. governmental agencies, as well as foreign governments if the equipment is to be used outside of the United States. Failing to register the equipment, or losing the registration, could result in substantial penalties, forced liquidation of the equipment and/or the inability to operate and lease the equipment. Governmental agencies may also require changes or improvements to equipment, and we may have to spend our own funds to comply if the lessee of the equipment is not required to do so under the lease. These changes could force the equipment to be removed from service for a period of time. The terms of leases may provide for rent reductions if the equipment must remain out of service for an extended period of time or is removed from service. We may then have reduced rental income from the lease for this item of equipment. If we do not have the funds to make a required change, we might be required to sell the affected equipment. If so, we could suffer a loss on our investment, lose future revenues and experience adverse tax consequences.
 
If a lease is determined to be a loan, it could be subject to usury laws, which could lower our lease revenue.
 
Equipment leases have sometimes been held by the courts to be loan transactions subject to State usury laws, which limit the interest rate that can be charged. Although we anticipate entering into or acquiring leases that we believe are structured so that they avoid being deemed loans, and would therefore not be subject to usury laws, we cannot assure you that we will be successful in doing so. Loans at usurious interest rates are subject to a reduction in the amount of interest due under such loans and, if an equipment lease is held to be a loan with a usurious rate of interest, the amount of the lease payment could be reduced and adversely affect our lease revenue.


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Our Manager’s officers and employees manage other businesses and will not devote their time exclusively to managing us and our business.
 
We will not employ our own full-time officers, managers or employees. Instead, our Manager will supervise and control our business affairs. Our Manager’s officers and employees will also be spending time supervising the affairs of other equipment leasing programs it manages, so they will devote the amount of time they think is necessary to conduct our business, which may not be the same amount of time that would be devoted to us if we had separate officers and employees. See “Conflicts of Interest.”
 
Our internal controls over financial reporting may not be effective and our independent registered public accounting firm may not be able to certify as to their effectiveness, which could have a significant and adverse effect on our business.
 
Our Manager is evaluating our internal controls over financial reporting in order to allow management to report on, and our independent registered public accounting firm to attest to, our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations of the SEC thereunder, which we refer to as “Section 404.” Our Manager is in the process of documenting and testing our internal control procedures in order to satisfy the requirements of Section 404, which requires annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent registered public accountants addressing these assessments. During the course of our testing, our Manager may identify deficiencies that it may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. We expect that we will be required to comply with the requirements of Section 404 and issue management’s report on our internal controls in connection with our Annual Report on Form 10-K for our fiscal year ending December 31, 2007. In addition, if we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404. We cannot be certain as to the timing of completion of our evaluation, testing and any remediation actions or the impact of the same on our operations. If we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, our independent registered public accounting firm may not be able to certify as to the effectiveness of our internal control over financial reporting in connection with our Annual Report on Form 10-K for the year ended December 31, 2008, and we may be subject to sanctions or investigation by regulatory authorities, such as the SEC. As a result, we may be required to incur costs in improving our internal control system and the hiring of additional personnel. Any such action could negatively affect our results of operations and the achievement of our investment objectives.
 
We compete with a variety of financing sources for our lessees, which may affect our ability to achieve our investment objectives.
 
The commercial leasing industry is highly competitive and is characterized by competitive factors that vary based upon product and geographic region. Our competitors are varied and include other equipment leasing programs, captive and independent finance companies, commercial and industrial banks, manufacturers and vendors. Competition from both traditional competitors and new market entrants has intensified in recent years due to a strong economy, growing marketplace liquidity and increasing recognition of the attractiveness of the commercial leasing industry.
 
We compete primarily on the basis of pricing, terms and structure. To the extent that our competitors compete aggressively on any combination of those factors, we could fail to achieve our investment objectives.


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Risks Related to the Tax Treatment of Us and Our Shares
 
If the IRS classifies us as a corporation rather than a partnership, your distributions would be reduced under current tax law.
 
Although counsel has rendered an opinion to us that we will be taxed as a partnership and not as a corporation, that opinion is not binding on the IRS and the IRS has not ruled on any federal income tax issue relating to us. If the IRS successfully contends that we should be treated as a corporation for federal income tax purposes rather than as a partnership, then:
 
  •  our realized losses would not be passed through to you;
 
  •  our income would be taxed at tax rates applicable to corporations, thereby reducing our cash available to distribute to you; and
 
  •  your distributions would be taxed as dividend income to the extent of current and accumulated earnings and profits.
 
We will not apply for an IRS ruling that we will be classified as a partnership for federal income tax purposes. We could be taxed as a corporation if we are treated as a publicly traded partnership by the IRS. To minimize this possibility, Section 10 of our LLC Agreement places restrictions on your ability to transfer our Shares. You and your advisors should not only review the “Federal Income Tax Consequences” section with care, but also carefully review your own individual tax circumstances. See “Federal Income Tax Consequences — Publicly Traded Partnerships.”
 
We could lose cost recovery or depreciation deductions if the IRS treats our leases as sales or financings.
 
We expect that, for federal income tax purposes, we will be treated as the owner and lessor of the equipment we own or co-own and/or lease. However, the IRS may challenge the leases and instead assert that they are sales or financings. If the IRS determines that we are not the owner of our equipment, we would not be entitled to cost recovery, depreciation or amortization deductions, and our leasing income might be deemed to be portfolio income instead of passive income. The denial of such cost recovery or amortization deductions could cause your tax liabilities to increase. See “Federal Income Tax Consequences — Tax Treatment of Leases” and “— Deductibility of Losses; Passive Activity Losses, Tax Basis and ‘At-Risk’ Limitation.”
 
You may incur tax liability in excess of the cash distributions you receive in a particular year.
 
Your tax liability from owning our Shares may exceed the cash distributions you receive from this investment. While we expect that your taxable income from owning our Shares for most years will be less than your cash distributions in those years, to the extent any of our debt is repaid with rental income or proceeds from equipment sales, taxable income could exceed the related cash distributions. Additionally, a sale of our property may result in taxes in any year that are greater than the amount of cash from the sale and give you tax liability in excess of cash distributions. Therefore, you will have to pay any excess tax liability out of other funds, since the distributions we make may not be sufficient to pay such excess tax liability.
 
You may be subject to greater income tax obligations than originally anticipated.
 
We may acquire equipment subject to lease that the Code requires us to depreciate over a longer period than the depreciation period for most of the equipment that our Manager’s prior equipment leasing funds purchased. Similarly, some of the equipment that we may purchase may not be eligible for accelerated depreciation under the Modified Accelerated Costs Recovery System, which was established by the Tax Reform Act of 1986 to set forth the guidelines for accelerated depreciation under the Code. Further, if we acquire equipment that the Code deems to be tax-exempt use property, losses attributable to such equipment are suspended and may be deducted only against income we receive from that equipment or when we dispose of such equipment. Depending on the equipment that we acquire and its eligibility for accelerated depreciation under the Code, we may have less depreciation deductions to offset gross lease revenue, thereby increasing our taxable income.


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There are limitations on your ability to deduct our losses.
 
Your ability to deduct our losses is limited to the amounts that you have at risk from owning our Shares. This is generally the amount of your investment, plus any profit allocations and minus any loss allocation and distributions, but this determination is further limited by a tax rule that limits the ability to deduct losses from an activity to the amount at risk in that activity and treats equipment placed in service in separate years as separate activities. Additionally, your ability to deduct losses attributable to passive activities is restricted. Because our operations will constitute passive activities, you can only use our losses to offset passive income in calculating tax liability. Furthermore, passive losses may not be used to offset portfolio income. See “Federal Income Tax Consequences — Deductibility of Losses; Passive Activity Losses, Tax Basis and ‘At-Risk’ Limitation.”
 
The IRS may allocate more taxable income to you than our LLC Agreement provides.
 
The IRS might successfully challenge our allocations of profits or losses. If so, the IRS would require reallocation of our taxable income and loss, resulting in more taxable income or less loss for you than our LLC Agreement allocates. See “Federal Income Tax Consequences — Allocations of Profits and Losses.”
 
If you are a tax-exempt organization, you will have unrelated business taxable income from this investment.
 
Tax-exempt organizations are nevertheless subject to income tax on UBTI. Such organizations are required to file federal income tax returns if they have UBTI from all sources in excess of $1,000 per year. Our leasing income will constitute UBTI. Furthermore, for tax-exempt organizations in the form of charitable remainder trusts will be subject to an excise tax equal to 100% of their UBTI. Thus, an investment in our Shares may not be appropriate for a charitable remainder trust and such entities should consult their own tax advisors with respect to an investment in our Shares. See “Federal Income Tax Consequences — Taxation of Tax-Exempt Organizations.”
 
This investment may cause you to pay additional taxes.
 
You may be required to pay alternative minimum tax in connection with owning our Shares, since you will be allocated a proportionate share of our tax preference items. Our Manager’s operation of our business affairs may lead to other adjustments that could also increase your alternative minimum tax. Alternative minimum tax is treated in the same manner as the regular income tax for purposes of making estimated tax payments. See “Federal Income Tax Consequences — Alternative Minimum Tax.”
 
You may incur State tax and foreign tax liabilities and have an obligation to file state or foreign tax returns.
 
You may be required to file tax returns and pay foreign, State or local taxes, such as income, franchise or personal property taxes, as a result of an investment in our Shares, depending upon the laws of the jurisdictions in which the equipment we own is located. See “Federal Income Tax Consequences — State and Local Taxation” and “ — Foreign-Source Taxable Income.”
 
Any adjustment to our tax return as a result of an audit by the IRS may result in adjustment to your tax return.
 
If we adjust our tax return as a result of an IRS audit, such adjustment may result in an examination of other items in your returns unrelated to us, or an examination of your tax returns for prior years. You could incur substantial legal and accounting costs in contesting any challenge by the IRS, regardless of the outcome. Further, because you will be treated for federal income tax purposes as a partner in a partnership by investing in our Shares, an audit of our tax return could potentially lead to an audit of your individual tax return.
 
Some of the distributions on our Shares will be a return of capital, in whole or in part, which will complicate your tax reporting and could cause unexpected tax consequences at liquidation.
 
As equipment values decrease over the term of our existence, a portion of each distribution will be considered a return of capital, rather than income. Therefore, the dollar amount of each distribution should not be considered as necessarily being all income to you. As your capital in our Shares is reduced for tax purposes


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over the life of your investment, you will not receive a lump sum distribution upon liquidation that equals the purchase price you paid for our Shares, as you might expect if you had purchased a bond. Also, payments made upon our liquidation will be taxable to the extent that such payments are not a return of capital.
 
As you receive distributions throughout the life of your investment, you will not know at the time of the distribution what portion of the distribution represents a return of capital and what portion represents income. The Schedule K-1 statement you receive from us each year will specify the amounts of capital and income you received throughout the prior year.
 
Our assets may be plan assets for ERISA purposes, which could subject our Manager to additional restrictions on its ability to operate our business.
 
ERISA and the Code may apply what is known as the look-through rule to an investment in our Shares. Under that rule, the assets of an entity in which a qualified plan or IRA has made an equity investment may constitute assets of the qualified plan or IRA. If you are a fiduciary of a qualified plan or IRA, you should consult with your advisors and carefully consider the effect of that treatment if that were it to occur. See “Investment by Qualified Plans and IRAs.”


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FORWARD-LOOKING STATEMENTS
 
Certain statements within this prospectus, including the sections entitled “Prospectus Summary,” “Risk Factors” and “Manager’s Discussion and Analysis of Results of Operations and Financial Condition” may constitute forward-looking statements. Forward-looking statements are those that do not relate solely to historical fact. They include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events. You can identify these statements by the use of words such as “may,” “will,” “could,” anticipate,” believe,” “estimate,” “expect,” “intend,” “predict” or “project” and variations of these words or comparable words or phrases of similar meaning. These forward-looking statements reflect our current beliefs and expectations with respect to future events and are based on assumptions and are subject to risks and uncertainties and other factors outside our control that may cause actual results to differ materially from those projected. Such factors include, but are not limited to, the following:
 
  •  uncertainties associated with the equipment leasing industry;
 
  •  reliance on our Manager to achieve our investment objectives;
 
  •  future borrowings to purchase equipment;
 
  •  an unexpected decline in the value of leased equipment;
 
  •  improper maintenance of leased equipment by lessees;
 
  •  defaults by lessees;
 
  •  bankruptcies of lessees;
 
  •  equipment located in foreign countries;
 
  •  foreign currency fluctuations for lease payments denominated in non-U.S. currencies;
 
  •  improper use of knowledge of the lease terms by sellers of leased equipment;
 
  •  investment in joint ventures;
 
  •  ability to maintain insurance and the occurrence of non-insurable events;
 
  •  equipment registration and unexpected regulatory compliance;
 
  •  treatment of leases under the usury laws;
 
  •  devotion of the time of our Manager; and
 
  •  tax treatment of us and our Shares.
 
Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we cannot assure investors that our expectations will be attained or that any deviations will not be material. Except as required by law, we undertake no obligation to update these forward-looking statements to reflect any future events or circumstances.


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ESTIMATED USE OF PROCEEDS
 
The first table below is our best estimate of the use of the gross offering proceeds if only the minimum number of our Shares (1,200) is sold in the offering at the public offering price, excluding any Shares sold pursuant to our DRIP Plan. The second table below is our best estimate of the use of the gross offering proceeds assuming the maximum number of our Shares (400,000) is sold at the public offering price, excluding any Shares sold pursuant to our DRIP Plan. If the maximum number of our Shares in the offering is sold at the public offering price, resulting in gross offering proceeds of $400,000,000, we expect we will invest 81.93% of the gross offering proceeds in equipment and other property and establish a reserve of 0.50%. The remaining 17.57% will pay the fees and expenses of our organization and the offering as described below, including Acquisition Fees payable to our Manager. Any proceeds received from Shares sold pursuant to our DRIP Plan will be used to make investments in equipment and other property, establish a reserve and pay the fees and expenses of our organization and the offering. The column in each table expressing expenses and fees as a percentage of our assets assumes that 40% of the purchase price for our equipment acquisitions will be paid from the net proceeds of this offering and the remaining 60% will be paid with borrowed funds. This ratio reflects the approximate level of borrowing by similar equipment leasing programs our Manager has formed and manages. However, our actual level of borrowing to purchase equipment could exceed 60%.
 
                         
          Fees and Expenses
 
    Minimum
    As a Percentage of:  
    Offering of
    Total Offering
       
    1,200 Shares     Proceeds     Assets(1)  
 
Offering Proceeds — Assets
  $ 1,200,000     $ 1,200,000     $ 2,400,000  
Expenses:
                       
Sales Commissions to Selling Dealers(2)
    (96,000 )     8.00 %     4.00 %
Underwriting Fees to our Dealer Manager(3)
    (24,000 )     2.00 %     1.00 %
O&O Expense Allowance to our Manager(4)
    (42,000 )     3.50 %     1.75 %
                         
Public Offering Expenses
    (162,000 )     13.50 %     6.75 %
Cash Reserve(5)
    (6,000 )     0.50 %     0.25 %
Acquisition Fees to our Manager(6)(7)
    (72,000 )     6.00 %     3.00 %
                         
Fees and Expenses
  $ (240,000 )     20.00 %     10.00 %
 
                         
          Fees and Expenses
 
    Maximum
    As a Percentage of:  
    Offering of
    Total Offering
       
    400,000 Shares     Proceeds     Assets(1)  
 
Offering Proceeds — Assets
  $ 400,000,000     $ 400,000,000     $ 819,186,000  
Expenses:
                       
Sales Commissions to Selling Dealers(2)
    (32,000,000 )     8.00 %     3.91 %
Underwriting Fees to our Dealer Manager(3)
    (8,000,000 )     2.00 %     0.98 %
O&O Expense Allowance to our Manager(4)
    (5,750,000 )     1.44 %     0.70 %
                         
Public Offering Expenses
    (45,750,000 )     11.44 %     5.58 %
Cash Reserve(5)
    (2,000,000 )     0.50 %     0.24 %
Acquisition Fees to our Manager(6)(7)
    (24,516,000 )     6.13 %     3.00 %
                         
Fees and Expenses
  $ (72,266,000 )     18.07 %     8.82 %
 
 
(1) Excluding $1,000 contributed by our Manager at the time of formation, the column includes the aggregate purchase price of equipment we would be able to acquire and the Acquisition Fees we would be obligated to pay, assuming we borrowed 60% of the purchase price for our equipment.


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(2) We will pay $80.00 per Share sold in the offering to broker-dealers as a Sales Commission, but we will not pay any Sales Commissions on our Shares sold in the offering to our Manager or its affiliates. In some specific circumstances, we will not pay any Sales Commissions to Selling Dealers for our Shares, and the offering proceeds and related offering expenses in this table may be reduced. See “Plan of Distribution.” No Sales Commissions will be paid on any Shares sold pursuant to our DRIP Plan.
 
(3) We will pay an Underwriting Fee of $20.00 per Share sold in the offering to ICON Securities Corp., the dealer-manager and a wholly-owned subsidiary of our Manager, for managing this offering and to reimburse the dealer-manager for wholesaling fees and expenses. Underwriting Fees will be paid on a non-accountable basis, which means that the payment the dealer-manager receives may be less than, or greater than, the actual costs and expenses that it incurs in managing this offering. A portion of the $20.00 per Share may be re-allowed to Selling Dealers to reimburse them for permissible marketing expenses, such as bona fide training and education seminars and conferences in connection with our offering. No Underwriting Fees will be paid on any Shares sold pursuant to our DRIP Plan.
 
(4) We will pay our Manager an organizational and offering expense allowance (“O&O Expense Allowance”) based upon the gross offering proceeds received from the sale of our Shares in the offering:
 
     
Gross Offering Proceeds
  O&O Expense Allowance
Less than or equal to $50,000,000
  $35.00 per Share
Greater than $50,000,000 but less than or equal to $100,000,000
  $25.00 per Share
Greater than $100,000,000 but less than or equal to $200,000,000
  $15.00 per Share
Greater than $200,000,000 but less than or equal to $250,000,000
  $10.00 per Share
Greater than $250,000,000
  $5.00 per Share
 
The O&O Expense Allowance will also be paid on a non-accountable basis, which means that the payment our Manager receives may be less than, or greater than, the actual costs and expenses that it incurs in our organization and the offering. These costs include, but are not limited to, legal, accounting, printing, advertising, administrative, investor relations and promotional expenses for preparing our registration statement and then offering and distributing our Shares to the public. The O&O Expense Allowance includes up to 0.5% (or such other amount permitted by the NASD Conduct Rules) of bona fide due diligence expense reimbursement to be paid to broker-dealers for actual expenses incurred in performing due diligence on us and this offering as evidenced by a detailed and itemized invoice. In no event will the amounts paid to NASD member broker-dealers exceed 10.50% (or such other amount permitted by the NASD Conduct Rules) of the gross offering proceeds. If all of the Shares in our DRIP Plan are sold, an additional $155,520 in O&O Expense Allowance would be payable to our Manager.
 
(5) We intend to establish an initial reserve equal to $5.00 per Share, which will be used for insurance, certain repairs, replacements and miscellaneous contingencies.
 
(6) Acquisition Fees are calculated by multiplying 3.0% times the total purchase price of our future acquisitions, calculated using proceeds from both future borrowings and the net proceeds from this offering. In calculating the Acquisition Fees, we have assumed that on average, our total indebtedness encumbering our acquisitions will equal 60% of the total purchase price of all acquisitions — $2,400,000 if the minimum number or $819,186,000 if the maximum number of our Shares is sold at the public offering price in the offering. We will also pay our Manager Acquisition Fees from the reinvestment of proceeds received from equipment sales and operations in additional items of equipment.
 
(7) A 5% increase (decrease) in the assumed borrowing rate of 60% for our future equipment acquisitions would increase (decrease) the Acquisition Fees we will pay to our Manager to approximately $81,474 and $64,500, respectively, assuming the minimum number of Shares in the offering is sold at the public offering price. Additionally, a 5% increase (decrease) in the assumed borrowing rate of 60% for our future equipment acquisitions would increase (decrease) the Acquisition Fees we will pay to our Manager to approximately $27,749,000 and $21,956,000, respectively, assuming the maximum number of Shares in the offering is sold at the public offering price. The more indebtedness we incur to purchase our future equipment acquisitions, the greater the Acquisition Fees and related expenses we will pay our Manager and the less equity we will have to invest in future acquisitions.


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CAPITALIZATION
 
The following table sets forth our cash and cash equivalents and capitalization as of the date of this prospectus and as adjusted to reflect the sale of our Shares in the offering, assuming that (1) the minimum 1,200 Shares are sold at the public offering price, (2) the maximum 400,000 Shares are sold at the public offering price and (3) all 12,000 Shares are sold pursuant to our DRIP Plan at the public offering price. You should read this table together with “Estimated Use of Proceeds,” “Manager’s Discussion and Analysis of Results of Operations and Financial Condition” and our consolidated financial statements and notes included elsewhere in this prospectus.
 
                                 
    As of the
    Minimum
    Maximum Offering
    Maximum Offering
 
    Date Hereof     Offering of 1,200 Shares     of 400,000 Shares     of 412,000 Shares  
 
Cash and cash equivalents(1)(2)
  $ 2,000     $ 1,039,000     $ 354,251,000     $ 364,895,480  
                                 
Our Manager’s Capital Contribution(2)
  $ 2,000     $ 1,000     $ 1,000     $ 1,000  
Other Members’ Capital Contribution
          1,200,000       400,000,000       410,800,000  
Less Public Offering Expenses(3)
          (162,000 )     (45,750,000 )     (45,905,520 )
                                 
Total Capitalization
  $ 2,000     $ 1,039,000     $ 354,251,000     $ 364,895,480  
                                 
 
 
(1) Cash and cash equivalents reflect the net offering proceeds, assuming that (a) the minimum number of our Shares (1,200) is sold at the public offering price, (b) the maximum number of our Shares (400,000) is sold at the public offering price and (c) all 12,000 Shares are sold pursuant to our DRIP Plan.
 
(2) We were originally capitalized by a contribution of $1,000 by our Manager and $1,000 contributed by Thomas W. Martin, the Initial Member. The Initial Member will withdraw his capital contribution upon our achieving the minimum offering of Shares and admitting investors as members.
 
(3) Public Offering Expenses for the offering include: (a) Sales Commissions of $80.00 per Share sold (except on Shares sold pursuant to our DRIP Plan), (b) Underwriting Fees of $20.00 per Share sold (except on Shares sold pursuant to our DRIP Plan) and (c) O&O Expense Allowance based on the gross offering proceeds. See “Estimated Use of Proceeds.”


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COMPENSATION OF OUR MANAGER AND CERTAIN NON-AFFILIATES
 
The following table summarizes the types and estimated amounts of all compensation or distributions that we will directly or indirectly pay our Manager, its affiliates and the Selling Dealers, excluding Shares that may be sold pursuant to our DRIP Plan and assuming our Shares are sold at the public offering price set forth on the cover page of this prospectus. Some of our Manager’s compensation will be paid regardless of our success or the profitability of our operations, and we did not determine any of our Manager’s compensation through arm’s-length negotiations. Our LLC Agreement does not permit our Manager to recover or reclassify its services under a different category of fee type. Although some of the compensation described below may vary from the amounts projected, the total amounts of compensation payable to all persons, including our Manager, are limited as provided for in our LLC Agreement.
 
ORGANIZATION AND OFFERING STAGE
 
             
Type of Compensation   Method of Compensation   Estimated Dollar Amount
 
Sales Commissions (1) — payable to Selling Dealers, who are not affiliated with our Manager.   Up to $80.00 per Share from all Shares sold in the offering, or 8.0% of the gross offering proceeds.  
Because Sales Commissions are based upon the number of our Shares sold, the total amount of Sales Commissions cannot be determined until this offering is complete.

Sales Commissions of $96,000 will be paid if the minimum number of 1,200 Shares is sold in the offering.

Sales Commissions of $32,000,000 will be paid if the maximum number of 400,000 Shares is sold in the offering. No Sales Commissions will be paid on any Shares sold pursuant to our DRIP Plan.
         
Underwriting Fees — payable to ICON Securities Corp., the dealer-manager.   $20.00 per Share on all Shares sold in the offering, or 2.0% of the gross offering proceeds.   Because Underwriting Fees are based upon the number of our Shares sold, the total amount of Underwriting Fees cannot be determined until this offering is complete.
             
            Underwriting Fees of $24,000 will be paid if the minimum number of 1,200 Shares is sold in the offering.
             
            Underwriting Fees of $8,000,000 will be paid if the maximum number of 400,000 Shares is sold in the offering. No Underwriting Fees will be paid on any Shares sold pursuant to our DRIP Plan.


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Type of Compensation   Method of Compensation   Estimated Dollar Amount
 
O&O Expense Allowance (2) — payable to our Manager for our organizational and offering expenses.   Our O&O Expense Allowance is based upon the gross offering proceeds that we receive from the sale of our Shares in accordance with the following schedule:   Because the O&O Expense Allowance is based upon the number of our Shares sold, the total amount of the O&O Expense Allowance cannot be determined until this offering is complete.
             
             
        O&O Expense
   
   
Gross Offering Proceeds
  Allowance    
 
   
Less than or equal to $50,000,000

Greater than
$50,000,000 but
less than or equal
to $100,000,000

Greater than
$100,000,000 but
less than or equal
to $200,000,000

Greater than
$200,000,000 but
less than or equal
to $250,000,000

Greater than
$250,000,000
 
$35.00 per Share


$25.00 per Share




$15.00 per Share




$10.00 per Share




$5.00 per Share
 
An O&O Expense Allowance of $42,000 will be paid if the minimum number of 1,200 Shares is sold in the offering.

An O&O Expense Allowance of $5,750,000 will be paid if the maximum number of 400,000 Shares is sold in the offering. If all Shares in our DRIP Plan are sold, an additional $155,520 in O&O Expense Allowance would be payable to our Manager.
         
    Our O&O Expense Allowance will be paid on a non-accountable basis, which means that the payment our Manager receives may be less than, or greater than, the actual costs and expenses that it incurs in our organization and the offering of our Shares. Our Manager will pay, without reimbursement, actual expenses relating to our organization and the offering to the extent such expenses exceed the O&O Expense Allowance.    
         
    We will pay or advance bona fide due diligence fees and expenses of the dealer-manager and actual and prospective Selling Dealers on a fully accountable basis from such allowance based upon a detailed and itemized invoice up to a maximum of 0.50% of the gross offering proceeds (or such other amount permitted by the NASD Conduct Rules).    

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Type of Compensation   Method of Compensation   Estimated Dollar Amount
 
Acquisition Fees — payable to our Manager and its affiliates.(3)   3.0% of the purchase price we pay for each item of equipment or direct or indirect interest in equipment we acquire (including a residual interest, a joint venture interest or an option to acquire a residual interest). The purchase price includes the indebtedness incurred to finance the acquisition of equipment, an interest in equipment, such as a residual interest or a joint venture interest, or an option to acquire a residual value interest in equipment assuming that such option was concurrently exercised.

In calculating Acquisition Fees, costs that we pay to unaffiliated finders and brokers are deducted from Acquisition Fees otherwise payable to our Manager. No finder’s or broker’s fees may be paid to any of our Manager’s affiliates.

Our Manager will reduce or refund Acquisition Fees if our investment in equipment is less than the greater of (a) 80% of the gross offering proceeds reduced by 0.0625% for each 1.0% of borrowings encumbering our equipment, or (b) 75% of the gross offering proceeds.
 
Acquisition Fees of $77,400, or 6.45% of the gross offering proceeds, will be paid if the minimum number of 1,200 Shares is sold in the offering.

Acquisition Fees of $24,516,000, or 6.13% of the gross offering proceeds, will be paid if the maximum number of 400,000 Shares is sold in the offering.

In calculating the Acquisition Fees, we have assumed that, on average, our total indebtedness encumbering our acquisitions will equal 60% of the total purchase price of all acquisitions.

We will also pay our Manager Acquisition Fees from the reinvestment of proceeds received from equipment sales and operations in additional items of equipment.
 
(1) The amounts listed above for Sales Commissions do not give effect to the potential reduction of the Sales Commissions that are not payable for our Shares purchased by affiliates of our Manager and any Selling Dealers and by investors whose broker-dealer has waived or reduced the sales commission, if any. To the extent our Shares are purchased this way, the estimated amount of the expenses of this offering reflected in this chart may be reduced. See “Plan of Distribution.”
 
(2) Our O&O Expense Allowance will be paid on a non-accountable basis, which means that the payment our Manager receives may be less than, or greater than, the actual costs and expenses that it incurs in our organization and the offering of our Shares. These costs may include, but are not limited to, legal, accounting, printing, advertising, administrative, investor relations and promotional expenses for the preparation of registering, offering and distributing our Shares to the public. We will pay or advance bona fide due diligence fees and expenses of the dealer-manager and actual and prospective Selling Dealers on a fully accountable basis from such allowance based upon a detailed and itemized invoice up to a maximum of 0.50% of the gross offering proceeds (or such other amount permitted by the NASD Conduct Rules). Our Manager will pay all O&O expenses in excess of the O&O Expense Allowance, in the aggregate, without seeking reimbursement from us.
 
In addition to the O&O Expense Allowance, we will also reimburse our Manager and its affiliates for: (1) the actual costs of goods and materials used for or by us and obtained from unaffiliated parties; (2) expenses related to the purchase, operation, financing and disposition of our equipment incurred prior to the time that we have funds available to pay such expenses directly; and (3) administrative services necessary to the prudent operation of our business affairs, such as accounting, professional, secretarial and investor relations staff, and capital items including computers and related equipment, not in excess of the lesser of our Manager’s, or its affiliate’s, costs, or 90% of the cost that we would be required to pay to independent parties for comparable services. Our annual reports to our members will provide a breakdown of services performed by, and amounts reimbursed to, our Manager and its affiliates.
 
(3) Total Acquisition Fees paid from all sources is limited to the difference between the maximum front-end fees limitation (explained below) and all other front-end fees (i.e., Sales Commissions, Underwriting Fees and the O&O Expense Allowance, which fees may total up to 11.44% of the gross offering proceeds, if all 400,000 Shares are sold in the offering). Pursuant to our LLC Agreement, the maximum front-end fees that we are able to pay is 20% of the gross offering proceeds (if we do not use any indebtedness to acquire our investments), which percentage is increased by 0.0625% for each 1% of indebtedness (up to a maximum of 80% of capital contributions) so utilized, resulting in maximum front-end fees of 25% of the gross offering proceeds. However, while we have the ability to incur up to the 25% maximum of front-end fees, we estimate the front-end fees will total up to a maximum of 17.57%. See “Estimated Use of Proceeds.”

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OPERATING STAGE
 
         
Type of Compensation   Method of Compensation   Estimated Dollar Amount
 
Acquisition Fees — payable to our Manager and its affiliates.(1)  
3.0% of the purchase price we pay for each item of equipment or direct or indirect interest in equipment we acquire (including a residual interest, a joint venture interest or an option to acquire a residual interest). The purchase price includes the indebtedness incurred to finance the acquisition of equipment, an interest in equipment, such as a residual interest or a joint venture interest, or an option to acquire a residual value interest in equipment assuming that such option was concurrently exercised.

In calculating Acquisition Fees, costs that we pay to unaffiliated finders and brokers are deducted from Acquisition Fees otherwise payable to our Manager. No finder’s or broker’s fees may be paid to any of our Manager’s affiliates.

Our Manager will reduce or refund our Acquisition Fees if our investment in equipment is less than the greater of (a) 80% of the gross offering proceeds reduced by 0.0625% for each 1.0% of borrowings encumbering our equipment, or (b) 75% of the gross offering proceeds.
 
Acquisition Fees of $77,400, or 6.45% of the gross offering proceeds, will be paid if the minimum number of 1,200 Shares is sold in the offering.

Acquisition Fees of $24,516,000, or 6.13% of the gross offering proceeds, will be paid if the maximum number of 400,000 Shares is sold in the offering.

In calculating the Acquisition Fees, we have assumed that, on average, our total indebtedness encumbering our acquisitions will equal 60% of the total purchase price of all acquisitions.

We will also pay our Manager Acquisition Fees from the reinvestment of proceeds received from equipment sales and operations in additional items of equipment.
         
Management Fees — payable to our Manager and its affiliates.  
We will pay our Manager Management Fees for actively managing the leasing of our equipment portfolio, which will equal the lesser of:

(i)(a) 5.0% of gross rental payments from operating leases(2) except operating leases for which management services are performed by non-affiliates under our Manager’s supervision for which 1.0% of annual gross rental payments will be payable;

(b) 2.0% of gross rental payments and debt service interest payments from full payout leases(3) with net lease provisions; and

(c) 7.0% of gross rental payments(4) from equipment operated by us; or

(ii) management fees which are competitive and/or customarily charged by others rendering similar services as an ongoing public activity in the same geographic location for similar equipment transactions.(5)

Management Fees will not be payable with respect to rental payments from any equipment acquired during the Liquidation Period.
 
The amount of Management Fees will depend upon the rental payments generated by our equipment portfolio. As the composition and size of the equipment portfolio will primarily be a function of the amount of gross offering proceeds raised and the amount of indebtedness incurred in connection with equipment acquisitions, the total amount of Management Fees is not determinable at this time.

Our Manager has agreed to subordinate, without interest, receipt of 50% of its monthly payments of Management Fees during the offering and operating periods to the members’ receipt of all accrued, but previously unpaid, and current, installments of first cash distributions.(6) Any Management Fees so deferred will be deferred without interest until the next month we have paid all previously unpaid installments of the first cash distributions.


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Type of Compensation   Method of Compensation   Estimated Dollar Amount
 
Re-Leasing Fees — payable to our Manager and its affiliates.  
We may pay our Manager Re-Leasing Fees for re-leasing our equipment portfolio through the end of the operating period which will equal the lesser of:

(i) 2.0% of gross rental payments and debt service interest payments from the re-lease of equipment; or

(ii) leasing fees that are competitive and/or customarily charged by others rendering comparable services for similar equipment transactions.

In no event will we pay our Manager a 2.0% Re-Leasing Fee if our Manager receives a 7.0% Management Fee as described in Note (4).

The Re-Leasing Fee is only payable if the equipment is not re-leased to the same lessee or its affiliates and our Manager has provided substantial re-leasing services in connection with the re-lease, such as ongoing marketing or hiring or arranging for hiring of crews or operating personnel.
  The amount of Re-Leasing Fees will depend upon the rental payments generated from equipment that is re-leased after lease expiration. The rental amounts for which equipment can be re-leased in the future is presently unknown, as is the size and composition of the equipment portfolio that may be re-leased. For these reasons, the total amount of Re-Leasing Fees is not determinable at this time.
         
Re-Sale Fees — payable to our Manager and its affiliates.  
We may pay our Manager Re-Sale Fees for the re-sale our equipment portfolio through the end of the operating period equal to the lesser of:

(i) 3.0% of the purchase price paid to us by the purchaser for each item of equipment or direct or indirect interest in equipment acquired from us (including a residual interest, a joint venture interest or an option to acquire a residual interest). The purchase price includes indebtedness incurred, assumed or associated with the sale of the equipment or interest in the equipment, such as a residual interest or a joint venture interest, and in the case of options to acquire residual value interests, debt which would be assumed so long as such options can be immediately exercised; or

(ii) One-half of reasonable, customary and competitive brokerage fees paid for services rendered in connection with the sale of equipment of similar size, type and location.
 
The amount of Re-Sale Fees will depend upon the amount of proceeds received from equipment sales. The price at which equipment can be sold in the future is presently unknown, as is the size and composition of the equipment portfolio that may be sold. For these reasons, the amount of Re-Sale Fees is not determinable at this time.

Our payment of Re-Sale Fees is subordinate to our members’ receipt of their capital contribution plus a cumulative return of 8.0% per year on unreturned capital contributions. Any Re-Sale Fees that cannot be paid to us when earned will be deferred, without interest, and paid to us when our members have received the above return.

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Type of Compensation   Method of Compensation   Estimated Dollar Amount
 
Distributions from operations and sales — payable to our Manager.   Prior to payout, which is the time when cash distributions in an amount equal to (1) the sum of the investors’ capital contributions and (2) an 8.0% cumulative annual return, compounded daily, on such capital contributions as reduced by distributions in excess of such 8.0% have been made, distributions of cash from operations and sales will be made 99% to our members (based upon the number of Shares held) and 1% to our Manager. After payout, cash distributions from operations and sales will be made 90% to our members (based upon the number of Shares held) and 10% to our Manager.   Our distributions from operations and sales will depend upon the extent to which equipment rental payments and sales proceeds exceed our expenses, including any indebtedness obligations, as well as whether payout has been achieved. Therefore, our distributions from operations and sales are not determinable at this time.
         
Reimbursement for out-of-pocket expenses directly attributable to our operations — payable to our Manager and its affiliates.   We will reimburse our Manager and its affiliates for some expenses incurred in connection with our operations.(7)   The amount of expenses reimbursed will depend upon the scope of services our Manager provides to us. Reimbursement amounts are not determinable at this time.
 
 
(1) Total Acquisition Fees paid from all sources is limited to the difference between the maximum front-end fees limitation (explained below) and all other front-end fees (i.e., Sales Commissions, Underwriting Fees and the O&O Expense Allowance, which fees may total up to 11.44% of gross offering proceeds, if all 400,000 Shares are sold in the offering). Pursuant to our LLC Agreement, the maximum front-end fees that we are able to pay is 20% of the gross offering proceeds (if we do not use any indebtedness to acquire our investments), which percentage is increased by 0.0625% for each 1% of indebtedness (up to a maximum of 80% of capital contributions) so utilized, resulting in maximum front-end fees of 25% of the gross offering proceeds. However, while we have the ability to incur up to the 25% maximum of front-end fees, we estimate the front-end fees will total up to a maximum of 17.57%. See “Estimated Use of Proceeds.”
 
(2) Operating leases are leases under which the aggregate rental payments due during the initial term of the lease, on a net present value basis, are less than the purchase price of the equipment.
 
(3) Full payout leases are leases under which the rental payments due during the initial term of the lease, on a net present value basis, are sufficient to recover the purchase price of the equipment. Net lease provisions are provisions in leases pursuant to which the lessee assumes responsibility for, and bears the cost of, insurance, taxes, maintenance, repair and operation of the leased equipment.
 
(4) If our Manager provides both equipment management and additional services relating to the continued and active operation of our equipment, such as ongoing marketing and re-leasing of equipment, hiring or arranging for the hiring of crews or operating personnel for our equipment and similar services, our Manager may charge us a management fee not to exceed 7.0% of the gross rental payments from equipment operated by us. If our Manager receives a Management Fee of 7.0% pursuant to this provision, our Manager will not be entitled to the 2.0% Re-Leasing Fee.
 
(5) Our Manager has established a market compensation committee to annually evaluate whether our Management, Re-Leasing and Re-Sale Fees are reasonable, customary and competitive. With respect to Management Fees, the market compensation committee reviews Management Fees charged by similar businesses that operate public investment programs, with a particular emphasis on other equipment leasing programs. With respect to evaluating Re-Sale and Re-Leasing Fees, our Manager has extensive contact with parties offering services of re-sale and re-lease. The market compensation committee reviews dealings with third parties or proposals received from third parties in an effort to establish the reasonableness of these types of fees paid to our Manager. If the committee believes it has not received adequate unsolicited information from third parties on market fees for these services, it will solicit service providers for feedback as to market pricing for such services. The market compensation committee is currently comprised of Messrs. Martin, Reisner, Gatto and Jackson.
 
(6) See “Cash Distributions — First Cash Distributions to Members” for an explanation of first cash distributions.
 
(7) Section 6.4(j) of our LLC Agreement limits the types and annual amounts of our expenses that may actually be paid to our Manager and its affiliates. No reimbursement is permitted for services for which our Manager or its affiliates are entitled to compensation by way of a separate fee. Excluded from the allowable reimbursement, unless permitted under Section 6.4 of our LLC Agreement, will be:
 
  (1)  salaries, fringe benefits, travel expenses or other administrative items incurred by or allocated to any person with a controlling interest in our Manager; and
 
  (2)  expenses for rent, depreciation and utilities or for capital equipment or other administrative items.

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CONFLICTS OF INTEREST
 
We are subject to various conflicts of interest arising out of our relationship to our Manager and its affiliates. There are some provisions in our LLC Agreement that are intended to protect your interests when conflicts arise. Please review Sections 6.2 and 6.4 of our LLC Agreement, which limit the actions our Manager can take on our behalf and limit the compensation we pay to our Manager and its affiliates. In addition, see “Management Responsibility” for a discussion of our Manager’s fiduciary obligations to holders of our Shares, which require our Manager to consider the best interests of holders of our Shares in managing our assets and affairs. The conflicts include the following:
 
Our Manager’s Compensation
 
Our Manager has unilaterally determined the compensation that we will pay to our Manager and the dealer-manager. However, our Manager believes that the amount of compensation is representative of practices in the equipment leasing industry and complies with the NASAA Guidelines (the North American Securities Administrators Association guidelines for publicly offered, finite-life equipment leasing programs) in effect on the date of this prospectus. Our Manager and the dealer-manager will receive substantial compensation upon the closing of this offering and our Manager will receive substantial compensation upon, or from, our acquisition, use and sale of our equipment and leases. Our Manager will make decisions involving these transactions in its sole discretion. See “Compensation of our Manager and Certain Non-Affiliates.”
 
A conflict of interest may also arise from our Manager’s decisions concerning the timing of our purchases and sales of equipment or the termination of Fund Twelve, each of which events will have an effect on the timing and amounts of our Manager’s compensation. In such circumstances, our Manager’s interest in continuing Fund Twelve and receiving Management Fees, for example, may conflict with the interests of our members in realizing an earlier return from our Shares.
 
Effect of Leverage on Our Manager’s Compensation
 
Our Manager intends for us to incur indebtedness that will total approximately 60% of the aggregate purchase price of our total portfolio of equipment and interests in equipment. However, our actual level of borrowings may vary from this estimate and there is no limit on the amount of the aggregate purchase price of our investments that can be financed. Our Manager will earn Acquisition Fees for purchasing equipment, and those fees are based upon the purchase price of the equipment our Manager acquires for us, including incurred indebtedness. Therefore, our Manager will earn a greater amount of Acquisition Fees if we incur significant indebtedness to purchase equipment. Additionally, we pay our Manager management and re-leasing fees based upon our gross lease rental payments, so our Manager may earn greater management and re-leasing fees as a result of our utilizing a greater amount of debt (leverage) to increase the amount of our investments. See “Compensation of our Manager and Certain Non-Affiliates.”
 
Competition with our Manager for Equipment
 
Our Manager and its affiliates are engaged directly and indirectly in the business of acquiring equipment for their own accounts as well as for other businesses. In the future, our Manager or any of its affiliates may form, sponsor and act as a general partner or manager of, or as an advisor to, other investment entities (including other public equipment ownership and leasing programs). Those programs could have investment objectives similar to ours and may be in a position to acquire the same equipment at the same time as us. See “Relationships with Some of Our Manager’s Affiliates” and “Management” for a chart of and a description of our Manager’s relationship to us.
 
If the investments available from time to time to us and to other programs our Manager sponsors are less than the aggregate amount of investment then sought by them, in addition to the factors listed below, our


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Manager will take into account the time period each program has been seeking investments. In allocating investments among us and other programs our Manager sponsors, our Manager will take into consideration:
 
  •  whether the required cash investment is greater than the cash that the programs have available for investment;
 
  •  whether the amount of debt to be incurred or assumed is above levels that our Manager believes are acceptable for the program;
 
  •  whether the investment is appropriate to the objectives of the programs, which include seeking to avoid concentrations of exposure to any one class of equipment;
 
  •  whether the lessee’s credit quality satisfies the objectives of the programs of maintaining high-quality portfolios with creditworthy lessees while avoiding concentrations of exposure to any individual lessee or user;
 
  •  whether the remaining lease term extends beyond the date by which the existence of the businesses will end;
 
  •  whether the available cash flow of the programs is sufficient to purchase the investment and to make distributions;
 
  •  whether the structure of the proposed transaction, particularly the end-of-lease options governing the equipment, provides the opportunity to obtain the residual values needed to meet the programs’ total return objectives for their investments; and
 
  •  whether the transaction complies with the terms of our LLC Agreement or partnership or limited liability company agreement of the programs.
 
Any conflicts in determining and allocating investments between us and other programs managed by our Manager will be resolved by our Manager’s investment committee, which will evaluate the suitability of all prospective lease acquisitions for investment by us and other programs.
 
Our LLC Agreement does not prohibit our Manager or its affiliates from investing in equipment leases, and our Manager and its affiliates can engage in acquisitions, leasing and re-leasing opportunities on its or their own behalf or on behalf of other programs. Our Manager and its affiliates will have the right to take for its or their own account, or to recommend to any program it manages, any particular investment opportunity after considering the factors in the preceding paragraph.
 
Conflicts may also arise between two or more programs (including us) that our Manager or one of its affiliates advises or manages, or between one or more programs and an affiliate of our Manager acting for its own account, which may be seeking to re-lease or sell similar equipment at the same time. In these cases, the first opportunity to re-lease or sell equipment will generally be allocated to the program attempting to re-lease or sell equipment that has been subject to the lease that expired first, or, if the leases expire simultaneously, the lease that was first to take effect. However, our Manager may make exceptions to this general policy where equipment is subject to remarketing commitments with contrary provisions or where, in our Manager’s judgment, other circumstances make applying this policy inequitable or not economically feasible for a particular program.
 
Joint Ventures
 
For added diversification, we may invest in joint ventures with other programs that our Manager sponsors and manages or with third parties. If we enter into a joint venture, our Manager would have a fiduciary duty to us and to any other programs it manages that participate in the joint venture. Having this duty to several programs may result in conflicts in determining when and whether to dispose of any jointly owned investment. To minimize the likelihood of a conflict between these fiduciary duties, our LLC Agreement restricts our Manager’s ability to make investments in joint ventures by requiring that the joint investment comply with the investment criteria and our investment objectives. See “Risk Factors — Investment in joint ventures may subject us to risks relating to our co-investors that could adversely impact the financial results of such joint ventures.” Other than with respect to


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investments in these types of joint ventures, Section 6.2(g) of our LLC Agreement prohibits our Manager from investing our funds in other programs that our Manager or its affiliates sponsor or manage.
 
Lease Referrals
 
From time to time, our Manager may have the opportunity to earn fees for referring prospective equipment lease transactions to a purchaser other than us. This could involve conflicts of interest because our Manager would receive compensation as a result of the referral even though we would not receive any benefits from the transaction.
 
Lack of Independent Management and Directors or Employees
 
Our Manager’s directors who are listed and described in the section of this prospectus entitled “Management,” are also our Manager’s shareholders (through a company they own). In their roles as our Manager’s directors and executive officers, they will make management decisions on our Manager’s behalf. Since they also are our Manager’s owners, their decisions regarding our management are subject to conflicts of interest, since such decisions could also benefit our Manager.
 
We will not employ our own full-time officers, managers or employees. Instead, our Manager will supervise and control our business affairs. Our Manager’s officers and employees will also be spending time supervising the affairs of other equipment leasing programs it manages, so they will only devote the amount of time they think is necessary to conduct our business.
 
Participation of an Affiliate in this Offering
 
Our Shares will be sold on a best-efforts basis through ICON Securities Corp., the dealer-manager, which will receive underwriting fees for all Shares sold. Because ICON Securities Corp. is affiliated with our Manager, its review and due diligence investigation of us and the information provided in this prospectus will not have the benefit of a review and due diligence examination by an independent securities firm in the capacity of a dealer-manager. ICON Securities Corp. is wholly-owned by our Manager. Therefore, ICON Securities Corp.’s relationship with us is subject to conflicts of interests, similar to our Manager’s relationship, since it is controlled by our Manager and it can be presumed to seek to maximize the sale of our Shares.
 
No Arm’s-Length Negotiation of Agreements
 
Our Manager and the dealer-manager are represented by the same legal counsel that represents us. Our members, as a group, have not been represented by legal counsel and our legal counsel has not acted on behalf of prospective investors or conducted a review or due diligence investigation on their behalf. Therefore, none of the agreements and arrangements between our Manager and either the dealer-manager or us was negotiated on an arm’s-length basis. The attorneys, accountants and other experts who perform services for our Manager will also perform services for us, the dealer-manager and other businesses that our Manager or its affiliates may sponsor. However, should a dispute arise between our Manager and us, our Manager will have us retain separate legal counsel to represent us in connection with the dispute.
 
Tax Matters Partner
 
Our Manager is our tax matters partner for purposes of dealing with the IRS on any audit or other administrative proceeding before the IRS and/or any legal proceeding. As tax matters partner, our Manager is empowered to negotiate with the IRS and settle our tax disputes, thereby binding our members to any settlement. While our Manager will seek to take into consideration the interest of our members as a whole in agreeing to any settlement of any disputed items of our income and expense, we cannot assure you that any settlement will be in the best interest of any specific member given his or her specific tax situation.


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MANAGEMENT RESPONSIBILITY
 
Conflicts
 
General.  We are a Delaware limited liability company formed pursuant to the Delaware Limited Liability Company Act. The Delaware Limited Company Act was enacted in the early 1990s and there is limited case law interpreting it. The Delaware Limited Liability Company Act does not set forth any duties that a manager owes to a limited liability company and to its members. Nevertheless, it does allow for duties to be imposed on a manager contractually through a limited liability company’s limited liability company agreement. In this regard, under the terms of our LLC Agreement, our Manager has imposed upon itself the following duties:
 
  •  to act diligently;
 
  •  to faithfully exercise its discretion to the best of its abilities; and
 
  •  to use its best efforts to carry out the purposes and conduct our business in the best interests of the Company, subject to the limitations set forth therein.
 
Under the Delaware Limited Liability Company Act, a manager who acts under a limited liability company agreement that imposes such duties will not be liable to the limited liability company or its members when acting in good faith in reliance upon the provisions of the limited liability company agreement.
 
Competing Activities.  Because our Manager and other programs that it manages (or in the future may manage) will acquire, lease and/or manage equipment, our Manager may be deemed to have interests that differ from our interests. In recognition of this fact, Section 6.5 of our LLC Agreement expressly provides that neither our Manager nor its affiliates will be obligated to present any particular investment opportunity to us and our Manager and its affiliates have the right, subject to certain limitations, to take for its or their own accounts (without the use of our funds), or to recommend to any affiliate (including us), any particular investment opportunity. Provisions to resolve conflicts of interest that may arise between us and other programs our Manager sponsors with respect to particular investment opportunities that become available, as well as conflicts that arise between us and one or more other programs that may be seeking to re-lease or sell similar equipment at the same time, are included in Section 6.5 of our LLC Agreement. See “Conflicts of Interest — Competition with our Manager for Equipment.”
 
Detriment and Benefit.  If our LLC Agreement did not explicitly permit our Manager to acquire investments or to manage similar programs and thereby allocate investment opportunities among us and other programs it manages, a Delaware court could, by analogy to partnership law, apply certain fiduciary obligations to our Manager commonly applied to the general partner of a partnership. If so, our Manager might not be permitted to serve as our manager, as well as the manager or general partner of any programs that might acquire and lease equipment, at the same time. The provisions in our LLC Agreement benefit our Manager since they allow it to act as manager for more than one program and to acquire investments, which a Delaware court might not permit absent such provisions, although this is not certain. Our Manager’s right to manage similar programs and make investments on its own behalf may operate as a detriment to you because there may be opportunities that will not be made available to us. However, our Manager believes that we should benefit from the experience our Manager has gained from acting as a manager or general partner of more than one program. Furthermore, our LLC Agreement attempts to resolve any conflicts arising from the management of multiple programs in a manner consistent with the expectations of the investors of all of these programs, our Manager’s duties and our and other programs’ investment objectives, especially including that of investment diversification.
 
Indemnification
 
We will indemnify our Manager and its affiliates, out of our assets, for any liability, loss, cost and expense of litigation arising out of its acts or omissions provided that:
 
  (1)  our Manager or its affiliate made a determination in good faith that the action or inaction was in our best interests;
 
  (2)  our Manager or its affiliate were acting on behalf of or performing services for us; and


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  (3)  the course of conduct did not constitute negligence or misconduct on our Manager’s part or that of its affiliate.
 
Our Manager and each of its affiliates will be liable, responsible and accountable, and we will not be held liable or responsible, for any liability, loss, cost or expense due to our Manager’s or its affiliate’s negligence or misconduct to us or any member, as determined by a court. We will not have to pay the cost of insurance that insures our Manager or any affiliate for any liability for which our Manager cannot be indemnified.
 
In addition, we have agreed to indemnify the Dealer-Manager and the Selling Dealers against all losses, claims, damages, liabilities and expenses incurred by any of them (except those arising as a result of their own negligence or misconduct) in connection with the offer or sale of our Shares. Any successful claim for indemnification would deplete our assets by the amount paid and could reduce the amount of distributions subsequently made to you.
 
We are not permitted to indemnify our Manager, any of its affiliates, including the Dealer-Manager, or any Selling Dealer for any losses, liabilities or expenses arising out of an alleged violation of federal or State securities laws unless the following have occurred:
 
  (1)  (a) there was a successful adjudication on the merits in favor of our Manager, its affiliates or the Selling Dealer on each count of alleged securities laws violation;
 
       (b) the claims were dismissed with prejudice on the merits by the court and the court approves such indemnification; or
 
       (c) the court approved a settlement of the claims and indemnification regarding the costs of claims; plus
 
  (2)  Our Manager has advised the court regarding the current position of the Securities and Exchange Commission, and any other applicable regulatory body on the issue of indemnification for securities law violations.
 
Investor Remedies
 
There are a number of remedies available to you if you believe our Manager has breached its fiduciary duty. You may sue on behalf of yourself and all other similarly situated members (a class action) to recover damages, or you may bring suit on behalf of us (a derivative action) to recover damages from our Manager or from third parties where our Manager has failed or refused to enforce an obligation. Further, if you suffer losses resulting from violation of the anti-fraud provisions of federal or State securities laws in connection with the purchase or sale of our Shares, you may be able to recover the losses from a Selling Dealer, the Dealer-Manager or anyone associated with either of them.
 
Our Manager will provide quarterly and annual reports of operations and must, upon demand, give you or your legal representative a copy of our Annual Report on Form 10-K and other information concerning our affairs. Further, you may inspect or copy our books and records at any time during normal business hours upon reasonable advance written notice. See “Summary of Our LLC Agreement — Access to Our Books and Records.”
 
This is a developing and constantly changing area of the law and this summary, which describes in general terms the remedies available to you if our Manager breaches its fiduciary duty, is based on statutes and judicial and administrative decisions as of the date of this prospectus. If you have questions concerning our Manager’s duties or you believe that our Manager has breached a fiduciary duty, you should consult your own counsel.
 
In the opinion of the Securities and Exchange Commission, indemnifying an entity for liabilities arising under the Securities Act is contrary to public policy and therefore unenforceable. If our Manager asserts a claim against us for indemnification for such liabilities (other than for expenses incurred in a successful defense) under our LLC Agreement or otherwise, we will submit to a court of competent jurisdiction the question of whether such indemnification is against public policy as expressed in the Securities Act.


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OTHER PROGRAMS SPONSORED BY OUR MANAGER
 
Our Manager was formed in 1985 to finance and lease equipment, and act as the manager or general partner for publicly offered, income-oriented equipment leasing programs. In addition to acting as our Manager, as of December 31, 2006, our Manager sponsored and is the manager or general partner of:
 
  •  ICON Cash Flow Partners L.P. Seven (“LP Seven”);
 
  •  ICON Income Fund Eight A L.P. (“Fund Eight A”);
 
  •  ICON Income Fund Eight B L.P. (“Fund Eight B”);
 
  •  ICON Income Fund Nine, LLC (“Fund Nine”);
 
  •  ICON Income Fund Ten, LLC (“Fund Ten”); and
 
  •  ICON Leasing Fund Eleven, LLC (“Fund Eleven”).
 
Also, our Manager sponsored and was the general partner of:
 
  •  ICON Cash Flow Partners, L.P., Series A (“Series A”), which was liquidated and dissolved in 1999;
 
  •  ICON Cash Flow Partners, L.P., Series B (“Series B”), which was liquidated and dissolved in 1999;
 
  •  ICON Cash Flow Partners, L.P., Series C (“Series C”) which was liquidated and dissolved in 2001;
 
  •  ICON Cash Flow Partners, L.P., Series D (“Series D”), which was liquidated and dissolved in 2005;
 
  •  ICON Cash Flow Partners, L.P., Series E (“Series E”), which was liquidated and dissolved in 2006; and
 
  •  ICON Cash Flow Partners L.P. Six (“LP Six”), which was liquidated and dissolved in 2006.
 
These equipment leasing programs are referred to collectively as the equipment leasing programs sponsored by our Manager. All of these equipment leasing programs sponsored by our Manager were publicly offered and are income-oriented equipment leasing limited partnerships or limited liability companies. Our Manager and its affiliates have also engaged in the past, and may in the future engage, in the business of brokering or acquiring equipment leasing transactions that do not meet the investment criteria our Manager has established for us and for the equipment leasing programs sponsored by it, such as the criteria for creditworthiness, equipment types, excess transaction size or concentration by lessee, location or industry.
 
As of December 31, 2006, six of the twelve other equipment leasing programs that our Manager sponsored have completed operations and have been liquidated. These equipment leasing programs had different investment objectives than us and were primarily operated by individuals who have not been part of our Manager’s current management team. A brief financial summary of the performance of those completed programs follows as of December 31, 2006.
 
                                                 
    Series A     Series B     Series C     Series D     Series E     LP Six  
 
Amount Invested
  $ 1,000.00     $ 1,000.00     $ 1,000.00     $ 1,000.00     $ 1,000.00     $ 1,000.00  
Total Distributions
    1,238.74       957.60       968.45       1,208.37       1,048.92       957.31  
Gain/Loss on Distributions
    238.74       (42.40 )     (31.55 )     208.37       48.92       (42.69 )
Year Offering Commenced
    1987       1989       1990       1991       1992       1993  
Year Offering Terminated
    1989       1990       1991       1992       1993       1995  
Year Liquidation Period Commenced
    1999       1999       2001       1997       1998       2000  
 
As noted, three of those completed equipment leasing programs did not completely return to their respective investors all of their capital and the other three completed leasing programs returned $238.74, $208.37, and $48.92 for each $1,000 invested to its investors in excess of their original investment.


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Total Gross Offering Proceeds of Equipment Leasing Programs
Sponsored by our Manager
(as of December 31, 2006)
 
                 
    Number of
    Total
 
Program
  Investors     Gross Offering Proceeds  
 
Series A (dissolved in 1999)
    226     $   2,504,500  
Series B (dissolved in 2001)
    1,756       20,000,000  
Series C (dissolved in 2001)
    1,741       20,000,000  
Series D (dissolved in 2005)
    3,076       40,000,000  
Series E (dissolved in 2006)
    3,712       61,041,151  
LP Six (dissolved in 2006)
    2,276       38,385,712  
LP Seven
    4,582       99,999,681  
Fund Eight A
    2,887       74,996,504  
Fund Eight B
    2,816       75,000,000  
Fund Nine
    3,221       99,653,474  
Fund Ten
    4,383       149,994,502  
Fund Eleven
    7,110       292,216,861  
                 
Total:
    37,786     $ 973,792,385  
                 
 
The equipment leasing programs sponsored by our Manager that are still in the reinvestment phase are all actively engaged in purchasing equipment and entering into and acquiring lease and other transactions, and all other equipment leasing programs sponsored by our Manager are either in their liquidation period or have liquidated. As of December 31, 2006, the equipment leasing programs sponsored by our Manager had originated or acquired investments as follows:
 
Investments Originated or Acquired by Equipment Leasing Programs
Sponsored by our Manager
as of December 31, 2006
(All Amounts in Dollars of Original Acquisition Cost)
 
                         
    Leased
    Other
    Total
 
Program
  Equipment     Transactions     Investments  
 
Series A (dissolved in 1999)
  $ 6,226,774     $ 1,556,694     $ 7,783,468  
Series B (dissolved in 2001)
    40,950,305       26,850,666       67,800,971  
Series C (dissolved in 2001)
    45,800,967       26,853,123       72,654,090  
Series D (dissolved in 2005)
    55,577,669       81,733,088       137,310,757  
Series E (dissolved in 2006)
    80,651,864       199,000,866       279,652,730  
LP Six (dissolved in 2006)
    93,104,306       80,323,694       173,428,000  
LP Seven
    251,479,444       75,503,618       326,983,062  
Fund Eight A
    152,696,530       25,258,312       177,954,842  
Fund Eight B
    231,605,065       38,761,792       270,366,857  
Fund Nine
    235,301,134       47,593,637       282,894,771  
Fund Ten
    143,694,980       45,817,634       189,512,614  
Fund Eleven
    515,886,025       18,498,365       534,384,390  
 
As of December 31, 2006, the equipment leasing programs sponsored by our Manager had leases and other transactions under management (determined by the original cost of the investment acquired less the total original cost of assets sold) in the U.S. dollar amounts shown below.


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Investment Portfolio of Equipment Leasing Programs
Sponsored by our Manager
as of December 31, 2006
 
                         
    Leased
    Other
    Total
 
Program
  Equipment     Transactions     Investments  
 
Series A (dissolved in 1999)
  $     $     $  
Series B (dissolved in 2001)
  $     $     $  
Series C (dissolved in 2001)
  $     $     $  
Series D (dissolved in 2005)
  $     $     $  
Series E (dissolved in 2006)
  $     $     $  
LP Six (dissolved in 2006)
  $     $     $  
LP Seven
  $     $ 7,359,242     $ 7,359,242  
Fund Eight A
  $ 29,642,402     $ 3,718,407     $ 33,360,809  
Fund Eight B
  $ 112,055,597     $ 4,315,573     $ 116,371,170  
Fund Nine
  $ 147,535,985     $ 8,620,393     $ 156,156,378  
Fund Ten
  $ 159,632,631     $ 19,433,808     $ 179,066,439  
Fund Eleven
  $ 479,066,321     $ 24,738,658     $ 503,804,979  
 
Series A, Series B, Series C, Series D, Series E and LP Six were all syndicated before 1996 by ICON Capital Corp. under prior ownership and management. In 1996, our Manager was acquired by Mr. Martin along with Messrs. Beaufort J.B. Clarke and Paul Weiss, with Mr. Martin a member of its executive management since that time through the date hereof. All members of our Manager’s acquisition and remarketing departments joined those departments upon or subsequent to the ownership change. Each of Series A, Series B, Series C, Series D, Series E and LP Six had investment objectives and policies significantly different than ours. For example, the majority of the equipment acquired by those programs was new or recently delivered, whereas a significant portion of the equipment that we will purchase is expected to be equipment already subject to lease, which our Manager believes presents substantially less risk than purchasing new equipment. Additionally, Series A, Series B, Series C, Series D, Series E and LP Six attempted to compete with large commercial lending institutions in the highly competitive business of originating new leases. Finally, the amount of the gross offering proceeds raised by each of Series A, Series B, Series C and Series D was substantially smaller than what we are likely to raise. Less offering proceeds result in smaller portfolios of equipment and less portfolio diversification. For example, Series A raised only $2.5 million, Series B and Series C each raised only $20 million, Series D raised only $40 million, Series E raised only $60 million and LP Six raised only $38 million. Other equipment leasing programs our Manager has sponsored under current management have each raised in excess of 97% of the amounts offered, which have been between $75 and $375 million.
 
Three of the equipment leasing programs sponsored by our Manager, Series A, Series B and Series C, experienced unexpected losses in 1992. The losses incurred by investors in those programs do not take into account the benefit of tax-deferral resulting from the fact that a significant portion of early distributions received by investors comprised a return of capital, which was not subject to tax at the time of receipt. Series A experienced losses of $133,569 in 1992, primarily related to the bankruptcy of Richmond Gordman Stores, Inc. In 1992, Series B wrote down its residual positions by $506,690, of which $138,218 was related to the bankruptcy of Richmond Gordman Stores, Inc. and $368,472 was related to rapid obsolescence of equipment due to unexpected withdrawal of software support by the manufacturer. Series C wrote down its residual position in 1992 by $1,412,365, relating to the bankruptcy of PharMor, Inc., which involved the reported misappropriation of funds by the management of that company and the overstatement of inventory on its audited financial statements.
 
As discussed above, Series D, Series E and LP Six, were syndicated under prior ownership and management, generally acquired new equipment (prior to the change of ownership and management), attempted to compete with large commercial lending institutions to originate new business, and were substantially smaller programs than the programs sponsored by our Manager’s current management, which resulted in smaller portfolios with less diversification. These programs did not perform as expected because of


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those reasons. In addition, Series D, Series E and LP Six were all affected to varying degrees by the events of September 11, 2001. These programs were adversely impacted by the events of September 11th, as evidenced by their inability to overcome the resulting market conditions for some of their investments in commercial aircraft and certain marine assets.
 
For example, Series D had a $6.8 million investment in two identical de Havilland DHC-8-102 aircraft on lease to U.S. Airways, Inc. In September 2000, it sold one of the aircraft for a gain of approximately $708,000; however, following the events of September 11th, U.S. Airways filed for bankruptcy and rejected the lease on the other aircraft, which was ultimately sold for a loss of approximately $360,000. In addition, following the events of September 11th, each of Series E and LP Six wrote down its residual position in McDonnell-Douglas MD-83 aircraft on lease to Aerovias de Mexico, S.A. de C.V. by $1.5 million per aircraft and each aircraft was ultimately sold to the lender in satisfaction of the outstanding debt and accrued interest.
 
In each of the foregoing examples, the remaining loan balance at the expiration of each respective lease was greater than the fair market value of each asset. In those instances, the equipment could not have been sold for an amount sufficient to satisfy the outstanding debt balance and could not be re-leased to a third-party at a lease rate high enough to make the debt service payments owed to the lender. As a consequence, the equipment was either voluntarily returned to the lender in satisfaction of the outstanding debt or repossessed by the lender and the program received no additional proceeds from the equipment.
 
Each of Series E and LP Six made its final liquidating distribution in March 2006 and was dissolved in April 2006. Series E had not made a distribution to its limited partners since May 1, 2004. LP Six had not made a distribution to its limited partners since March 1, 2004. Fund Seven has not made a distribution to its limited partners since April 2003; however, it currently has a significant asset remaining to be liquidated and is currently in its liquidation period.
 
The information presented in this section and the tables included as Exhibit B to this prospectus represents historical results of equipment leasing programs sponsored by our Manager and its affiliates. If you purchase our Shares, you will not have any ownership interest in any other businesses sponsored or owned by our Manager as a result of your purchase. You should not assume that you will experience returns, if any, comparable to those experienced by investors in equipment leasing programs sponsored by our Manager and its affiliates.


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RELATIONSHIPS WITH SOME OF OUR MANAGER’S AFFILIATES
 
The following diagram shows our relationship to our Manager and its affiliates.
 
(ICON FLOW CHART)
 
Mr. Martin would be considered our Manager’s “promoter.” As an officer and director of ICON Capital Corp., Mr. Martin would indirectly receive a portion of the compensation received by ICON Capital Corp. as set forth under “Compensation of our Manager and Certain Non-Affiliates.” Mr. Martin is also an officer and director of ICON Securities Corp. and as such would indirectly receive a portion of the compensation received by ICON Securities Corp. as set forth under “Compensation of our Manager and Certain Non-Affiliates.”
 
Our Manager’s Affiliates
 
ICON Securities Corp., the dealer-manager, is a Delaware corporation and a wholly-owned subsidiary of our Manager. Its predecessor was formed in 1982 to manage the equity sales for investor programs sponsored by its affiliates. It is registered with the Securities and Exchange Commission and is a member of the National Association of Securities Dealers, Inc. and the Securities Investor Protection Corporation. ICON Securities Corp. is the dealer-manager of this offering.


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MANAGEMENT
 
The Manager
 
Our Manager was formed in 1985. Its principal office is located at 100 Fifth Avenue, Fourth Floor, New York, New York 10011, and its telephone number is (212) 418-4700. The following table provides information regarding our Manager’s executive officers.
 
             
Name  
Age
  Title
 
Thomas W. Martin
  53   Chairman, Chief Executive Officer and Director
Michael A. Reisner
  36   Executive Vice President and Chief Financial Officer and Director
Mark Gatto
  34   Executive Vice President and Chief Acquisitions Officer and Director
Joel S. Kress
  34   Executive Vice President — Business and Legal Affairs
David J. Verlizzo
  34   Vice President and Deputy General Counsel
Anthony J. Branca
  38   Senior Vice President — Accounting and Finance
Craig A. Jackson
  48   Vice President — Remarketing and Portfolio Management
 
Thomas W. Martin has been Chairman and Chief Executive Officer since May 2007 and has been a Director (and Director, President and Treasurer of ICON Securities Corp. as well) since August 1996. Mr. Martin was President from February 2007 to May 2007, Chief Operating Officer from February 2006 to May 2007 and Chief Financial Officer from May 2003 through January 2007. Mr. Martin was the Executive Vice President, Chief Financial Officer and a co-founder of Griffin Equity Partners, Inc. from October 1993 to August 1996. Prior to that, Mr. Martin was Senior Vice President of Gemini Financial Holdings, Inc. from April 1992 to October 1993 and he held the position of Vice President at Chancellor Corporation (an equipment leasing company) for 7 years. Mr. Martin has a B.S. degree from University of New Hampshire. Mr. Martin has been in the equipment leasing business since 1983.
 
Michael A. Reisner has been Executive Vice President and Chief Financial Officer since January 2007 and a director since May 2007. Mr. Reisner was formerly Executive Vice President-Acquisitions from February 2006 through January 2007. Mr. Reisner was Senior Vice President and General Counsel from January 2004 through January 2006. Mr. Reisner was Vice President and Associate General Counsel from March 2001 until December 2003. Previously, from 1996 to 2001, Mr. Reisner was an attorney with Brodsky Altman & McMahon, LLP in New York, concentrating on commercial transactions. Mr. Reisner received a J.D. from New York Law School and a B.A. from the University of Vermont.
 
Mark Gatto has been Executive Vice President and Chief Acquisitions Officer and a director since May 2007. Mr. Gatto was formerly Executive Vice President — Business Development from February 2006 to May 2007 and Associate General Counsel from November 1999 through October 2000. Mr. Gatto is responsible for business and corporate development, including the acquisition of equipment subject to lease. Before serving as Associate General Counsel, Mr. Gatto was an attorney with Cella & Goldstein in New Jersey, concentrating on commercial transactions and general litigation matters. From November 2000 to June 2003, Mr. Gatto was Director of Player Licensing for the Topps Company and, in July 2003, he co-founded a specialty business consulting firm in New York City and served as its managing partner before re-joining our Manager in April 2005. Mr. Gatto received an M.B.A from the W. Paul Stillman School of Business at Seton Hall University, a J.D. from Seton Hall University School of Law, and a B.S. from Montclair State University.
 
Joel S. Kress has been Executive Vice President — Business and Legal Affairs since May 2007. Mr. Kress was formerly Senior Vice President and General Counsel from February 2006 to May 2007 and was Vice President and Associate General Counsel from August 2005 until January 2006. Previously, from 2001 to 2005, Mr. Kress was an attorney with Fried, Frank, Harris, Shriver & Jacobson LLP in New York and London, England, concentrating on mergers and acquisitions, corporate finance and financing transactions (including debt and equity issuances) and private equity investments. Mr. Kress received a J.D. from Boston University School of Law and a B.A. from Connecticut College.


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David J. Verlizzo has been Vice President and Deputy General Counsel since February 2006. Mr. Verlizzo was Assistant Vice President and Associate General Counsel from May 2005 until January 2006. Previously, from 2001 to 2005, Mr. Verlizzo was an attorney with Cohen Tauber Spievack & Wagner LLP in New York, concentrating on public and private securities offerings, securities law compliance and corporate and commercial transactions. Mr. Verlizzo received a J.D. from Hofstra University School of Law and a B.S. from The University of Scranton.
 
Anthony J. Branca has been Senior Vice President — Accounting and Finance since January 2007. Mr. Branca was Director of Corporate Reporting & Analysis for The Nielsen Company (formerly VNU) from May 2005 until January 2007, and held various other management positions with The Nielsen Company from July 1997 through May 2005. Previously, from 1994 through 1997, Mr. Branca was employed as a senior accountant at Fortune Brands and started his career as an auditor with KPMG Peat Marwick in 1991. Mr. Branca received a B.B.A. from Pace University.
 
Craig A. Jackson has been Vice President — Remarketing and Portfolio Management since February 2006. Previously, from October 2001 to 2006, Mr. Jackson was president and founder of Remarketing Services, Inc., a transportation equipment remarketing company. Prior to 2001, Mr. Jackson served as Vice President of Remarketing and Vice President of Operations for Chancellor Fleet Corporation (an equipment leasing company). Mr. Jackson received a B.A. from Wilkes University.
 
Committees
 
Market Compensation Committee.  Our Manager has established a market compensation committee to annually evaluate whether our Management, Re-Leasing and Re-Sale Fees are reasonable, customary and competitive. With respect to Management Fees, the market compensation committee reviews management fees charged by similar businesses that operate public investment programs, with a particular emphasis on other equipment leasing programs. With respect to evaluating Re-Sale and Re-Leasing Fees, our Manager has extensive contact with parties offering services of re-sale and re-lease. The market compensation committee reviews dealings with third parties or proposals received from third parties in an effort to establish the reasonableness of these types of fees paid to our Manager. If the committee believes it has not received adequate unsolicited information from third parties on market fees for these services, it will solicit service providers for feedback as to market pricing for such services. The market compensation committee is currently comprised of Messrs. Martin, Reisner, Gatto and Jackson.
 
Investment Committee.  Our Manager established an investment committee which has set, and may from time to time revise, standards and procedures for the review and approval of potential leases. The investment committee is responsible for supervising and approving all individual transactions and portfolio purchases. The investment committee will consist of at least two persons whom our Manager will designate. Our Manager expects that all such persons will be its officers or those of its affiliates. The investment committee will make decisions by majority vote. As of the date of this prospectus, the members of the investment committee are Messrs. Martin, Reisner, Kress and Jackson.
 
INVESTMENT OBJECTIVES
 
General
 
Investment Objectives.  We will purchase various types of equipment that will typically be leased at the time of purchase. The leases will generally be with lessees that our Manager determines are creditworthy and are located in North America, Europe and other developed markets, including those in Asia, South America and elsewhere. We have four investment objectives:
 
  (1)  Invest in Leased Equipment:  to invest at favorable prices in equipment and other property subject to leases with creditworthy lessees.
 
  (2)  Make Cash Distributions:  to make monthly cash distributions, beginning the month after the first investor is admitted as a member.


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  (3)  Diversify to Reduce Risk:  to select individual investments that, when evaluated as a group, represent a diversified portfolio of equipment and other property subject to leases. We intend to emphasize investments in long-lived, low-obsolescence equipment to reduce the impact of economic depreciation and, to a lesser degree, emphasize investments where high rental rates compensate us for the expected economic depreciation of the underlying equipment. We believe that a diverse portfolio comprised of various types of equipment, a range of maturity dates and creditworthy lessees makes it less likely that changes in any one market sector or a lessee’s default or bankruptcy will significantly impact us.
 
  (4)  Provide a Favorable Total Return:  to achieve “payout,” which is the time when the aggregate amount of cash distributions we pay to our investors equals the sum of the members’ aggregate capital contributions, plus an 8.0% cumulative annual return on their aggregate unreturned capital contributions, compounded daily.
 
We expect initially to make equipment investments equal to the sum of the following:
 
  •  81.93% of the gross offering proceeds if the maximum number of our Shares is sold in the offering; plus
 
  •  borrowed funds, which are expected to be approximately 60% of the purchase price of our investment portfolio, but we are not limited on the amount we can borrow to fund equipment purchases; plus
 
  •  excess cash flow not held in reserve or distributed to investors.
 
Leases
 
Leases in General.  In a typical lease, we will own and lease equipment and the lessee will make periodic payments to us, usually of a predetermined (and usually level) dollar amount, payable for a fixed length of time. The most important characteristic that distinguishes a lease from other financing arrangements involving equipment is that when the lessee’s right to use the equipment ends (upon the expiration of a lease), a significant part of the equipment’s economic life remains. The potential value that may be realized upon the expiration of the initial lease term is commonly referred to as the residual value of the equipment. Your ultimate return, if any, on an investment in our Shares may partly depend upon the residual value of the equipment we acquire.
 
The majority of our investments will be the outright purchase of equipment that is already subject to lease. From this type of investment, we will be legally entitled to receive rental payments from leasing the equipment and, as owner of the equipment, may sell or re-lease it at lease expiration. We will purchase equipment subject to lease either directly or through special purpose entities we own. We may, in some cases, jointly purchase equipment with other businesses our Manager sponsors and manages or with unaffiliated third parties. In such cases, we may co-own a special purpose entity with other parties.
 
We will seek to acquire a portfolio of equipment leases that is comprised of both (a) transactions that provide current cash flow in the form of rental payments made directly to us, and (b) transactions where the cash flow in the form of rental payments has been pledged or assigned, in whole or in part, to a lender. We refer to current cash flow leases which we acquire for cash as income leases. We call leases where a substantial portion of the cash flow (and perhaps a portion of the expected residual value of the equipment) has been pledged or assigned to a lender as growth leases (also known within the equipment leasing industry as leveraged leases). We expect that most of the indebtedness incurred by us to pay a portion of the purchase price for growth leases will be non-recourse to our other assets, meaning that in the event the lender is not paid, our other assets would not be at risk as a source of payment; only the particular item or items of financed equipment would be at risk.
 
Income Leases.  Equipment acquired subject to income leases generally will have shorter economic lives (at least 3 and sometimes 7-10 years), and more rapid technological obsolescence, than equipment subject to growth leases. It is typical of income leases that we intend to acquire for the value of the leased equipment at lease expiration to be a smaller percentage of the purchase price of the equipment than is the case with growth leases. As a result, income leases provide for the payment of a higher relative amount of rent than growth leases. Rental payments under income leases are expected to be, on average, in the range of 2-3% of


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equipment cost per month. The higher anticipated rental rate on income leases is expected to enable us to achieve a favorable return on these lease investments despite the anticipated decline in the value of the equipment.
 
Despite the anticipated decline in the value of the underlying equipment, we believe that income leases will be available to us that have attractive total return opportunities resulting from the possible extension of the leases with the lessees, or the exercise of renewal options by the lessees. A meaningful amount of the cash distributions we make to members in our early years is expected to come from the cash flow associated with income leases. Given our investment objectives, income leases are an important component of a balanced portfolio of equipment leases.
 
Growth Leases.  Equipment acquired subject to growth leases generally will have longer economic lives (at least 10 and sometimes 40 or more years) and much less rapid technological obsolescence than equipment that is subject to income leases. We anticipate that for growth leases we acquire, the future value of these types of leased equipment will exceed the cash portion of the purchase price we pay for such equipment. With growth leases, a lender provides a significant percentage of the purchase price, and the rental payments from the lease are used, in whole or in part, to pay interest on, and reduce the principal balance of, the financed portion of the purchase price. Rental payments under growth leases are expected to be, on average, close to 1% of the equipment cost per month (most of which will be paid to a lender). The outstanding indebtedness used to acquire or finance the growth lease is expected to be reduced at a faster rate than the gradual economic depreciation for this class of equipment. As a result, we hope to build up our equity in the equipment over time if the future value of the equipment is equal to or exceeds our expectations.
 
Growth leases typically will provide us little or no current cash flow. We will receive most or all of our cash from growth leases upon the sale or re-lease of the equipment at lease expiration when the underlying equipment is sold or is re-leased to current lessees or third parties. Because we expect that a meaningful amount of distributions to members in our early years will come from the cash flow associated with income leases, we believe we can prudently invest at least 50% of our portfolio in growth leases.
 
There can be no assurance as to the exact percentage of our equipment leasing portfolio that will consist of income leases and growth leases. We believe the optimal mix depends upon the specific leases identified for acquisition and their rental payments, lease terms and forecasted residual values. The mix of lease types may vary significantly as leases expire and reinvestment occurs, and the mix of leases we believe optimal at later dates may be materially different than what we consider optimal today. It is our general philosophy that income leases, having generally lower total return prospects but higher current cash flow than growth leases, are an important part of a prudently structured portfolio when combined with growth leases, which we believe should have higher total return prospects.
 
Our authority to carry out these acquisition policies and endeavor to meet our investment objectives is contained in Sections 3.1 through 3.3 of our LLC Agreement. Any substantive changes to those provisions of our LLC Agreement can only be made with the approval of a majority of our Shares.
 
Lease Provisions.  The terms and provisions of each lease that we acquire or enter into will vary depending upon a number of factors that existed at the time the lease commenced, including the type and intended use of the equipment, the business, operations and financial condition of the lessee, any regulatory considerations and the tax consequences and accounting treatment of the lease transaction.


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We anticipate that each lease we acquire will hold the lessee responsible for:
 
  (1)  paying rent without deduction or offset of any kind;
 
  (2)  bearing the risk of equipment loss and maintaining both casualty and liability insurance on the equipment;
 
  (3)  paying sales, use or similar taxes relating to the lease or other use of the equipment;
 
  (4)  indemnifying us against any liability resulting from any act or omission of the lessee or its agents;
 
  (5)  maintaining the equipment in good working order and condition during the term of the lease; and
 
  (6)  prohibiting the assignment or sublease of the equipment without our prior written consent.
 
Our leases will usually have terms ranging from 2 to 7 years. We also anticipate that most leases will not be cancelable during their initial terms, although some leases may provide the lessee with a termination right in exchange for an agreed upon payment to us. We may agree to allow cancellation of a lease that does not have a termination right if it appears to be in our best interest; provided, that a lessee pays compensation to us or a more attractive alternative exists that will enable us to achieve our investment objectives. At the end of each lease term, the lessee may have the option to buy the equipment or renew the lease, either at set prices or at prices tied to the then current fair market value.
 
Leases Denominated in Foreign Currencies.  We have the ability to acquire leases in which the rental payments are denominated in a currency other than U.S. dollars. In these cases, we may enter into a contract to protect us from fluctuations in the currency exchange rates. If a lease is denominated in a major currency such as the pound sterling, which has historically had a stable exchange relationship with the U.S. dollar, hedging may be unnecessary or not cost effective to protect the value of the rental payments. To hedge the risk related to lease payments made in a foreign currency, we would enter into a hedge contract so that we would receive a fixed number of U.S. dollars for the rent and any other fixed, periodic payments due under the lease even if the exchange rate between the U.S. dollar and the currency of the lease changes over the lease term. We expect to enter into hedge contracts only if the hedge contracts would be on terms and conditions favorable to our members. See “Risk Factors — We could incur losses as a result of foreign currency fluctuations.”
 
Transaction Approval Procedures
 
Our Manager has established an investment committee that has set, and may from time to time revise, standards and procedures for the review and approval of potential leases. The investment committee is responsible for supervising and approving all individual transactions and portfolio purchases. The investment committee will consist of at least two persons whom our Manager designates. Our Manager expects that all such persons will be its officers or those of its affiliates. The investment committee will make decisions by majority vote. As of the date of this prospectus, the members of the investment committee are Messrs. Martin, Reisner, Kress and Jackson.
 
The investment committee will make investment decisions using the investment policies described in this prospectus and the factors set forth under “Conflicts of Interest.” All potential equipment acquisitions will be evaluated on the basis of:
 
  •  the extent to which the transaction appears to satisfy our investment objectives;
 
  •  the creditworthiness of the prospective lessee and the character of its business, and, to the extent deemed prudent for lessees whose senior debt is rated investment grade by an independent rating agency, the availability of credit enhancements to secure the transaction in the event the potential lessee defaults; and
 
  •  the type of equipment to be purchased for lease and its condition, location and expected residual value.


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Creditworthiness Considerations
 
We maintain credit review procedures that govern our credit review of potential lessees. Our typical minimum procedures are set forth below, but may be revised by the investment committee as it deems necessary or appropriate for a particular transaction:
 
  •  for lessees that have senior debt rated investment grade by an independent rating agency, such as, Moody’s, Standard & Poor’s, Dun & Bradstreet and Fitch, an intensive and comprehensive analysis of a potential lessee’s current and past years’ financial statements and any and all additional information on the lessee’s business that may help determine the ability of the lessee to meet its obligations; and
 
  •  for lessees that do not have senior debt rated investment grade by an independent rating agency and whom we believe warrant additional investigation beyond the review noted above, review and verification of the potential lessee’s credit and payment history, bank accounts, trade references and credit reports from credit agencies such as Moody’s, Standard & Poor’s, Dun & Bradstreet and Fitch, etc.
 
Equipment Considerations
 
“Used” Equipment.  We anticipate that the majority of our investments will be in used equipment, that is, equipment delivered to the current lessee prior to our purchase of the equipment. Used equipment transactions that are already subject to lease can be advantageous to us because we may have the opportunity to analyze payment histories and compliance with other lease provisions, the condition of the equipment, and how it is used and maintained by the lessee prior to purchasing it. In general, we will not make substantial equipment purchases (particularly in the case of growth leases) without obtaining such information and reports, and inspecting and surveying the equipment and its service, maintenance and repair records and utilization history as we deem prudent and necessary to determine the probable economic life, reliability and productivity of the equipment, as well as the competitive position, suitability and desirability of investing in the equipment compared with other investment opportunities.
 
Types of Equipment.  We expect to invest in the following types of equipment (among others):
 
  •  transportation equipment such as aircraft (including airframes, engines, avionics, parts and ground handling equipment), rail equipment (including boxcars, tank cars, hopper cars, flatcars, locomotives and various other equipment used by railroads in the maintenance of their railroad track), heavy-duty trucks, truck trailers and intermodal (rail, over-the-road and marine) containers and chassis and marine vessels (including oceangoing vessels, towboats and barges and offshore energy exploration and production equipment that may be characterized as vessels);
 
  •  machine tools and manufacturing equipment such as computer- and mechanically-controlled lathes, drill presses, vertical and horizontal milling machines, rotary and cylindrical grinders, metal fabrication and slitting equipment, and other metal forming equipment, and entire facilities dedicated to manufacturing, production or distribution of goods;
 
  •  materials handling equipment, such as forklifts and more specialized equipment for moving materials in warehouse or shipping areas;
 
  •  furniture and fixtures, store fixtures, display cases, freezers, manufacturing equipment, electronic test equipment, medical diagnostic and testing equipment (such as radiology equipment, sonographic equipment and patient monitoring equipment) and miscellaneous medical equipment (including lab test equipment, blood-gas analyzers and treatment room furniture);
 
  •  office technology, personal computers and computer networks, servers, communication and related peripheral equipment, scanners and copy machines;
 
  •  any real property or leasehold or other interests in real property that are incidental to any equipment or leases; and
 
  •  other equipment, which we believe may be an attractive investment to meet our investment objectives, including future technology equipment, custom-made or specialized equipment similar to those types of equipment described above, data gathering equipment and upgrades and retrofits to existing equipment.


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As of December 31, 2006, the following graph shows the types of equipment purchased by other equipment leasing programs our Manager sponsored since the date that the current executive management team took over, based on the cash portion of the purchase price.
 
Acquisitions in Cash
By Equipment Type Since August 1996
 
(PIE CHART)
 
Economic Useful Lives of Equipment.  We will generally seek to buy equipment that, on expiration of the lease, at least one-third of the economic useful life of the equipment remaining, based upon its age or utilization history. To maximize our end-of-lease disposal options and investment returns, we will generally seek to avoid investing in equipment that may become technologically obsolete or, as in the case of income leases, otherwise of limited utility for reasons including excessive wear and tear. However, we will make exceptions for equipment that we have reason to believe will contribute to our overall investment objectives. An example of this in the case of income leases is if the lease rental rate enables us to achieve a favorable return despite the anticipated decline in the value of the equipment.
 
Equipment Registration and Regulation.  Before we acquire transportation equipment, we will evaluate the impact and costs of maintaining the registration of the equipment with appropriate governmental agencies and complying with the requirements such agencies place on the operation and condition of the equipment. Aircraft and marine vessels are subject to registration and other requirements by the Federal Aviation Administration and United States Coast Guard, respectively. Railroad cars, over-the-road vehicles and other equipment may also be subject to governmental registration requirements. Most foreign countries have similar regulatory requirements. If, for any reason, the equipment is not appropriately registered or registration lapses or is lost, substantial penalties could be imposed on us or we could be forced to liquidate our investment in the equipment. Often, until registration is obtained or regained, the equipment may not be operated. Regulatory agencies sometimes require changes or improvements to equipment and we may have to spend our own capital to make the changes if the lessee of the equipment is not required to do so under a lease. Making changes may cause the equipment to be removed from service for a period of time. Additionally, federal law restricts the extent to which U.S. registered aircraft and marine vessels that are registered in the United States may be owned or controlled by people who are not U.S. citizens. As a consequence of these rules, we may transfer title of certain aircraft and vessels to a trust of which we are the sole beneficiary, a limited liability company beneficially owned by us or a limited liability company of which we are a member.
 
Portfolio Acquisitions
 
We may purchase portfolios of equipment subject to leases. In evaluating a portfolio acquisition, we expect to follow one or more of the following procedures:
 
  •  review for completeness and accuracy the lease documentation of (a) the largest of the leases in the portfolio, and/or (b) a substantial random sampling of smaller leases (particularly in the event that there is not a concentration of large transactions);


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  •  review and verify lessee and user payment histories where necessary and practicable;
 
  •  evaluate the underlying equipment or other collateral and verify their values (either directly or by an independent appraiser with respect to some or all of the leases);
 
  •  take commercially reasonable steps to evaluate the creditworthiness of a representative number of non-investment-grade potential lessees; and
 
  •  perform Uniform Commercial Code lien searches against selected potential lessees, as well as against the current owner of the portfolio.
 
In connection with the acquisition of any portfolio, we may require that such acquisition be full or partially recourse to the current holder of the portfolio in the event that any underlying lessee defaults.
 
Options and Other Interests in Equipment
 
We may purchase options to acquire equipment, usually for a fixed price at a future date. We will acquire options, with the intent of exercising them, if we believe the residual value of the equipment is significantly greater than the price of the option plus the agreed price of the equipment at which the option can be exercised. We may also purchase direct and indirect interests in equipment, including ownership rights to equipment after lease expiration or make future commitments to lease, purchase or purchase options in, equipment. Indirect interests in equipment may include residual interests, which include the right to the proceeds from lease payments and equipment sales after all of the debt associated with the equipment has been paid.
 
Other Investments
 
We may also, from time to time, invest in other types of property, tangible and intangible, including related real property, contract rights, lease rights, debt instruments and equity interests in corporations, partnerships, affiliated programs, joint ventures or other entities. However, we may make such investments only in furtherance of our investment objectives, in accordance with our investment policies, and in relation to the acquisition of equipment or other transactions as described in this prospectus and as governed by our LLC Agreement.
 
Interim Financing
 
We may participate with other affiliated programs of our Manager in a recourse debt facility to provide temporary financing. Our Manager or any of its affiliates may acquire equipment for us on an interim basis, generally not to exceed six months, so long as the acquisition is in our best interest and the equipment is purchased by us for a price no greater than our Manager’s or its affiliate’s cost for the equipment. Neither our Manager nor its affiliates may benefit from the acquisition, except for allowable compensation to our Manager as described in “Compensation of our Manager and Certain Non-Affiliates.” When our Manager or one of its affiliates purchases equipment on our behalf on an interim basis with its own funds in order to facilitate our ultimate purchase, our Manager or such affiliates, as the case may be, will be entitled to receive interest on the funds advanced on our behalf at a rate equal to that which would be charged by third-party financing institutions on comparable loans for the same purpose in the same geographic area. However, we will not pay a higher rate of interest than that which our Manager or such affiliate is paying if our Manager or such affiliate either assumes an existing loan or borrows money to acquire the equipment. Our Manager will pay interest on such funds until we buy the equipment, which interest will begin to accrue on the date our Manager or such affiliate buys the equipment. Any rental payments received or accrued by our Manager or such affiliate prior to our purchase of the equipment will either reduce our purchase price of the equipment or will be assigned to us upon our purchase of the equipment. If a secured loan is assumed in connection with such an acquisition, the loan must have the same interest terms at the time we acquire the equipment as it had when our Manager or such affiliate first acquired the equipment.
 
Portfolio Review and Remarketing
 
Our Manager intends to evaluate our investments at least annually, and more frequently if circumstances require, to determine whether each item of equipment should remain in the portfolio or should be sold, and if such a sale would achieve our investment objectives given then-existing market conditions. Our Manager will


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make that decision based upon our operating results, general economic conditions, tax considerations, the nature and condition of items of equipment, the financial condition of the parties obligated to make payments under leases, alternate investment opportunities then available to us and other factors that our Manager deems appropriate to the evaluation.
 
Prior to or upon the expiration of any lease, our Manager will try to:
 
  (1)  extend or renew the lease with the existing lessee,
 
  (2)  lease the equipment to a new lessee, or
 
  (3)  sell the equipment to the existing lessee or a third party.
 
Disposing of or redeploying equipment upon lease expiration is known in the equipment leasing industry as remarketing.
 
MARKET AND INDUSTRY DATA
 
Market and industry data used throughout this prospectus were obtained through our research, surveys and studies conducted by third parties and industry and general publications. We have not independently verified market and industry data from third-party sources but have no reason to believe such information is not reliable or accurate as of the date of this prospectus. In particular, we made our determinations about equipment leasing financing companies and the equipment leasing industry from the Monitor and the Equipment Leasing and Finance Association (“ELFA”), respectively.
 
INDUSTRY OVERVIEW
 
Growth of the Equipment Leasing Industry
 
In the second half of the twentieth century, leasing became one of the most popular methods by which domestic businesses financed their capital equipment needs. We that believe that domestic equipment leasing volume is correlated to overall business investments in equipment. According to information published by the ELFA, total domestic business investment in equipment increased annually from $375.5 billion in 1991 to a peak of $796.0 billion in 2000. Similarly, during the same period, total domestic equipment leasing volume increased annually from $120.2 billion in 1991 to a peak of $247.0 billion in 2000.
 
The volume of equipment lease financing reflects general economic conditions. As the economy slows or builds momentum, the demand for productive equipment generally slows or builds, and equipment leasing volume generally decreases or increases. The economy in the United States experienced a downturn from 2001 through 2003, resulting in a decrease in equipment leasing volume from $216.0 billion in 2001 to $182.0 billion in 2003. Since then, the economy in the United States, including business investment in equipment and equipment leasing volume has been recovering. According to the ELFA, in 2006, domestic business investment in equipment forecasted to rebound to an estimated $794.0 billion with a corresponding increase in leasing volume is to an estimated $220.0 billion.
 
A key obstacle facing the leasing industry is the relatively low interest rate environment, which reduces leasing volume inasmuch as customers are more prone to purchase than lease. However, we believe that as economic growth continues and interest rates rise over time, more lessees will return to the marketplace.
 
Why Businesses Lease
 
Over the years, leasing has grown to be one of the major sources of equipment financing for businesses. It allows companies to:
 
  •  Conserve cash and borrowing capacity.  Leasing permits companies to finance 100% of the purchase price of equipment and allows them to conserve cash and borrowing capacity for other purposes (such as research and development) while still having the use of business essential equipment.
 
  •  Deduct lease payments for tax purposes as a business expense.  When a company borrows money to finance equipment purchases, only the interest portion of the loan is typically tax deductible.


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  •  Maximize flexibility.  A lease can allow a business to upgrade its equipment more easily and quickly than owning, enabling the company to stay on the cutting edge of technology. Alternatively, businesses retain operating flexibility in leasing, which is valuable if their long-term demand for the particular equipment is unknown.
 
  •  Receive favorable accounting treatment.  Acquiring equipment with borrowed funds requires companies to carry debt on their financial statements, which may conflict with the goals of the business or financial ratio restrictions placed on such companies by lenders. If the lease obligation is accounted for as an “off-balance sheet” transaction in the financial statements, companies may have greater flexibility with respect to meeting lender restrictions and achieving their business objectives.
 
Competition in the Equipment Leasing Industry
 
The equipment leasing industry is highly competitive. When seeking leasing transactions for acquisition, we compete with other leasing companies, manufacturers that lease their products directly, equipment brokers and dealers and financial institutions, including commercial banks and insurance companies. Other leasing companies and equipment manufacturers or their affiliated financing companies may be in a position to offer equipment to prospective lessees on financial terms that are more favorable than those that we can offer. There are numerous other potential entities, including entities organized and managed similarly to us, seeking to purchase equipment subject to leases. Many of these potential competitors are larger and have greater financial resources than us.
 
We specialize in acquiring used equipment already on lease. Typically, this means a bank or other financial institution originally competed for the lease and today it sits within their leasing investment portfolio. Our purchases are often made from the portfolios of these other leasing companies rather than through competition in the open market. This approach limits the competition for our typical investment, which may enhance returns. We believe this investment model may represent the best way for individual investors to participate in leased equipment ownership.


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CASH DISTRIBUTIONS
 
While our objective is to make the monthly cash distributions to our members as described below, we cannot make any prediction as to what level of distributions or return on investment, if any, will be achieved. In addition, no specific amount of distributions is guaranteed and investors bear a significant risk of loss on an investment in our Shares.
 
Monthly Cash Distributions
 
Section 8.1(a) of our LLC Agreement provides that each member, other than our Manager (solely in its role as manager and not in its capacity as a member), is entitled to receive monthly cash distributions and that our Manager will receive distributions as monthly distributions are made to our members. These monthly distributions will be made at the initial distribution rate, as determined by our Manager, beginning with the month after the member’s admission and ending with the termination of the operating period, to the extent that cash on hand is available for this purpose. The operating period is our period of active investment and reinvestment, which we anticipate will end five years after the final closing date of the offering, but which our Manager may extend for up to an additional 36 months.
 
During the operating period, our Manager intends for us to reinvest substantially all of our undistributed cash not held in reserve, as well as proceeds of financings not needed to pay current obligations, in additional equipment. A ratable portion (that is, one-twelfth) of the annual distribution amount will be payable monthly. Those members who invest prior to the applicable minimum offering size being achieved whose funds are held in escrow, upon admission as members, will receive a one-time distribution in an amount equal to the initial distribution rate for each day their funds were held in escrow, but without interest, to the extent cash on hand permits. We are making this one-time distribution so, with respect to distributions, all investors are treated equally regardless of when they invested, either before or after breaking escrow.
 
Cash on hand will be distributed to members in an amount that we believe can be prudently distributed without adversely affecting our operations, including meeting all of our investment objectives. In determining how much cash to distribute, our Manager will consider the following: (a) our expenses, the timing and amounts of which are expected to be largely non-discretionary; and (b) monies that our Manager determines are necessary to set aside as reserves or reinvest in additional investments. Thus, our Manager’s decisions to establish additional reserves might affect our ability to make monthly cash distributions. Furthermore, our ability to make cash distributions to our members may be subject to restrictions imposed upon us in loan or other types of agreements.
 
Cash distributions are generally made in proportion to the number of Shares a member owns, without taking into account differences in the length of time such members have held their Shares, and are non-cumulative, meaning that if there is insufficient cash available to make a distribution at the initial distribution rate or the current distribution rate, as determined by our Manager, in a given month, the shortfall will not necessarily be made up in any subsequent monthly distribution.
 
Distributions to be made to members pursuant to our LLC Agreement are intended to be in an amount sufficient to permit the members to pay any federal and state income taxes payable with respect to sales of equipment by us. For this purpose, we assume that all members are subject to income taxation at a 35% rate on taxable profits from such sales. There can be no assurance that cash will be available in an amount sufficient for that purpose.
 
We anticipate that the monthly cash distributions, provided funds are available, will be made approximately five days after the end of each month, commencing in the first full month following the initial closing date, which is the date the minimum offering is achieved. Since monthly cash distributions are subject to the availability of funds, there can be no assurance that any anticipated monthly distributions will be made.
 
First Cash Distributions to Members
 
If in any month during the offering period and operating period, the current annual distribution rate is less than the initial distribution rate, our Manager will defer 50% of its Management Fees. Such deferral will be


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without interest and will continue until such time as aggregate distributions to our members are equal to the aggregate distributions that would have been received had the initial distribution rate continued, as modified, to the calculation date.
 
The ratio of cash distributions to members other than our Manager to cash distributions to our Manager is different before and after payout. See “Compensation of our Manager and Certain Non-Affiliates — Operating Stage.” Payout is the time when cash distributions have been made in an amount equal to the sum of the members’ capital contributions, plus an 8.0% cumulative annual return on their unreturned capital contributions, compounded daily. These determinations will not be made on a member-by-member basis but will be made by aggregating contributions from our members and distributions to our members as a whole. Prior to payout, distributions of cash flow will be made 99% to our members and 1% to our Manager. After payout, distributions of cash flow will be made 90% to our members and 10% to our Manager.
 
Reinvesting Distributions in Additional Shares During our Offering Period Pursuant to our DRIP Plan
 
You may elect to have all of the cash distributions you receive during our offering period invested in additional Shares pursuant to our DRIP Plan. See “Distribution Reinvestment Plan.”
 
Cash Distributions During the Liquidation Period
 
After the operating period, we will sell our assets in the ordinary course of business during a timeframe called the liquidation period. These sales will occur as soon as our Manager deems it prudent, which may or may not be before the expiration of the remaining term of the related lease. At our option, equipment returned from expired leases may be leased to third parties rather than sold if, in our Manager’s judgment, the re-lease of the equipment is in the best economic interest of our members. Because there can be no assurance that equipment coming off lease can be sold in a timely fashion during the liquidation period, or that sales proceeds will be adequate to allow a distribution to be made in a given month, you should expect the amount and frequency of distributions during the liquidation period to be unpredictable. Distributions made during the liquidation period will, among other things, depend upon:
 
  •  the amount of cash on hand at the end of the operating period;
 
  •  the cash from sales of our investments;
 
  •  the amount of cash flow, if any, that we derive from the ownership of our remaining investments during the liquidation period; and
 
  •  repayment of debt obligations, if any.
 
If our Manager believes it would benefit our members to reinvest the proceeds received from our investments in additional investments during the liquidation period, we may do so, and that would have an impact on the amount and timing of distributions made during the liquidation period. In addition, our Manager will not receive any Acquisition Fees on equipment purchased during the liquidation period. Upon our liquidation, our assets will be distributed in accordance with the positive balances in our members’ capital accounts.
 
Members investing at different times during the offering period may experience different rates of return on their investments, both at the time if and when payout is achieved and upon the liquidation of Fund Twelve. This will depend on, among other things, whether the initial distribution is less than, equal to, or greater than 8% (the priority return used to determine when payout is achieved) and whether monthly distributions at that rate are always made, and similar differences could exist at the time of the liquidation of Fund Twelve.


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FEDERAL INCOME TAX CONSEQUENCES
 
This section discusses the material federal income tax consequences for an individual investor who is a U.S. citizen or resident. This summary is not exhaustive of all possible tax considerations and is not tax advice. Moreover, this summary does not deal with all aspects that might be relevant to you, as a particular prospective investor, in light of your personal circumstances. The tax consequences of investing in our Shares will not be the same for all investors. A careful analysis of your particular tax situation is required to evaluate this investment properly. Therefore, we urge you to consult your own tax advisor.
 
Tax treatment for other investors — such as trusts, corporations, tax-exempt organizations and employee benefit plans, and foreign investors — are likely to differ significantly from the principal tax consequences outlined in this section. See “— Tax Treatment of Certain Trusts and Estates,” “— Taxation of Tax-Exempt Organizations” and “— Corporate Investors.” State and local tax consequences may differ from the federal income tax consequences described below. See “— State and Local Taxation.”
 
Opinion of Counsel
 
We have obtained a legal opinion from Arent Fox LLP, our counsel, concerning our classification as a partnership for federal tax purposes. To the extent the summaries of tax consequences herein contain statements or conclusions of law, counsel is of the opinion that these statements or conclusions more likely than not are correct under the present Internal Revenue Code (the “Code”), applicable current and proposed IRS regulations, current published administrative positions of the IRS and judicial decisions.
 
Counsel’s opinion is based upon the facts described in this prospectus and upon additional facts that we provided to counsel about our operations. Any alteration of our activities from the description we gave to counsel may render the opinion unreliable. Furthermore, the opinion of counsel is based upon existing law, which is subject to change either prospectively or retroactively.
 
You should note that the tax opinion represents only our counsel’s best legal judgment and has no binding effect or official status of any kind, on the IRS or otherwise; and neither we nor our counsel has requested a ruling from the IRS on any of the tax matters discussed in this prospectus. The IRS may not accept the conclusions set forth in our counsel’s opinion.
 
Our counsel will not prepare or review our income tax information returns, which will be prepared by our Manager and our independent registered public accounting firm. Our Manager will make a number of decisions on such tax matters as the expensing or capitalizing of particular items, the proper period over which capital costs may be depreciated or amortized and many similar matters. Such matters are usually handled by taxpayers, often with the advice of independent accountants, and are usually not reviewed with counsel.
 
With regard to the tax consequences to you of an investment in our Shares, your use of our counsel’s tax opinion letter is subject to the limitations of the Code and proposed Treasury Regulations set forth below:
 
  •  With respect to any material federal tax issue on which our counsel has issued a “more likely than not” or more favorable opinion, its opinion may not be sufficient for you to use for the purpose of avoiding penalties relating to any substantial understatement of income tax under Section 6662(d) of the Code.
 
  •  Because we have entered into a compensation arrangement with our counsel to provide certain legal services to us, including its tax opinion letter, our counsel’s tax opinion letter was not written and cannot be used by you for the purpose of avoiding penalties relating to any reportable transaction understatement of income tax under Section 6662A of the Code.
 
The limitations set forth above on your use of our counsel’s tax opinion letter apply only for federal tax purposes. They do not apply to your right to rely on our counsel’s tax opinion letter and the discussion in the “Federal Income Tax Consequences” section of this prospectus under the federal securities laws.


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Classification as a Partnership
 
Business organizations generally are treated either as corporations or partnerships for tax purposes. Our counsel has given us its opinion that, under current tax laws and regulations, we will be classified for federal tax purposes as a partnership and not as a corporation. We will not request a ruling from the IRS on this matter. Our counsel’s opinion on this issue is based partially on our representations that: (1) our business will be conducted as described in this prospectus; and (2) we will not elect to be classified as an association taxable as a corporation. While we are not a partnership for State law purposes, for federal income tax purposes we expect to be treated as a partnership.
 
Taxation of Limited Liability Companies in General
 
For income tax purposes, limited liability companies that do not elect to be taxed as corporations are treated as partnerships and, thus, pass through entities. This means that the individual members, and not the limited liability company, pay tax on the limited liability company’s income and deduct the limited liability company’s losses. As a member, you will report your share of our income, deductions, capital gains and losses on your federal income tax return. You will also pay taxes on your share of any taxable income or gains earned by us.
 
One tax advantage of a limited liability company taxed as a partnership is that its earnings are only taxed once by the federal government. The limited liability company files an informational return with the IRS, but has no federal income tax liability. Because it pays no federal income taxes, the limited liability company has more income to distribute to its investors. By contrast, a corporation’s earnings are effectively taxed twice. The corporation itself must pay corporate income taxes, reducing the amount available to distribute in dividends to its shareholders; the shareholders are then required to pay income taxes on the dividends they receive. Another tax advantage of limited liability companies is that, subject to the limitations discussed in this section, investors often can deduct their share of any losses the limited liability company incurs; a corporation does not pass through deductible losses to its investors.
 
We believe that your most substantial tax risk from this investment would be for the IRS to treat us as a corporation for tax purposes, by classifying it as a “publicly traded partnership,” under Code Section 7704(b). Were that to happen, we would have to pay tax on our income, reducing the amount of income available for distribution to you; and you would not be able to deduct your share of any losses. Such a classification would adversely affect your after-tax return, especially if the classification were to occur retroactively. Furthermore, a change in our tax status would be treated as an exchange by the IRS, which could give rise to additional tax liabilities. See “— Publicly Traded Partnerships.”
 
Your ability to deduct our losses is limited to the amounts that you have at risk in this investment. This is generally the amount of your investment, plus any profit allocations and minus any loss allocations and distributions. Additionally, your ability to deduct losses attributable to passive activities is restricted. Because our operations will constitute passive activities to an individual investor, you can only use our losses to offset passive income in calculating your tax liability. For example, passive losses may not be used to offset portfolio income. See “— Deductibility of Losses; Passive Activity Losses, Tax Basis and ‘At-Risk’ Limitation.”
 
Leasing activities will generate the overwhelming majority of our income. We expect that, for federal income tax purposes, our equipment leases will be treated as true leases and we will be considered the owner and lessor of the equipment. The IRS may challenge the leases, however, and instead assert that they are sales or financings. This would result in the loss of your cost recovery or depreciation deductions. See “— Tax Treatment of Leases.”
 
Publicly Traded Partnerships
 
Some limited liability companies otherwise treated as partnerships for tax purposes are classified as publicly traded partnerships, referred to as “PTPs.” If we are classified as a PTP, we would be taxed as a corporation. A PTP is a limited liability company (or partnership) in which interests are traded on an established securities market or are readily tradable on either a secondary market or the substantial equivalent


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of a secondary market. If a PTP derives less than 90% of its gross income from sources such as interest and dividends, rents from real property and gains from the sale of real property, the PTP is taxed as a corporation.
 
The legislative history of Code Section 7704 provides that a secondary market for interests in a partnership or the substantial equivalent thereof exists if investors are readily able to buy, sell or exchange their partnership interests in a manner that is comparable, economically, to trading on established securities markets. A secondary market is generally indicated by the existence of a person standing ready to make a market in the interests. The substantial equivalent of a secondary market will be deemed to exist if (i) interests in the partnership are regularly quoted by any person, such as a broker or dealer, making a market in the interests; (ii) any person regularly makes available to the public (including customers and subscribers) bid or offer quotes with respect to interests in the partnership and stands ready to effect buy or sell transactions at the quoted prices for itself or on behalf of others; (iii) if the holders of interests in the partnership have a readily available, regular and ongoing opportunity to sell or exchange their interests through a public means of obtaining or providing information of offers to buy, sell, or exchange interests; or (iv) buyers and sellers have the opportunity to buy, sell, or exchange interests in the partnership in a time frame that a market-maker would provide and prospective buyers have similar opportunities to acquire such interests. The legislative history of Section 7704 also indicates that a regular plan of redemptions or repurchases by a partnership may constitute public trading where holders of interests have readily available, regular and ongoing opportunities to dispose of their interests.
 
We do not intend to list our Shares on any market. Our Shares also will not be readily tradable on a secondary market, nor do we expect them to be in the future. Therefore, we will be a PTP only if our Shares become readily tradable on the substantial equivalent of a secondary market. Our Shares do not become readily tradable merely because we provide information to members regarding other members’ desires to buy or sell Shares to each other or occasionally arrange transfers between members.
 
Transfers made through a qualified matching service are also not counted. A matching service qualifies for this exclusion if it satisfies all seven of the following conditions:
 
  (1)  it consists of a system that lists customers’ bid and ask quotes in order to match sellers and buyers;
 
  (2)  deals occur either by matching the list of interested buyers to interested sellers or by bidding on listed interests;
 
  (3)  sellers cannot enter into a binding agreement to sell their interest until at least 15 days after information regarding their offering is made available to potential buyers;
 
  (4)  the closing of the sale does not occur until at least 45 days after information about the offering is made available;
 
  (5)  the matching service only displays quotes that express interest in trading but do not represent firm commitments to buy or sell at the quoted price;
 
  (6)  the seller’s information is removed from the matching service within 120 days after the posting and, if removed for any reason other than a sale, no offer to sell from that seller is entered into the matching service for at least 60 days; and
 
  (7)  the percentage of interests in the capital or profits transferred during the tax year (other than through private transfers) does not exceed 10% of the total interests in partnership capital or profits.
 
In the opinion of our counsel, the IRS will not treat us as a PTP. This opinion is based in part on our representation to counsel that our Shares will not be listed on any securities exchange and that, in accordance with Section 10.2 of our LLC Agreement, our Manager will refuse to recognize or give effect to any assignment of our Shares for any purpose (including recognizing any right of the transferee, such as the right of the transferee to receive directly or indirectly our distributions or to acquire an interest in our capital or profits) if such assignment occurred on an established securities market or a secondary market (or the substantial equivalent thereof), within the meaning of Section 7704 of the Code and the Treasury Regulations and published notices promulgated thereunder, or to permit, recognize or give effect to any assignment of


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Shares that would result in the transfer of more than 2% of our Shares in any year other than those that our Manager determines in good faith fall within certain safe harbor provisions under Treasury Regulation Section 1.7704-1. See “Transfer of Our Shares / Withdrawal — Restrictions on the Transfer of Our Shares and Withdrawal.” This is pursuant to a “safe harbor” under Treasury Regulation 1.7704-1 that provides that a secondary market or its equivalent will not exist if the sum of the interests in partnership capital or profits attributable to those partnership interests that are sold, redeemed, or otherwise disposed of during the partnership’s taxable year and do not fall within other “safe harbor” provisions does not exceed 2% of the total interests in partnership capital or profits. In determining whether we satisfy the 2% safe harbor, redemptions of our Shares pursuant to Sections 10.5 and 10.6 of our LLC Agreement will be counted.
 
While we will use our best efforts to limit the type and number of transfers of Shares to those that will allow us to remain within the 2% safe harbor, we do not warrant that we will satisfy this safe harbor during each of our taxable years. It is conceivable that transfers of Shares could occur that would cause us to fall outside the safe harbor. In this regard, Treasury Regulation Section 1.7704-1(c)(3) states that failure to meet any of the safe harbors will not create a presumption that a secondary market or its equivalent exists for Shares. No assurances can be offered, however, that, if the amount and type of trading in our Shares were to fall outside the safe harbor, the IRS would not claim publicly traded partnership status with respect to us.
 
If we are classified as a PTP, we would be treated for federal income tax purposes as a corporation unless, as noted above, 90% or more of our income were to come from certain “qualified sources.” Our business will be the leasing of personal (but not real) property, and income from this source is not “qualified.” Thus, if we were a PTP, we would be taxed as a corporation. The major consequences of corporate tax treatment would be that, in addition to being taxed when distributed to you, our income would be subject to corporate income tax and our losses would not be passed through our members. If we are taxed as a corporation, and particularly if the PTP classification is made retroactively, corporate taxation would have a substantial adverse effect on your after-tax return on your investment. Furthermore, the IRS would treat a change in tax status from a partnership to a PTP taxable as a corporation as an exchange that would give rise to tax liabilities for our members if our debt exceeded the tax basis of our assets at the time of the change in tax status — even though members likely would not receive cash distributions from us to cover such tax liabilities. See “— Classification as a Partnership” and “— Sale or Other Disposition of Shares.” In addition, our distributions would be classified as portfolio income rather than passive activity income and thus would not be eligible to be offset by passive activity losses attributable to us or other activities giving rise to passive losses. See “— Deductibility of Losses; Passive Activity Losses, Tax Basis and ‘At-Risk’ Limitation.”
 
Taxation of Distributions
 
As long as we are classified as a partnership under federal tax law, we will not be subject to federal income tax. Rather, you will be required to report on your federal income tax return, and pay taxes with respect to, your share of our annual income, gains, losses, deductions and credits. Our tax returns will be prepared using the accrual method of accounting. Under the accrual method, we will recognize as income items such as rentals and interest as and when earned by us, whether or not they are received.
 
You will be furnished with all information about us necessary to prepare your federal income tax return not later than 75 days after the end of each fiscal year. We will also file an annual information return with the IRS and will report our finances on an accrual basis using a December 31 fiscal year. Our income and loss for the year will be allocated among our members to take into account the varying interests of our members during the year using any method permissible under Code Section 706 that our Manager may select. If any members hold their Shares for less than the entire year, they will be allocated income and loss using such method as selected by our Manager that reflects such part-year ownership as is permissible under Code Section 706. For purposes of allocating income or loss among our members, we will treat our operations as occurring ratably over each fiscal year — in other words, we will assume that income and loss are spread evenly over the fiscal year. Thus, if some members are admitted even after others, those members admitted later may receive a smaller portion of each item of our net profits and net losses than the members who were admitted earlier. Nevertheless, those members still will be obligated to make the same capital contributions to us for their interests as the members who were admitted previously. In addition, where a member transfers


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Shares during a taxable year, a member may be allocated net profits for a period for which such member will not receive a corresponding cash distribution. Depreciation or other cost recovery with respect to equipment may create a deferral of tax liability. Larger cost recovery deductions in the early years may reduce or eliminate our taxable income in the initial years of our operations. This deferral, however, will be offset in later years, when smaller depreciation and cost recovery deductions will offset less of our income, while an increasing portion of our revenue must be applied to reduce debt principal. In later years, it is possible that taxable income will exceed cash distributions.
 
With the exception noted below, you will not be required to pay income tax on cash distributions that exceed your share of our taxable income. The excess will reduce your tax basis for your Shares, however. Your tax basis will also increase or decrease annually based on your allocable share of our income or loss for the year. Any cash distributions you receive that exceed your tax basis (after adjustment for your allocated share of our income or loss) will be taxable to you, generally as capital gains, provided the Shares are held by you as capital assets. Any reduction in your share of non-recourse liabilities, such as might arise as a result of a reduction of your percentage interest in us upon issuance of additional Shares to new or existing members, will be treated as a distribution of cash to you. A portion of any distribution in excess of your tax basis will, however, be recharacterized as ordinary income in the same percentage that ordinary income would be realized upon a sale by us of all our assets, for example, because of depreciation recapture. In addition, to the extent that a distribution would cause the amount you are considered to have “at risk” with respect to equipment placed in service in a given year to become negative, you will have to include such amount in your gross income up to the amount of losses previously taken with respect to such equipment. Further, a non-pro rata distribution of money or property, such as might arise as a result of a reduction of your share of our liabilities upon the admission of additional members, may result in ordinary income to you, regardless of your tax basis in your Shares, if the distribution reduces your share of our “unrealized receivables,” including depreciation recapture, or substantially appreciated “inventory items.” These terms are defined in Section 751 of the Code, and are known as “Section 751 assets.” To that extent, you will be treated as having been distributed your proportionate share of our Section 751 assets and having exchanged those assets with us in return for the non-pro rata portion of the actual distribution made to you. This last deemed exchange generally will result in your realization of ordinary income under Section 751(b) of the Code. That ordinary income will equal the excess of (i) the non-pro rata portion of that distribution over (ii) your tax basis for your share of Section 751 assets deemed relinquished in the exchange.
 
Participation in our DRIP Plan
 
Although the tax treatment of participation in corporate dividend reinvestment plans is well-established, the treatment of participation in our DRIP Plan is less clear because we expect to be treated as a partnership for federal income tax purposes, rather than as a corporation. See “— Classification as a Partnership” and “— Taxation of Limited Liability Companies in General.” If the general principles applicable to corporate dividend reinvestment plans were to apply to us, members participating in our DRIP Plan would be treated as having received the applicable distribution and immediately contributed such amount to us in exchange for additional Shares. We intend to maintain our records consistent with such an approach in that we will show a distribution to members participating in our DRIP Plan and an associated purchase by them of Shares from us.
 
If the IRS were to treat participation in our Plan in a similar fashion, a member who participates in our DRIP Plan will be treated as receiving all cash distributions reinvested in Shares registered in his name pursuant to our DRIP Plan. Such distributions would be treated for tax purposes like other cash distributions. See “— Taxation of Distributions.” Generally speaking, the Treasury Regulations provide that when a partner makes an additional cash contribution to a partnership, the holding period of that partner’s partnership interest becomes a “split” holding period, with the portion of the interest attributable to the additional contribution (determined by the ratio of the amount of the additional cash contribution to the fair market value of the partnership interest after the contribution) treated as having a holding period that begins the day following the date of the additional contribution and the balance of the partnership interest retaining the holding period that it had prior to the contribution. A special rule under the Treasury Regulations also provides, however, that in determining the holding period of a partnership interest upon a sale of the interest, cash distributions received


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during the one-year period prior to the sale may be applied to reduce the cash contributions made during that period, on a last-in-first-out basis. Application of this special rule may, in many instances, prevent a member from having a short-term holding period with respect to a portion of his interest in us at the time of a sale of all or part of such interest if the only Shares acquired by the member during the one year period preceding such sale were acquired through our DRIP Plan. For the tax treatment of any gain on such a sale, see “— Sale or Other Disposition of Shares.”
 
While, as noted above, the Treasury Regulations generally provide that an interest in a partnership (or an entity treated as a partnership, such as us) is a single interest, with the result that a member’s interest in us can (subject to the special rule mentioned in the preceding paragraph) have a “split” holding period upon the acquisition of additional Shares, there is an exception to this rule that permits a partner in a publicly-traded partnership to treat separately-identifiable units therein that were acquired at different times to have different holding periods. We do not expect that exception will apply to a member’s interest in us because we do not expect to be a publicly-traded partnership. See “— Publicly Traded Partnerships.”
 
Alternatively, it is possible that members who participate in our DRIP Plan might not be considered by the IRS to have received cash distributions and that the additional Shares that were registered in their names pursuant to the DRIP Plan reflect the dilution of the interests in us of those members who did not participate in our DRIP Plan, such dilution being effected by the issuance of such additional Shares to the members who participate in our DRIP Plan.
 
If a member elects to participate in our DRIP Plan, the deemed distribution and corresponding investment will not, in and of themselves, have any net effect on the basis of such member’s interest in us. This is the case even though such member’s basis would be reduced by the amount of the distribution, because such member’s basis would be increased by an equal amount as a result of the corresponding reinvestment. Such member’s share of our non-recourse liabilities — which are also included in such member’s basis — could increase relative to those members who do not participate in our DRIP Plan, however, because such member’s relative ownership interest in us would be deemed to have increased.
 
For further information regarding the tax consequences of participation in our DRIP Plan, you should consult your own tax advisor.
 
Our Income Versus Our Distributions
 
The taxable income we report to you each year will not equal the cash distributions that you receive. The difference between reported income and cash distributions arises primarily from four facts: first, depreciation and other cost recovery deductions reduce our taxable income, but not our cash available for distribution. Second, our revenues that we reinvest or use to repay debt principal will generally constitute income even though using revenues for those purposes reduces the cash distributed to you. See “— Cost Recovery.” Third, we will determine our income using the accrual method of accounting, which means it will include rent income as it accrues, even if not yet received. Fourth, certain rules, such as the “at-risk” rules and the tax-exempt leasing rules, may prevent losses attributable to some of our equipment from being used to offset income attributable to our other equipment. Therefore, the cash distributions that we make to you may be greater or less than your share of our taxable income in any given year.
 
Allocations of Profits and Losses
 
Your share of any item of our income, gain, loss, deductions or credits is determined by our LLC Agreement. As a general rule, when we are reinvesting proceeds in equipment (the first five to eight years after we are closed to new investors), 99% of our profits will be allocated among our members (including our Manager) in proportion to their Share ownership, and our Manager will be allocated 1%. This allocation will continue until the excess of the cumulative profits allocated to our members, in the aggregate, over the cumulative losses allocated to our members, in the aggregate (not taking into account certain items that are specially allocated, such as non-recourse deductions and minimum gain chargebacks) would, if distributed currently to the extent not previously distributed, provide our members in the aggregate with an 8% cumulative annual return, compounded daily. Thereafter, during the operating period, our profits will be


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allocated 90% among our members (including our Manager) in proportion to their Share ownership and 10% to our Manager. Then, during the liquidation period, while we sell our assets, profits shall initially be allocated between our Manager and the members so that our Manager is allocated the greater of 1% thereof or such greater amount as is necessary to provide our Manager with cumulative profits allocated pursuant to this provision, equal to, when added to the profits allocated 1% to our Manager during the operating period, the cash that has been distributed 1% to it, and the balance to our members until they have been allocated an amount equal to the 8% cumulative annual return, compounded daily, threshold described in the second preceding sentence. Thereafter, profits will be allocated 10% to our Manager and 90% to our members. Starting with the first year that starts on or after the first day of the liquidation period, profits allocated to our members shall be allocated among them in the first instance so as to cause their capital accounts, as determined on a per Share basis and adjusted to reflect such items as their share of minimum gain, to be equal and thereafter in proportion to their Shares.
 
As a general rule, 1% of our losses will be allocated to our Manager and 99% will be allocated among our members in proportion to their Share ownership. However, losses will be allocated 10% to our Manager and 90% to our members to reverse profits that were allocated in such 10%/90% ratio, described above, and thereafter 1% to our Manager and 99% to our members. During the operating period, losses allocated to our members shall be allocated among them in proportion to their Share ownership. Starting with the first year that begins on or after the first day of the liquidation period, losses allocated to our members shall be allocated among them in the first instance so as to cause their capital accounts, determined on a per Share basis and adjusted to reflect such items as their shares of minimum gain, to be equal and thereafter in proportion to their Shares. Non-recourse deductions will be allocated 1% to our Manager and 99% among our other members.
 
The IRS respects a limited liability company’s allocation of income, gain, loss, deductions or credits if:
 
  (a)  the allocation is substantial and has economic effect, or
 
  (b)  the members can show that the allocation accords with the member’s interest in the limited liability company, and
 
  (c)  in the case of either (a) or (b), the allocation complies with special rules requiring that members receiving allocations of losses or deductions generated by purchasing assets with borrowed money be charged back income and gain as those funds are repaid.
 
IRS regulations generally provide that, for an allocation to have economic effect, the following conditions must be true:
 
  •  the allocation must be reflected by an increase or decrease in the relevant member’s capital account;
 
  •  liquidation proceeds must be distributed in accordance with the member’s positive capital account balances;
 
  •  our LLC Agreement must provide that if a member will have a deficit balance in his or her capital account upon liquidation of the limited liability company, the member either must be required to restore the deficit amount to the limited liability company, so that amount may be distributed to other members with positive capital account balances, or, in the absence of an obligation to restore the deficit, our LLC Agreement must contain a qualified income offset provision. A qualified income offset provision mandates that when a member receives a distribution from the limited liability company that causes a deficit in the member’s capital account or increases a preexisting deficit, that member must be allocated income and gains as quickly as possible to eliminate any deficit balance in his or her capital account that is greater than any amount that he or she is obligated to restore.
 
The economic effect of an allocation is substantial if there is a reasonable possibility that it will substantially affect the amount to be received by our members from us, independent of tax consequences. An economic effect is not substantial if, at the time the allocation becomes part of our LLC Agreement: (1) at least one member’s after-tax return may, in present value terms, be enhanced compared to his or her return if the allocation were not contained in our LLC Agreement; and (2) there is a strong likelihood that no


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member’s after-tax return will, in present value terms, be substantially diminished compared to his or her return if the allocation were not contained in our LLC Agreement. The Treasury regulations on this issue state that, in determining after-tax return, a member’s entire tax situation, including aspects unrelated to the limited liability company, will be taken into account.
 
Our LLC Agreement contains several provisions designed to ensure that allocations have a substantial economic effect, including.
 
  (1)  It requires that all allocations of income, gains, losses, deductions and distributions are reflected by an increase or decrease in the relevant members’ capital accounts.
 
  (2)  All members who are allocated losses and deductions generated by assets acquired with borrowed money will be charged back income and gains generated by those assets.
 
  (3)  Although no member (other than our Manager) having a deficit balance in his or her capital account after the final liquidating distribution will be required to make a cash contribution to us to eliminate the deficit, our LLC Agreement does contain a provision for a qualified income offset and requires that, upon liquidation, our assets will be distributed to our members in accordance with such members’ positive capital accounts.
 
Based on the foregoing, the allocations provided in our LLC Agreement should be respected for tax purposes. If upon audit, however, the IRS takes the position that any of those allocations should not be recognized, and if the IRS’s position were sustained by the courts, you could be taxed on a portion of the income allocated to our Manager, and part of the deductions allocated to you could be disallowed.
 
Retroactive Allocations
 
Retroactive Allocations.  Under Code Section 706(d), “retroactive allocations” — i.e., allocations of items to partners before they become partners — are prohibited, and Code Section 706(d) and the Treasury Regulations thereunder effect this prohibition by providing that if there is a change of a partner’s interest in a partnership in any taxable year, each partner’s distributive share of partnership tax items is to be determined by any method prescribed in the Treasury Regulations that takes into account the varying interests of the partners in the partnership during that year. Our LLC Agreement provides that our items shall, to the extent necessary in order to comply with Code Section 706(d), be allocated on a daily, monthly or other basis as determined by our Manager using any permissible method under Code Section 706(d) and the Treasury Regulations promulgated thereunder. If, as a result, an amount of profit or loss allocated to a member is limited compared to what would otherwise have been the case with respect to the general rules regarding the allocation of profits and losses, such excess shall be allocated to the other members in relation to the amounts otherwise allocated to them. As a result, if some members are admitted after others, they may receive a smaller portion of our profits and losses even though they are required to contribute the same amount as those members who were admitted earlier.
 
Deductibility of Losses; Passive Activity Losses, Tax Basis and “At-Risk” Limitation
 
Passive Activity Losses.  The passive activity loss rules generally allow taxpayers to deduct their passive activity losses only against their passive activity income. Passive activity income does not include portfolio income like interest, dividends and royalties, or ordinary income from salary and other types of compensation for personal services. Therefore, taxpayers generally will be required to segregate income and loss into three categories: active trade or business income or loss; passive activity income or loss; and portfolio income or loss. The passive activity rules apply to individuals, estates, trusts, personal service corporations and some closely held corporations (including S corporations).
 
A passive activity is one that involves the conduct of a trade or business in which the taxpayer does not materially participate. The IRS generally considers rental activities passive, whether or not a taxpayer materially participates. Furthermore, the IRS generally considers the status of non-managing members to be passive with respect to a limited liability company’s activities. Accordingly, we expect that you should treat your share of our income or losses as passive activity income or loss. Any interest you incur on debt used to


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acquire or maintain our Shares will also be treated as a passive activity deduction, except to the extent attributable to portfolio income, if any, of us and deduction of such amounts will be limited by the same principles as those applicable to losses passed through to you by us. You may also have some portfolio income or loss derived through us; for example, interest earned on our funds pending their investment in equipment would be portfolio income. Interest expense of a member attributable to such portfolio income may be subject to other limitations on its deductibility. See “— Interest Expense.”
 
You can deduct passive activity losses against passive income to reduce your overall income tax liability, but you cannot offset ordinary or portfolio income with passive activity losses. Your tax deduction for passive activity losses will be limited by the amount of your passive activity income in any given tax year. If your share of our passive activity losses is greater than your passive activity income, you will have a suspended loss, meaning that you cannot deduct the loss in the year you incurred it. You can, however, carry the suspended loss forward indefinitely to offset any passive activity income you derive in future years, whether from us or another passive activity. Additionally, any suspended losses generally may be deducted against non-passive income when you recognize a gain or loss from the sale of your entire interest in us. Finally, passive activity income from us can be used to absorb losses from other passive activities, subject to special rules regarding PTPs.
 
Losses from a PTP are treated as passive activity losses that may only be used to offset income subsequently generated by the same PTP that is taxed as a partnership. The IRS generally treats income from a PTP as portfolio income, unless it is used to offset previous losses from the same PTP. We have been structured to avoid being classified as a PTP; however, these rules mean that our income or losses may not be used to offset any losses or income you may derive from another limited liability company or partnership that is classified as a PTP.
 
Tax Basis.  Your initial tax basis in your Shares will be the price you paid for your Shares. Your tax basis will then be increased by your share of our income, and by your share of any increases in our non-recourse indebtedness (that is, indebtedness for which none of the members are personally liable). Your basis will be reduced by the amount of any cash distributions you receive, your share of any losses and any reductions in your share of our non-recourse indebtedness. You may deduct your share of our losses, if any, only to the extent of the tax basis in your Shares.
 
“At-Risk” Limitation.  Generally, taxpayers may not deduct limited liability company losses they incur that exceed the total amount they have at risk in the limited liability company at the end of a limited liability company’s tax year. For the most part, the amount a taxpayer has at risk equals the money and the adjusted basis of other property contributed to the limited liability company.
 
You will not be at risk, and will not be entitled to increase the at-risk basis of your Shares, with respect to our recourse liabilities, such as trade payables. Nor will you be at risk with respect to non-recourse liabilities incurred by us, such as amounts borrowed to finance equipment purchases, even though non-recourse liabilities may increase the tax basis of your Shares. Thus your initial amount at risk will be the amount of your investment.
 
A member’s amount at risk will be reduced by (i) net losses that are allowed as a deduction to the member under the “at-risk” rules and (ii) cash distributions received by a member with respect to the member’s Shares, and increased by that member’s distributive share of net profits. Investors should note that net losses that may be allowable as a deduction under the at-risk rules may be disallowed currently under the passive activity loss limitations.
 
If a member’s at-risk amount is reduced below zero (due to a cash distribution to a member), the member must recognize income to the extent of the deficit at risk amount, up to the amount of loss the member previously recognized that reduced his or her at-risk amount. Our losses that have been disallowed as a deduction in any year because of the at-risk rules will be allowable, subject to other limitations, as a deduction to the member in subsequent years to the extent that the member’s amount at-risk has been increased.
 
It is not anticipated that, on an aggregate basis, we will incur losses. For purposes of the “at risk” rules, however, the Code will allow us to aggregate our equipment leasing activities only with respect to equipment


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placed in service during the same taxable year. Therefore, the “at risk” rules will be applied separately to the net taxable income or loss resulting from leasing equipment that was placed in service during separate taxable years. This could result in a member’s deduction for losses with respect to certain items of equipment being limited by the “at risk” rules, even though he must recognize income with respect to other items of equipment. In such circumstances, the application of the “at risk” rules could compel a member to recognize more taxable income in a year than that member’s share of our aggregate income because of a limitation imposed by such rules on the ability to set off losses attributable to equipment placed in service in one year against income attributable to equipment placed in service in another year.
 
The sum of the amounts for which a member will be considered “at-risk” for purposes of Section 465 of the Code, in any taxable year with respect to equipment placed in service in that taxable year and in each prior year (treating all equipment placed in service in the same year as a single activity separate from the activities represented by equipment placed in service in other years) will be equal to (i) the capital contributions (as such term is defined in the LLC Agreement) of such member (provided that funds for such capital contributions are not from borrowed amounts other than amounts: (A) for which the member is personally liable for repayment, or (B) for which property other than Shares is pledged as security for such borrowed amounts, but only to the extent of the fair market value of such pledged property and provided further that such capital contributions are invested in the equipment or otherwise expended in connection with our organization or leasing activities (or are subject to the rights of our creditors for amounts incurred by it with respect to same)), less (ii) the sum determined on a cumulative basis of (A) the total net losses with respect to such equipment that have been allowed as deductions to the member under the at risk rules and (B) cash distributions received by the member, plus (iii) the member’s distributive share, determined on a cumulative basis, of total net profits with respect to our equipment.
 
Deductions for Organizational and Offering Expenses; Start-Up Costs
 
The costs of our organization and the sale of our Shares, as well as other start-up costs, generally may not be deducted in the year they are incurred; rather, they must be capitalized. Organizational expenses and start-up costs may be currently deducted on a limited basis (up to $5,000) in the year incurred. However, this $5,000 amount is reduced (but not below zero) by the amount by which the cumulative cost of such expenditures exceeds $50,000. The remainder of the start-up costs can be amortized over a period of 180 months.
 
Syndication expenses, which are the costs incurred to promote or effect the sale of our Shares are non-deductible, must reduce members’ capital accounts when incurred and give rise to a tax offset, if at all, only upon our liquidation, and then, in most cases, only as a capital loss. Syndication expenses include brokerage fees (such as the underwriting fees and sales commissions provided for in our LLC Agreement); registration and filing fees with the Securities and Exchange Commission and each State in which our Shares are sold; our legal fees for securities advice and advice concerning the adequacy of tax disclosures in the offering materials; accounting fees for the preparation of information to be included in the offering materials; printing and reproduction costs; and other selling or promotional expenses.
 
We will endeavor to treat our organizational, start-up and syndication costs in accordance with the foregoing rules. There is uncertainty, however, about the distinction between trade or business expenses that may be currently deducted, and organizational, start-up and syndication costs that must be capitalized or deferred. Because of this uncertainty, the IRS could challenge the current deduction of some of our expenses on the grounds that the expenses are not deductible in the year incurred. Under our LLC Agreement, brokerage fees and underwriting commissions are also allocated to those members with respect to whose purchase of Shares such commissions and fees were paid. Other syndication expenses will be allocated, to the extent possible, in equal amounts per Share. If such equality is not possible, our Manager may make compensating allocations of items of income or loss to achieve the same effect on capital accounts.


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Tax Treatment of Leases
 
Your depreciation and cost recovery deductions with respect to any item of our equipment depends, in part, on the tax classification of the agreement under which it is leased. These deductions are only available if the agreement is a true lease of equipment, meaning we retain ownership of the equipment. Depreciation and cost recovery deductions are not available if the transaction is classified as a sale, or as a financing or refinancing arrangement where, for tax purposes, ownership is treated as if it shifted to a purchaser, the nominal lessee.
 
Whether we are the owner of any particular item of equipment, and whether a lease is a true lease for federal income tax purposes, depends upon both factual and legal considerations. The IRS has published guidelines on the tax treatment of leveraged leases. These guidelines do not purport to be substantive rules of law and are not supposed to be applied in audit contexts, although they have been in a number of instances.
 
Whether any lease will meet the relevant requirements to be characterized as a true lease, and whether we will be treated for tax purposes as the owner of each item of equipment acquired by us, will depend upon the specific facts in each case. Since these facts cannot now be determined with regard to leases that will be entered into in the future, our counsel cannot render an opinion on this issue.
 
Cost Recovery
 
The equipment we plan to acquire and lease generally is classified as 3-year, 5-year or 7-year property and may be written off for federal income tax purposes, through cost recovery or depreciation deductions, over our respective recovery period. The amount deductible in each year generally may be calculated using the 200 percent declining-balance depreciation method, switching to the straight-line method at a time that maximizes the deduction. A taxpayer may, however, choose to use a straight-line method of depreciation for the entire recovery period.
 
We will allocate all or part of the Acquisition Fees, which are fees paid to our Manager in connection with the selection and purchase of equipment, to the cost basis of such equipment. We cannot assure you that the IRS will agree that cost recovery deductions calculated on a cost basis that includes Acquisition Fees are properly allowable. The IRS might assert that the Acquisition Fees are attributable to items other than the equipment, or are not subject to cost recovery at all. If the IRS were successful in making that claim, the cost recovery deductions available to us would be reduced accordingly. Because the determination of this issue depends on the magnitude and type of services performed for the Acquisition Fees, which is presently undeterminable and may vary for each piece of equipment acquired by us, our counsel is unable to render an opinion about whether our cost recovery deductions would be upheld if challenged by the IRS.
 
In some circumstances, a taxpayer will be required to recover the cost of an asset over longer period of time than described above. These circumstances include the use of equipment predominantly outside the United States and the use of equipment by a tax-exempt entity. See “— Limitations on Cost Recovery Deductions.”
 
Limitations on Cost Recovery Deductions
 
Property Used Predominantly Outside the United States.  We may own and lease equipment that is used predominantly outside the United States. The cost of this equipment must be written off for federal income tax purposes using the straight-line method of depreciation over a period corresponding to the equipment’s ADR Class Life, which generally is longer than the 3-year, 5-year or 7-year periods permitted for other property. If the equipment does not have an ADR Class Life, a 12-year period must be used. Certain types of property used predominantly outside the United States nevertheless qualify for the normal rules discussed above, that is, a shorter depreciable life should be allowable. The exceptions include the following:
 
  (1)  aircraft registered in the United States that are operated to and from the United States;
 
  (2)  some railroad rolling stock used within and without the United States;


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  (3)  vessels documented under the laws of the United States that are operated in the foreign or domestic commerce of the United States; and
 
  (4)  containers owned by a United States taxpayer that are used in the transportation of property to and from the United States.
 
Tax-exempt Leasing.  We may lease equipment to tax-exempt entities. Property leased to tax-exempt entities, called tax-exempt use property, must be written off for federal income tax purposes using the straight-line method of depreciation. The depreciation period is the longer of
 
  •  the equipment’s ADR Class Life, which generally is longer than the 3-year, 5-year or 7-year periods permitted for property not leased to tax-exempt entities; or
 
  •  125% of the term of the lease, including all options to renew as well as some successor leases for the equipment.
 
The definition of a tax-exempt entity includes governmental bodies and tax-exempt governmental instrumentalities, tax-exempt organizations, some foreign persons and entities and some international organizations. The term also generally includes organizations that were tax-exempt at any time during the five-year period before the organization first uses the property involved. Foreign persons or entities are treated as tax-exempt entities with respect to property if less than 50% of the income derived from the leased property is subject to U.S. income tax.
 
The term tax-exempt use property does not include:
 
  (1)  property that is used predominantly by a tax-exempt entity in an unrelated trade or business, if the entity pays unrelated business income tax on the income from the trade or business;
 
  (2)  property leased to a tax-exempt entity under a short-term lease, meaning a lease that has a term of either less than one year, or less than 30% of the property’s ADR Class Life as long as that is less than three years; and
 
  (3)  certain high-technology equipment.
 
In addition, under Code Section 470, enacted as part of the American Jobs Creation Act of 2004 (the “2004 Tax Act”), losses attributable to the leasing of tax-exempt use property (including property described in items (2) and (3) of the immediately preceding paragraph) cannot be deducted currently, but must be deferred until there is income derived from such property or when the interest therein is completely disposed of, unless the lease complies with certain requirements. Because these facts depend upon leases that will be acquired or entered into in the future, no conclusion can be expressed now regarding the possible application of Code Section 470 to leases of property to tax-exempt entities.
 
If any property is owned by a partnership or limited liability company (taxed as a partnership and not as a corporation) that has both a tax-exempt entity and a non-exempt person or entity as partners or members, the tax-exempt entity’s proportionate share of the property is treated as tax-exempt use property for purposes of determining the rate of depreciation thereof, and for purposes of the rules under Code Section 470 that allow losses attributable to such property only when and to the extent there is income therefrom, unless specific requirements relating to the allocation of profits and losses among the partners or members are met. These requirements will not be met by us. Substantially all of our taxable income, however, will be treated as unrelated business taxable income in the hands of employee benefit plans and other tax-exempt investors. See “— Taxation of Tax Exempt Organizations.” Additionally, a substantial portion of our taxable income will be treated as United States source business income in the hands of foreign members for which no exemption is available. Therefore, we do not anticipate that the depreciation and Code Section 470 loss limitations applicable to tax-exempt use property will be material as they relate to equipment owned by us and not leased to or used by a tax-exempt entity.
 
Consequences of rules regarding depreciation of equipment predominantly used outside the U.S. and tax-exempt leasing.  To the extent that our equipment is subject to the depreciation rules regarding property used outside the United States or regarding tax-exempt use property, and to the extent that the loss suspension rules


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under Code Section 470 apply because we have losses attributable to tax-exempt use property, a Member will generally have to recognize taxable income and may have to pay income tax in greater amounts in the early stages of our existence than would otherwise have been the case, for at least two reasons. First, the longer depreciation periods for equipment used predominantly outside the United Sates and tax-exempt use property means that the annual depreciation deduction for such property will be smaller than otherwise would have been the case, but continue longer, thereby increasing net income (or reducing net loss) with respect to such property, in the early years, but reducing net income (or increasing net loss) in the later years. Second, if losses are suspended pursuant to Code Section 470, taxable net income is greater (or net loss is less) during the period that such loss is suspended than otherwise would have been the case, but such taxable net income would be less (or net loss would be greater) in later years, when the property to which the loss is attributable either produces income or is disposed of and the loss can then be taken.
 
Deferred Payment Leases
 
Section 467 of the Internal Revenue Code requires both the lessor and lessee in certain lease agreements to annually accrue the rent and interest on any rental payments that will be paid in the future. A Section 467 rental agreement is any rental agreement for the use of tangible property that involves total payments in excess of $250,000 and either provides for increasing (or decreasing) rental payments, or provides that some rent for the use of property in a calendar year is payable after the close of the following calendar year. In general, the amount of rent that must be allocated to a tax year will be determined by the terms of the lease. In some circumstances, however, rent will be required to be allocated to a year prior to the year in which it will be paid, with the exact amount determined based upon present-value principles and, in the case of certain rental agreements, on a constant, level rate; the present-value amount would accrue interest until paid. We may enter into transactions that meet the definition of a Section 467 lease agreement, which could result in the acceleration of income recognition by us prior to receipt of the corresponding cash flow. Another consequence would be the conversion of some of our income from rental income (passive) to interest income (portfolio).
 
Sale or Other Disposition of Our Property
 
Because of the different individual tax rates for capital gains and ordinary income, the tax code provides various rules classifying income as ordinary income or capital gains, and for distinguishing between long-term and short-term gains and losses. The distinction between ordinary income and capital gains is relevant for other purposes as well. For example, there are limits on the amount of capital losses that an individual may offset against ordinary income.
 
Upon a sale or other disposition of equipment, we will realize gain or loss equal to the difference between the tax basis of the equipment at the time of disposition and the price received for it upon disposition. Any foreclosure of a security interest in equipment would be considered a taxable disposition, and we would realize gain if the face amount of the debt being discharged were greater than the tax basis of the equipment, even though we would receive no cash.
 
Because equipment is tangible personal property, upon its disposition, all of the depreciation and cost recovery deductions taken by us will be subject to recapture to the extent of any realized gain. Recapture means that the depreciation previously deducted is reversed by recognizing the depreciated amounts as ordinary income in the year of the sale or other disposition. Recapture cannot be avoided by holding the equipment for any specified period of time. If we were to sell property on an installment basis, all depreciation recapture income would be recognized at the time of sale, even though the payments are received in later taxable years.
 
Certain gains and losses are grouped together to determine their tax treatment. The gains on the sale or exchange of certain assets, including equipment used in a trade or business such as that to be owned by us and held for more than one year, are added to the gains from some compulsory or involuntary conversions. If these gains exceed the losses from such sales, exchanges and conversions, the excess gains will be taxed as capital gains (subject to the general rules of depreciation recapture described above and a special recapture rule described below). If the losses exceed the gains, however, the excess losses will be treated as ordinary losses.


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Under a special recapture provision, any net gain under this aggregation rule will be treated as ordinary income rather than capital gain if the taxpayer has non-recaptured net losses, which are net losses under this aggregation rule from the five preceding taxable years that have not yet been offset against net gains in those years.
 
Because of the nature of our property, we expect that substantially all, if not all, of any gain we realize on the sale or other disposition of our assets will be treated as ordinary income for income tax purposes rather than capital gain.
 
Sale or Other Disposition of Shares
 
The gain or loss you realize on the sale of our Shares includes the cash or other consideration you receive from the purchaser, as well as your share of our non-recourse indebtedness. This gain or loss will, except as noted below, be taxed as long-term or short-term capital gain or loss, depending on how long you hold your Shares, assuming that your Shares qualify as capital assets in your hands.
 
The portion of your gain attributable to ordinary income assets held by us, which includes inventory and unrealized receivables, would be treated as ordinary income. Ordinary income assets include assets that are subject to recapture of recovery or depreciation deductions, determined as if your proportionate share of our assets are sold at the time you sell your Shares. Thus, it is likely that most of any gain upon the sale of your Shares will be treated as ordinary income.
 
You must promptly notify us of any transfer of your Shares, whether by sale, gift or otherwise. Once we are notified, we are required to inform the IRS, the buyer and you of the fair market value of the allocable share of unrealized receivables and appreciated inventory attributable to the Shares you sold or exchanged. This report must be made on or before January 31 following the calendar year of sale. The penalty for failure to inform the IRS is $50 for each failure, with a limit of $100,000. If you fail to notify us of the transfer of your Shares, you will be penalized $50 per failure.
 
Treatment of Cash Distributions Upon Redemption or Repurchase
 
The redemption or repurchase by us of all or a portion of your Shares will be treated as a sale or exchange of the Shares for income tax purposes and may generate taxable income to you. The amount you realize in such redemption or repurchase will equal the sum of the cash you receive plus your share of our non-recourse liabilities.
 
Simultaneously with your receipt of a cash distribution from us in connection with a redemption or repurchase, your share of our ordinary income assets will be reduced. You will be treated as if you have received the cash, or a portion of the cash, in exchange for your share of ordinary income assets. If the distribution that is deemed a payment for the ordinary income assets exceeds your share of the adjusted basis of the ordinary income assets, you must recognize the excess as ordinary income. The remainder of the distribution, if any, will be treated in the same manner as a distribution (that is, you will recognize income only to the extent that the cash distributions exceed your adjusted basis in your Shares). See “— Taxation of Distributions.”
 
We anticipate that funds used to redeem or repurchase Shares will be payable out of cash flow that otherwise would be available for distribution to all members or for reinvestment in additional equipment. Accordingly, while any redemption or repurchase of Shares would decrease the aggregate number of Shares outstanding, and thereby proportionally increase each remaining member’s distributive share of our income, gain, loss and deductions, it may also reduce the total amount of cash available for investment or reinvestment.
 
You should be aware, however, that proposed regulations under Code Section 707, dealing with so-called “disguised sales” of partnership interests, could cause contributions by members (including reinvestment by members of distributions received from us) to be combined with a redemption or repurchase by us of another member’s Shares and treated as if the two transactions were a sale by the redeemed member of Shares to the contributing member. Under the proposed regulations, such transaction could be considered to have occurred


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upon the first to occur of either the contribution or redemption, with the effect that a contributing member could be deemed to have become a member in us before our contribution was actually made thereto. Also under the proposed regulations, any redemption and contribution that occurred within two years of each other are presumed to be a sale of a partnership interest for purposes thereof. However, the proposed regulations also provide that if a redemption is a complete liquidation of a member’s interest, the transaction will be presumed not to be a sale between the contributing investor and the redeemed member unless the facts and circumstances clearly establish the contrary. Thus, under the proposed regulations, the treatment of a redemption of a member’s interest and a contribution by an investor could be different depending upon whether the redemption was in complete liquidation of a member’s interest. These proposed regulations have not yet been promulgated in final form and it is possible that we may limit the extent to which we redeem or repurchase a member’s Shares to take into account those regulations when and if finalized.
 
Gifts of Shares
 
Generally, no gain or loss is recognized upon the gift of property. A gift of Shares, however, including a charitable contribution, may be treated partially as a sale, to the extent of your share of our non-recourse liabilities. You may be required to recognize gain in an amount equal to the difference between your share of non-recourse indebtedness and, in the case of a charitable contribution, the portion of the basis in the Shares allocable to that deemed sale transaction. In the event of a non-charitable gift, the amount of your share of the non-recourse indebtedness is offset by your entire basis in the Shares. Charitable contribution deductions for the fair market value of the Shares will be reduced by the amounts involved in such a partial sale and, in any event, may be subject to reduction in certain cases by the amount of gain that would be taxed as ordinary income on a sale of your Shares.
 
Consequence of No Section 754 Election
 
Because of the complexities of the tax accounting required, we do not presently intend to file elections under Section 754 of the tax code to adjust the basis of assets in the case of transfers of Shares. As a consequence, a person who obtains Shares may be subject to tax upon the portion of the proceeds of sales of our assets that represents a return of capital to that person. This may adversely affect the price that potential purchasers would be willing to pay for our Shares. Even if we do not make a Section 754 election, however, the Code requires mandatory Section 754 basis adjustments for transfers of interests in or distributions by partnerships or limited liability companies with substantial built-in loss (where the adjusted basis of the partnership property exceeds our fair market value by more than $250,000), which provision was added to the Code by the 2004 Tax Act. In such instances, the adjusted tax basis of our assets will be reduced to their fair market value.
 
Tax Treatment of Our Termination Pursuant to our LLC Agreement
 
In the event we terminate pursuant to our LLC Agreement, we are required to dispose of our assets, apply the proceeds and other funds to repayment of our liabilities and distribute any remaining funds to our members in accordance with their positive capital accounts balances. Sales and other dispositions of our assets would have the tax consequences described in “— Sale or Other Disposition of our Property.” Cash distributions made at liquidation that exceed the tax basis of your interest in us generally would be taxable as capital gain, provided your Shares constitute capital assets in your hands. Cash distributions in amounts less than your basis may result in a loss, generally a capital loss, which would be subject to the general limitations on deductibility of losses.
 
Audit by the IRS
 
No tax rulings have been sought by us from the IRS. While we (and any joint ventures in which we participate) intend to claim only those deductions and assert only those tax positions for which there is substantial authority, the IRS may audit our returns or any joint venture we are involved in, and it may not agree with some or all of the tax positions our Manager takes.


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An audit of our information return may result in an increase in our income, the disallowance of deductions, and the reallocation of income and deductions among our members. In addition, an audit of our information return may lead to an audit of your personal income tax return, which could lead to adjustments of items unrelated to this investment.
 
You must report your share of our income, gains, losses, deductions and credits on your individual return in a manner consistent with our return unless you file a statement with the IRS identifying the inconsistency, or unless you can prove your return is in accordance with information provided by us. Failure to comply with this requirement will subject you to penalties and may result in an extended time period for the IRS to challenge your return.
 
In most circumstances, the federal tax treatment of the income, gains, losses, deductions and credits of a limited liability company taxed as a partnership will be determined at the limited liability company level in a unified limited liability company proceeding, rather than in separate proceedings with its members. In any audit of a limited liability company, the IRS will deal with the limited liability company’s “tax matters partner.” Our Manager is designated as our tax matters partner in our LLC Agreement. Only members having at least a 1% interest in us will be entitled to receive a separate notice from the IRS of any audit of our return and of the results of the audit. Members who have an interest of less than 1% will not be entitled to notice from the IRS; however, groups of members who together own a 5% or greater interest in us may, by notification to the IRS, become a “notice group” and designate a member of their group to receive IRS notices. All members have the right to participate in any audit of us. We are required to keep you informed of any administrative and judicial proceedings involving our tax matters. Also, we will keep you advised of any significant audit activities with respect to us.
 
As the tax matters partner, our Manager is authorized to enter into settlement agreements with the IRS that are binding upon members with less than a 1% interest, except for those who belong to a notice group or who have filed a statement with the IRS that we do not have authority to enter into settlement agreements that are binding upon them. You are entitled to have any favorable settlement agreement reached between the IRS and another member with respect to our item applied to you.
 
Our Manager is empowered by our LLC Agreement to conduct, on behalf of us and our members, all examinations by tax authorities relating to us at our expense. See “Summary of Our LLC Agreement.” A tax controversy could result in substantial legal and accounting expenses being charged to us, even if the outcome is favorable.
 
Alternative Minimum Tax
 
Some taxpayers must pay an alternative minimum tax (AMT) if the AMT exceeds the taxpayer’s regular federal income tax liability for the year. For non-corporate taxpayers, the AMT is imposed on alternative minimum taxable income (AMTI) that is above an exemption amount. The AMTI is based on a recomputation of taxable income, which is increased by tax preference items, and other adjustments to taxable income are made. The principal adjustment associated with an investment in our Shares relates to depreciation or cost recovery deductions. In this case depreciation deductions are limited to those that do not exceed those calculated using the 150% declining balance method.
 
We do not anticipate that any significant tax preference items will be generated by us. You should be aware, however, that, for purposes of computing AMTI, interest you pay to acquire or maintain an ownership interest in a passive activity (such as our Shares) is deductible only to the extent that the interest payments, when added to your passive activity income or loss and computed with the appropriate alternative minimum tax adjustments and tax preferences, does not result in a passive activity loss. Accordingly, if you borrow money and incur interest expense in connection with your purchase of our Shares, you may only be allowed a limited deduction for that interest in calculating AMTI.
 
The rules relating to the alternative minimum tax for corporations are different than those just described. Corporations contemplating purchase of our Shares should consult their tax advisors as to the possible AMT consequences of investing in our Shares.


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Interest Expense
 
In general, interest paid in connection with investment activities is deductible only against investment income. Interest paid in connection with investments in passive activities, such as in an investment in our Shares, may only be deducted in accordance with the rules for losses derived from passive activities, except to the extent allocable to portfolio income. See “— Deductibility of Losses; Passive Activity Losses, Tax Basis and ‘’At-Risk” Limitation.”
 
Interest paid by us likely will be treated as passive activity interest, except to the extent it is allocable to reserves being maintained by us, as would any interest expense you incur on money borrowed to purchase our Shares. However, because we will enter into net leases, the IRS might argue that the portion of interest expense we incur or that is incurred by you on monies borrowed to purchase our Shares attributable to such leases might be investment interest expense and deductible only to the extent of investment income. We may enter into transactions involving the prepayment of interest or the payment of points, commitment fees and loan origination or brokerage fees. In general, prepaid interest, points and similar costs may not be deducted currently; they usually have to be capitalized and expensed over the life of the related loan.
 
Self-Employment Tax
 
You should be aware that, under Code Section 1402(a)(13), limited partners in limited partnerships are generally not subject to self-employment tax with respect to their distributive share of income or loss of a limited partnership, other than with respect to guaranteed payments to that partner for services actually rendered to or on behalf of the partnership. However, that Code section does not deal expressly with respect to the treatment of members of limited liability companies for purposes of the self-employment tax. In 1997, the IRS promulgated proposed regulations to define when a partner in a partnership or member of a limited liability company should be considered to be a limited partner for purposes of this exclusion from the self-employment tax. Under those proposed regulations, members who do not have personal liability for our debts, the authority under the laws of the State of Delaware to contract on our behalf, or otherwise do not participate in our activities would not be subject to the self-employment tax. However, the proposed regulations are not yet effective and Congress, in response to complaints from the business community in 1997, imposed a one-year moratorium on their effective date. We expect to follow the rules set forth in these proposed regulations and not identify a member’s distributive share of our income as self-employment income on the K-1 distributed to such member unless the member has personal liability for our debts, has the authority to contract on our behalf, or otherwise participates in the conduct of our business activities. However, because the regulations are not final and because Code Section 1402(a)(13) otherwise excludes from the self-employment tax only income of a limited partner, it is possible that the government could take a contrary position. It is also possible that, when and if the government finalizes the proposed regulations, it could amend them in such a way so as not to exclude the distributive share of income of a member who does not otherwise participate in our management from the self-employment tax.
 
Limited Deductions for Activities Not Engaged in for Profit
 
The ability to take deductions for activities not engaged in for profit is limited. The law presumes that an activity is engaged in for profit if the gross income from the activity exceeds the deductions from the activity in at least three out of five consecutive years, ending with the tax year at issue. We intend to operate for the purpose of providing an economic profit and anticipate that we will have sufficient income to entitle us to the benefit of the presumption that we operate for profit. If the IRS were to treat our activities as not being engaged in for profit, any deductions of ours in excess of our income might be permanently disallowed.
 
Foreign-Source Taxable Income
 
Rental income and interest received by us from sources in foreign countries could be subject to withholding and/or income taxes imposed by those countries. In addition, gains on the sale of equipment may also be subject to taxes in foreign countries where we sell equipment. Tax treaties between some countries and the United States may reduce or eliminate such taxes. Our foreign activities, however, may require you to file


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tax returns in foreign countries. We cannot predict what tax rate our income will be subject to in other countries, since the amount of our assets to be invested in various countries is not known.
 
We will inform you of your proportionate share of any foreign income and the foreign taxes, if any, paid by us. You will then be required to include these items on your tax return. At your option, you generally will be entitled to claim either a credit (subject to the limitations discussed below) or, if you itemize your deductions, a deduction (subject to the limitations generally applicable to deductions) for your share of foreign taxes in computing your federal income taxes.
 
Generally, a credit for foreign taxes may not exceed the federal tax liability attributable to your total foreign-source taxable income. Your share of our rental income and interest income attributable to equipment used outside the United States generally will qualify as foreign-source income, and the source of income from the sale of equipment will usually be attributed to the location of the equipment. Several limits apply to the foreign tax credit. The credit is applied separately to different types of foreign-source income, including foreign-source passive income like interest income, and special limits also apply to income from the sale of capital assets. Previously, the foreign tax credit was allowed to offset only 90% of the alternative minimum tax imposed on corporations and individuals; but this limitation was eliminated by the 2004 Tax Act, effective for tax years beginning after December 31, 2004. Furthermore, in calculating the foreign tax credit limitation, the amount of your foreign-source income is reduced by various deductions that are allocated and/or apportioned to the foreign-source income. One such deduction is interest expense, a portion of which will generally reduce the foreign-source income of any member who owns foreign assets, either directly or indirectly. For these purposes, foreign assets owned by us will be treated as owned by our members, and indebtedness incurred by us will be treated as incurred by members.
 
Because of these limits, you may be unable to claim credit for the full amount of your proportionate share of the foreign taxes attributable to our income. In addition, any foreign losses generated by us could reduce the tax credits available to you from foreign-source income unrelated to us. The foregoing is only a general description of the foreign tax credit under current law. Since the availability of a credit or deduction depends on your particular circumstances, we advise you to consult your own tax advisor.
 
Registration, Reportable Transactions, Interest and Penalties
 
Tax Shelter Registration and Reportable Transactions.  Prior to the 2004 Tax Act, tax shelters were required to be registered with the IRS. Under temporary Treasury regulations, an investment was regarded as a tax shelter if a potential investor could reasonably infer from representations made in connection with the sale of the investment that the aggregate amount of deductions and 350% of the credits potentially allowable with respect to the investment will be greater than twice the amount to be invested for any of the first five years.
 
The 2004 Tax Act repealed tax shelter registration, and replaced it with a requirement of disclosure and list maintenance for persons that participate in listed and reportable transactions. In general, listed and reportable transactions are those that the IRS views as having substantial potential for tax avoidance or evasion. By category, reportable transactions include listed transactions, confidential transactions, transactions with contractual protection, transactions that result in substantial losses, transactions with significant book-tax differences, and transactions with a brief asset holding period. It is possible that the threshold of the gross out-of-pocket losses contemplated by the loss transaction reportable transaction category may be experienced by us or our members ($2,000,000 for an individual or a partnership that does not have only “C” corporations as partners, in any one year, or $4,000,000 over any combination of years, $10,000,000 for corporations that are not S corporations, or at least $10,000,000 for a partnership in any year or $20,000,000 in any combination of years, $50,000 for an individual in a taxable year in a foreign currency transaction). If an investment in our Shares or our investment in equipment leases were to be considered to be reportable transactions, then our members would be required to adequately disclose such transactions on their income tax return and we would be required to do so on our information return. We believe that, under current regulations, neither we nor our investments constitute reportable transactions, since it is expected that the requisite magnitude of losses, if any, will not be incurred, and the disclosure and list maintenance requirements for such transactions are therefore not applicable.


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Current regulations exclude most customary commercial leases from the definition of reportable transactions — even if, because of the depreciation and other expenses attributable to the leased equipment, there is a loss from the leasing of that equipment in excess of the applicable thresholds for a year or combination of years — unless such a lease also constituted a listed transaction. However, in late 2006, the IRS issued proposed regulations which, if they became effective, would eliminate this exclusion. Although such proposed regulations also propose to eliminate transactions with significant book-tax differences from the definition of reportable transactions, the result is that under the proposed regulations a leasing transaction — which could include leases of multiple pieces of equipment to multiple lessees under related agreements — could be a reportable transaction if the loss thresholds described above are exceeded. If so, such transaction would be subject to the disclosure and list maintenance requirements above. Because we have not yet entered into any leases, we do not know whether, if the proposed regulations were to be finalized, any of our leasing transactions would be reportable transactions.
 
Interest on Underpayments.  The interest that taxpayers must pay for underpayment of federal taxes is the Federal short-term rate plus three percentage points, compounded daily. The Federal short-term rate is set quarterly by the Treasury Department based on the yield of U.S. obligations with maturities of three years or less.
 
Penalty for Substantial Understatements or Understatements Attributable to Reportable Transactions.  The tax code also contains a penalty for substantial understatement of federal income tax liability equal to 20% of the amount of the understatement; and a penalty on the understatement of tax attributable to a reportable transaction equal to 20% of the understatement (30% if the transaction is not disclosed) whether or not the taxpayer’s total understatement is substantial. An understatement occurs if the correct tax for the year (as finally determined after all administrative and judicial proceedings) exceeds the tax liability actually shown on the taxpayer’s returns for the year. An understatement on an individual’s return will be considered substantial for purposes of the penalty if it exceeds both (a) 10% of the correct tax and (b) $5,000. The imposition of this penalty may be avoided however if, in the case of any item that is not attributable to a reportable transaction, (a) there was substantial authority for the taxpayer’s treatment of the item, or (b) the relevant facts affecting the item’s tax treatment were adequately disclosed in the taxpayer’s return, provided that the taxpayer had a “reasonable basis” for the tax treatment of such item. In the case of an item that is attributable to a reportable transaction, the penalty may be avoided if (a) all the relevant facts affecting the tax treatment of the item are adequately disclosed on the foregoing return, (b) there was substantial authority for the taxpayer’s treatment of the item and (c) the taxpayer reasonably believed that his treatment of the item on the return was more likely than not the proper treatment.
 
If any of our transactions constitute reportable transactions, you may receive from us a copy of Form 8886, which is used to disclose such transactions to the IRS. You should consult with your own tax advisor as to the reporting on your own tax returns of that form and the information that it contains. Failure of a member to report such information may result in a penalty for that member.
 
State and Local Taxation
 
In addition to the federal income tax consequences described above, you should consider potential State and local tax consequences of this investment. Your share of our taxable income or loss generally must be included in determining reportable income for State or local tax purposes in the jurisdiction where you reside. In addition, other states in which we own equipment or do business may require you to file State income tax returns and may impose taxes on your pro rata share of our income derived from that State. Any tax losses generated by our operations in such states may not be available to offset income from other sources in other states. To the extent that you pay tax to a State by virtue of our operations within that State, you may be entitled to a deduction or credit against tax owed to your State of residence with respect to the same income. Payment of State and local taxes will constitute a deduction for federal income tax purposes, assuming that you itemize deductions. We advise you to consult your own tax advisor to determine the effect of State and local taxes, including gift and death taxes as well as income taxes, which may be payable in connection with this investment.


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Tax Treatment of Certain Trusts and Estates
 
The tax treatment of trusts and estates can differ from the tax treatment of individuals. Investors who are trusts and estates should consult with their tax advisors regarding the applicability of the tax rules discussed in this section.
 
Taxation of Tax-Exempt Organizations
 
Charitable and other tax-exempt organizations, including qualified pension plans and individual retirement accounts, are subject to the unrelated business income tax. Under new rules adopted as part of the Tax Relief and Health Care Act of 2006, a charitable remainder trust that has unrelated business taxable income is subject to an excise tax equal to 100% of such income. Tax-exempt investors will be deemed to be engaged in the business carried on by us and will be subject to the unrelated business income tax. Such investors should consult with their tax advisors regarding the tax consequences to them of investing in our Shares.
 
Corporate Investors
 
The federal income tax consequences to investors that are corporations may differ materially from the tax consequences discussed in this section, particularly as they relate to the alternative minimum tax. Such investors should consult with their tax advisors as to the tax consequences to them of this investment.
 
INVESTMENT BY QUALIFIED PLANS AND IRAS
 
Fiduciaries Under ERISA
 
Investors that are fiduciaries of qualified plans are subject to certain requirements under the federal law commonly known as ERISA. These requirements include the duty to discharge their responsibilities solely in the interest of, and for the benefit of, the qualified plan’s participants and beneficiaries. A fiduciary must:
 
  •  perform its duties with the skill, prudence and diligence of a prudent person;
 
  •  diversify the qualified plan’s investments so as to minimize the risk of large losses; and
 
  •  act in accordance with the qualified plan’s governing documents.
 
Fiduciaries of qualified plans include anyone who exercises any authority or control over the management or disposition of the funds or other property of the qualified plan. For example, any person responsible for choosing a qualified plan’s investments, or who is a member of a committee that is responsible for choosing a qualified plan’s investments, is a fiduciary of the qualified plan. Also, an investment professional who renders or who has the authority or responsibility to render investment advice regarding the funds or other property of a qualified plan is a fiduciary of that qualified plan, along with any other person with special knowledge or influence with respect to a qualified plan’s investment or administrative activities.
 
IRAs generally are not subject to ERISA’s fiduciary duty rules. In addition, a participant who exercises control over his or her individual account in the qualified plan in a self-directed investment arrangement generally will be held responsible for the consequences of his or her investment decisions. Some qualified plans of sole proprietorships, partnerships and closely held corporations are generally not subject to ERISA’s fiduciary duty rules, although they, as well as IRAs and self-directed accounts, are subject to the IRS’ prohibited transaction rules, which are summarized below.
 
A person subject to ERISA’s fiduciary rules with respect to a qualified plan should consider those rules in the context of the particular circumstances of the qualified plan before authorizing or making an investment in our Shares with a portion of the qualified plan’s assets.
 
Prohibited Transactions Under ERISA and the Tax Code
 
The Internal Revenue Code and ERISA prohibit qualified plans and IRAs from engaging in certain transactions involving assets of the qualified plan or IRA with parties that are referred to as disqualified


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persons or parties in interest. Disqualified persons include fiduciaries of the qualified plan or IRA, officers, directors and certain shareholders and other owners of the company sponsoring the qualified plan, and persons and legal entities sharing certain family or ownership relationships with other disqualified persons. In addition, the beneficiary of an IRA is generally considered to be a disqualified person for purposes of the prohibited transaction rules.
 
Types of prohibited transactions include:
 
  •  direct or indirect transfers of a qualified plan’s or IRA’s assets to, or use by or for the benefit of, a disqualified person;
 
  •  acts by a fiduciary involving the use of a qualified plan’s or IRA’s assets in the fiduciary’s individual interest or for the fiduciary’s own account; and
 
  •  a fiduciary receiving consideration for his or her own personal account from any party dealing with a qualified plan or IRA in connection with a transaction involving the assets of the qualified plan or IRA.
 
Under ERISA, a disqualified person that engages in a prohibited transaction will be required to disgorge any profits made from the transaction and will be required to compensate the qualified plan for any losses it sustains. The Internal Revenue Code imposes excise taxes on a disqualified person that engages in a prohibited transaction with a qualified plan or IRA. Prohibited transactions subject to these sanctions must generally be unwound to avoid incurring additional penalties. In addition, if you engage in a prohibited transaction with an IRA in which you are a beneficiary, the IRA ceases to be treated as an IRA and, therefore, all of the assets are treated as if they are distributed to you in the year in which such transaction occurred.
 
In order to avoid the occurrence of a prohibited transaction under the Internal Revenue Code or ERISA, Shares may not be purchased by a qualified plan or IRA from assets for which we or any of our affiliates are fiduciaries.
 
Plan Assets
 
If our assets are determined under ERISA or the Internal Revenue Code to be plan assets of qualified plans and/or IRAs owning our Shares, fiduciaries of such qualified plans and IRAs might be subject to liability for actions that we take. In addition, some of the transactions described in this prospectus in which we might engage, including transactions with our affiliates, might constitute prohibited transactions under the Internal Revenue Code and ERISA for qualified plans and IRAs, even if their purchase of our Shares did not originally constitute a prohibited transaction. Moreover, fiduciaries with responsibilities to qualified plans and/or IRAs subject to ERISA’s fiduciary duty rules might be deemed to have improperly delegated their fiduciary responsibilities to us in violation of ERISA.
 
In some circumstances, ERISA and the Internal Revenue Code apply a look-through rule under which the assets of an entity in which a qualified plan or IRA has invested may constitute plan assets and the manager of the entity becomes a fiduciary to the qualified plan or IRA. ERISA and the Internal Revenue Code, however, exempt from the look-through principle investments in certain publicly registered securities and in certain operating companies, as well as investments in entities not having significant equity participation by benefit plan investors. Under the Department of Labor’s current regulations regarding what constitutes the assets of a qualified plan or IRA in the context of investment securities, such as our Shares, undivided interests in the underlying assets of a collective investment entity such as us will not be treated as plan assets of qualified plan or IRA investors if either:
 
  •  our Shares are publicly offered;
 
  •  less than 25% of any class of our Shares are owned by qualified plans, IRAs and certain other employee benefit plans; or
 
  •  we are an operating company.
 
To qualify for the publicly-offered exception, our Shares must be freely transferable, owned by at least 100 investors independent of us and of one another, and either (a) be part of a class of securities registered


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under Section 12(b) or 12(g) of the Securities Exchange Act of 1934 or (b) sold as part of a public offering pursuant to an effective registration statement under the Securities Act of 1933 and registered under the Securities Exchange Act of 1934 within 120 days after the end of our fiscal year during which our offering occurred. Our Shares are being sold as part of an offering registered under the Securities Act of 1933. Accordingly, whether our Shares will qualify for the publicly-offered exception will depend whether they are freely transferable within the meaning of the Department of Labor’s regulations.
 
Whether our Shares are freely transferable is a factual determination. However, we believe that the limits on assigning our Shares and on substituting members contained in Sections 10.2, 10.3 and 10.4 of our LLC Agreement fall within the scope of certain restrictions that are permitted by the Department of Labor regulations. These regulations will not cause a determination that securities are not freely transferable when the minimum investment, as in the case of our Shares, is $10,000 or less.
 
Whether our assets will constitute “plan assets” is a factual issue that may depend in large part on our ability throughout the life of the fund to satisfy either the publicly-offered shares exception or the 25% ownership exception. Accordingly, our counsel is unable to express an opinion on this issue.
 
Other ERISA Considerations
 
In addition to the above considerations in connection with the “plan asset” question, a fiduciary’s decision to cause a qualified plan or IRA to acquire our Shares should involve, among other factors, considerations that include whether:
 
  (1)  the investment is in accordance with the documents and instruments governing the qualified plan or IRA;
 
  (2)  the purchase is prudent in light of the diversification-of-assets requirement for the qualified plan and the potential difficulties that may exist in liquidating our Shares;
 
  (3)  the investment will provide sufficient cash distributions in light of the qualified plan’s likely required benefit payments and other needs for liquidity;
 
  (4)  the investment is made solely in the interests of plan participants;
 
  (5)  the evaluation of the investment has properly taken into account the potential costs of determining and paying any amounts of federal income tax that will be owed on unrelated business taxable income derived from our business affairs; and
 
  (6)  the fair market value of our Shares will be sufficiently ascertainable, and with sufficient frequency, to enable the qualified plan or IRA to value its assets in accordance with the rules and policies applicable to the qualified plan or IRA.


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MANAGER’S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
 
Overview
 
We are a newly formed Delaware limited liability company. With the net proceeds of this offering, we will primarily acquire equipment subject to leases, purchase equipment and lease it to third-party end users and, to a lesser degree, acquire ownership rights to items of leased equipment at lease expiration. Some of our equipment leases will be acquired for cash and will be expected to provide current cash flow, which we refer to as “income” leases. For the other equipment leases, we will finance the majority of the purchase price. We refer to these leases as “growth” leases. These growth leases will generate little or no current cash flow because substantially all of the rental payments received from a lessee will service the indebtedness associated with acquiring or financing the lease. We anticipate that the future value of the leased equipment will exceed our cash portion of the purchase price. In addition, we will establish working capital reserves of approximately 0.5% of the gross offering proceeds.
 
Operations
 
As of the date of this prospectus, we have not had any operations. Until receipt and acceptance of subscriptions for 1,200 Shares and the admission of subscribers as members on the initial closing date, we will not begin to acquire equipment or incur indebtedness (the “Initial Closing Date”). The level of our indebtedness cannot be predicted and is not limited by our LLC Agreement. If we require additional cash or our Manager determines that it is in our best interests to obtain additional funds to increase cash available for investment or for any other proper business need, we may borrow funds on a secured or unsecured basis. We currently have no arrangements with, or commitments from, any lender with respect to any such borrowings.
 
Liquidity and Capital Resources
 
We have limited funds at our formation. As of December 31, 2006, we had $2,000 in cash and cash equivalents.
 
We will establish working capital reserves of approximately 0.5% of the gross offering proceeds. After the Initial Closing Date, we will continue to sell our Shares. As additional Shares are sold, we will experience a relative increase in liquidity as cash is received and then, a relative decrease in liquidity as cash is expended to acquire equipment subject to leases, purchase equipment and lease it to third-party end users and, to a lesser degree, acquire ownership rights to items of leased equipment upon expiration of the lease.
 
However, unanticipated or greater than anticipated operating costs or losses (including a lessee’s inability to make timely lease payments) would adversely affect our liquidity. To the extent that working capital reserves may be insufficient to satisfy our cash requirements, we anticipate that we would fund our operations from cash flow generated by operating and financing activities. We may participate with other programs sponsored by our Manager in a recourse debt facility to provide temporary financing. In addition, we may use a portion of cash on hand to re-establish working capital reserves. Our Manager has no intent to fund any cash flow deficit of ours or, except as may be described in this prospectus, provide other financial assistance to us.


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SUMMARY OF OUR LLC AGREEMENT
 
The following is a summary of the material provisions of our LLC Agreement. Our LLC Agreement sets forth the terms and conditions upon which we will conduct our business and affairs and it sets forth the rights and obligations of our members. This summary is not complete and is subject to and qualified by the detailed provisions of our LLC Agreement. A copy of our LLC Agreement is included as Exhibit A to this prospectus. Potential investors should study our LLC Agreement carefully before making any investment in our Shares.
 
Establishment and Nature
 
We are organized as a limited liability company under the Delaware Limited Liability Company Act, with ICON Capital Corp. as our Manager. A limited liability company is a non-corporate business entity having one or more managers and one or more members (who may also be managers). A member who is not also a manager ordinarily does not play a role in the management or control of a limited liability company’s affairs and his or her liability for limited liability company obligations is generally limited to the amount of his or her investment.
 
Name and Address
 
We will conduct business under the name “ICON Leasing Fund Twelve, LLC,” with our principal office and place of business at 100 Fifth Avenue, 4th Floor, New York, New York 10011 (unless we change the office with written notice to you).
 
Duration
 
Our term commenced when we filed a Certificate of Formation with the Delaware Secretary of State on October 3, 2006. We will terminate our corporate existence at midnight on December 31, 2026, or earlier if a dissolution event occurs. See “— Dissolution and Winding-Up.”
 
Capital Contributions
 
Our Contribution.  Our Manager has contributed $1,000, in cash, as its capital contribution to us in exchange for one share and an interest in our cash flow, as described in “Compensation of our Manager.” Thomas W. Martin, a director and officer of our Manager, contributed $1,000, in cash, as a capital contribution to us as the initial member. Mr. Martin will withdraw as the initial member and his capital contribution will be returned, without interest, as soon as the minimum offering is achieved and additional members are admitted as members.
 
Members’ Contributions.  Each member (other than our Manager, certain officers, employees or securities representatives of our Manager or any affiliate of our Manager or of any Selling Dealer who is admitted as a member at a closing and members described in the next sentence) will make a capital contribution to our capital, in cash, in an amount equal to $1,000.00 for each Share purchased. Each member affiliated with our Manager, including certain officers, employees or securities representatives of our Manager or any affiliate of our Manager or of any Selling Dealer who is admitted as a member at a closing, and members who acquire Shares through broker-dealers who charge an investment management fee rather than a sales commission, will make a capital contribution, in cash, in an amount equal to $920.00 for each Share purchased. Members who purchase Shares through our DRIP Plan will make a capital contribution, deemed to be in an amount equal to $900.00 for each Share, or fraction thereof, purchased.
 
Our Management
 
Our Powers.  Except as otherwise specifically provided in our LLC Agreement, our Manager will have complete and exclusive discretion in the management and control of our business and affairs and will be authorized to employ all powers necessary or advisable to carry out the purposes and investment policies, conduct our business and affairs, and exercise our powers. For example, our Manager will have the right to make investments for and on behalf of us and to manage our investments and all of our other assets. You will


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not be permitted to participate in our management. Our Manager will have the sole and absolute discretion to accept or refuse to accept the admission of any subscriber as a member to our fund. Except to the extent limited by Delaware law or our LLC Agreement, our Manager may delegate any or all of its duties under our LLC Agreement to any person, including any of its affiliates. Our LLC Agreement designates our Manager as our tax matters partner and authorizes and directs our Manager to represent us and our members in connection with all examinations of our affairs by tax authorities and any resulting administrative or judicial proceedings and to expend our funds in doing so.
 
Members’ Powers.  No member can participate in or have any control over our business and affairs or have any right or authority to act for, or to bind or otherwise obligate, us.
 
Limitations on Our Manager’s Powers
 
Our LLC Agreement and Delaware law subject our Manager to limitations on how it administers our business and affairs, as outlined below.
 
Dealings With Affiliates.  We will not purchase or lease investments from, or sell or lease investments to, our Manager or any of its affiliates (including any program in which our Manager or any of its affiliates has an interest, other than joint ventures as described below) unless certain conditions are satisfied. These conditions include:
 
  (1)  a determination that the investment is in our best interests;
 
  (2)  the price to be paid by us does not exceed the sum of (A) the net cost to our Manager or its affiliates of acquiring and holding the investment (adjusted for any income received and expenses paid or incurred while holding same), plus (B) any compensation to which our Manager or its affiliates is otherwise entitled to receive;
 
  (3)  the interest terms of any indebtedness secured by the investment at the time it is acquired by our Manager or its affiliate is the same as at the time it is acquired by us;
 
  (4)  neither our Manager nor its affiliates will receive any compensation, other than as set forth in the section of this prospectus entitled “Compensation of Our Manager and Certain Non-Affiliates,” as a result of the investment; and
 
  (5)  our Manager or its affiliates hold the investment only on an interim basis (generally not longer than six months) for purposes of facilitating the acquisition of the investment by us, borrowing money or obtaining financing for us or for other purposes related to our business.
 
We may not make any loans to our Manager or any of its affiliates. Our Manager or any of its affiliates, however, may make loans to us, provided the terms of the loan include:
 
  (1)  interest at a rate that does not exceed the lowest of the following:
 
  (a)  the rate at which our Manager or its affiliates borrowed funds for the purpose of making the loan; or
 
  (b)  if no borrowing was incurred, the interest rate we could obtain in an arm’s-length borrowing, without reference to our Manager’s or its affiliates’ financial abilities or guarantees;
 
  (2)  repayment of the loan not later than 12 months after the date on which it was made; and
 
  (3)  neither our Manager nor its affiliates may receive financial charges or fees in connection with the loan, except for reimbursement of actual and reasonable out-of-pocket expenses.
 
We will not acquire any investments in exchange for our Shares.
 
We may make investments in joint ventures provided that such joint venture meets the following criteria:
 
  •  our Manager determines that the investment is in our best interests; and
 
  •  such joint venture will not result in duplicate fees being paid to our Manager or any of its affiliates.


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If a joint investment is made with affiliates of our Manager, the following additional conditions must be met:
 
  •  the investment will be made upon terms that are substantially identical to the terms upon which the other participants have invested in the joint venture;
 
  •  the compensation payable to our Manager or its affiliates by us and the other program(s) must be substantially identical; and
 
  •  we will have a right of first refusal to buy the investment if an affiliate desires to sell equipment held in the joint venture.
 
If a joint investment is made with non-affiliates, the following conditions must be met:
 
  •  we will have the right to control the joint investment; and
 
  •  the joint venture will own and lease specific equipment or interests in specific equipment.
 
Neither our Manager nor any of its affiliates may receive a commission or fee (except the types and amounts described in “Compensation of our Manager and Certain Non-Affiliates”) in connection with the reinvestment or distribution of cash from operations or of the proceeds from the resale, exchange or refinancing of our equipment. In addition, in connection with any agreement we enter into with our Manager or any of its affiliates, our Manager or its affiliates may not receive any rebates or give-ups, nor may our Manager or any of its affiliates participate in any reciprocal business arrangements that could have the effect of circumventing any of the provisions of our LLC Agreement. Neither our Manager nor any of its affiliates will pay or award any commissions or other compensation to any person engaged by a potential investor as an investment advisor as an inducement to the person to advise the potential investor about us or an investment in us. However, this does not prohibit our Manager from paying underwriting fees and sales commissions otherwise in accordance with the terms of our LLC Agreement.
 
Our Manager’s Right to Indemnification
 
With limited exceptions, we will indemnify our Manager, its affiliates and individual officers out of our assets. The indemnification will apply to any liability, loss, cost and expense of litigation that our Manager or its affiliates suffers so long as our Manager has met the standard contained in our LLC Agreement. See “Management Responsibility — Indemnification.”
 
Liability
 
Our Manager’s Limited Liability.  Except in the case of negligence or misconduct, neither our Manager nor any of its affiliates will have any personal liability for our obligations. All decisions our Manager makes will be binding upon us. See “Management Responsibility — Conflicts.”
 
Limited Liability of our Members.  You will have no personal liability for any of our obligations or liabilities. You will only be liable, in your capacity as a member, to the extent of your capital contribution and your pro rata share of any of our undistributed profits and other assets.
 
Delaware law provides that, for a period of three years from the date on which any distribution is made to you, you may be liable to us for the distribution if both of the following are true:
 
  (1)  after giving effect to the distribution, all of our liabilities exceed the fair value of our assets; and
 
  (2)  you knew at the time you received the distribution that it was made in violation of Delaware law.
 
No Further Contribution
 
After you pay for your Shares, you will not have any further obligations to us or be required to contribute any additional capital to, or loan any funds to, us. However, under certain circumstances, you may be required to return distributions made to you in violation of Delaware law as described in the immediately preceding paragraph.


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Cash Distributions
 
Prior to payout, which is the time when cash distributions in an amount equal to the sum of the members’ (1) capital contributions and (2) an 8.0% cumulative annual return, compounded daily, on such capital contributions as reduced by distributions in excess of such 8.0% (measured from the date the investor is admitted as a member), have been made, distributions of cash will be made 99% to our members and 1% to our Manager. These determinations are not made on a member-by-member basis but are made by aggregating contributions from, and distributions to, our members as a whole. Income earned on escrowed funds and distributed to our members will be counted toward the 8% cumulative return. After payout, distributions of cash will be made 90% to our members and 10% to our Manager.
 
During the operating period, our Manager will have the sole discretion to determine the amount of cash on hand that is to be reinvested and the amount that is to be distributed. However, during the operating period, before any cash on hand is reinvested in equipment, you will receive, to the extent available, monthly cash distributions equal to the initial distribution rate on your original investment divided by twelve, reduced by (a) any portion of your original investment that has been returned to you because we did not invest all of the offering proceeds and (b) any amounts you received upon repurchase of your Shares. Our Manager’s decision regarding the amount of reserves to establish and the amount of funds to reinvest may affect our ability to make cash distributions. Cash distributions will be noncumulative, meaning that if there is insufficient cash to pay the full monthly distributions, only the amount available is required to be distributed and any shortfall will not necessarily be made up. We expect that a substantial portion of all of these cash distributions (for example, the portion that exceeds taxable income) will be treated for federal income tax purposes (but not for purposes of GAAP or for purposes of Section 6.4(g) of our LLC Agreement) as a return of our members’ original investment, and that the balance of these distributions will be treated as a return on the original investment. After the operating period, we intend to promptly distribute substantially all cash after taking into account anticipated expenditures and reserves for unanticipated costs; provided, that we may use cash to reinvest the proceeds received from our investments in additional investments if our Manager believes it is in the best interests of our members; however, our Manager will not receive Acquisition or Management Fees with respect to any investments made during the liquidation period. Upon our liquidation, our assets will be distributed to our members and our Manager in proportion to and to the extent of the positive balances in their respective capital accounts.
 
Allocation of Profits and Losses for Tax Purposes
 
Generally during our operating period, 99% of our profits will be allocated among our members (including our Manager) in proportion to their Share ownership, and our Manager will be allocated 1%. This allocation will continue until the excess of the cumulative profits allocated to our members, in the aggregate, over the cumulative losses allocated to our members, in the aggregate (not taking into account certain items that are specially allocated, such as non-recourse deductions and minimum gain chargebacks) would, if distributed currently to the extent not previously distributed, provide our members in the aggregate with an 8% cumulative annual return, compounded daily. Thereafter, during the operating period, our profits will be allocated 90% among our members (including our Manager) in proportion to their Share ownership and 10% to our Manager. Then, during the liquidation period, while we sell our assets, profits shall initially be allocated between our Manager and the members so that our Manager is allocated the greater of 1% thereof or such greater amount as is necessary to provide our Manager with cumulative profits allocated pursuant to this provision, equal to, when added to the profits allocated 1% to our Manager during the operating period, the cash that has been distributed 1% to it, and the balance to our members until they have been allocated an amount equal to the 8% cumulative annual return, compounded daily, threshold described in the second preceding sentence. Thereafter, profits will be allocated 10% to our Manager and 90% to our members. Starting with the first year that starts on or after the first day of the liquidation period, profits allocated to our members shall be allocated among them in the first instance so as to cause their capital accounts, as determined on a per Share basis and adjusted to reflect such items as their share of minimum gain, to be equal and thereafter in proportion to their Shares.


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As a general rule, 1% of our losses will be allocated to our Manager and 99% will be allocated among our members in proportion to their Share ownership. However, losses will be allocated 10% to our Manager and 90% to our Members to reverse profits that were allocated in such 10%/90% ratio, described above, and thereafter 1% to our Manager and 99% to our Members. During the operating period, losses allocated to our members shall be allocated among them in proportion to their Share ownership. Starting with the first year that that begins on or after the first day of the liquidation period, losses allocated to our members shall be allocated among them in the first instance so as to cause their capital accounts, determined on a per Share basis and adjusted to reflect such items as their shares of minimum gain, to be equal and thereafter in proportion to their Shares. Non-recourse deductions will be allocated 1% to our Manager and 99% among our other members.
 
In addition to the general provisions regarding allocations of profits and losses, our LLC Agreement contains a number of special allocations that are intended to meet certain tax safe-harbor provisions relating to allocations. One such safe harbor is a qualified income offset provision, which requires that profits be allocated to any members developing deficits in their capital account in an amount necessary to eliminate such deficits. Another safe harbor is a minimum gain chargeback provision, which requires that depreciation recapture and other similar items of income be allocated back to our members who were initially allocated depreciation deductions or other related items of deduction that were attributable to non-recourse indebtedness. Other special allocations provisions are designed to reflect the business deal among our members (see Section 8.2(f)(vi) of our LLC Agreement) or to protect our members in the event we are subjected to an unexpected tax liability because of a particular member. For example, local taxes that are imposed on us because of a member’s residence in that locality will be charged to that member.
 
Members who own Shares for less than an entire year will be allocated profits or losses to reflect their varying interests during the year and authorize our Manager to select such method to so do as is permissible under the Code. For this purpose, profits and losses will be treated as if they occurred ratably throughout the year.
 
Change of Management
 
Voluntary Withdrawal.  Our Manager may not voluntarily withdraw as our manager without (a) 60 days’ advance written notice to you, (b) an opinion of counsel that the withdrawal will not cause our termination or otherwise materially adversely affect our federal tax status as a partnership and (c) selection of, and acceptance of its appointment as manager by, a substitute manager who is acceptable to our members owning a majority of our Shares and meets the requirements, including net worth, of a “sponsor” for purposes of the NASAA Guidelines.
 
Involuntary Withdrawal.  Our Manager may be removed by our members owning a majority of our Shares or upon the occurrence of any other event that constitutes an event of withdrawal under Delaware law. Neither our Manager nor any of its affiliates may participate in any vote by our members to remove our Manager as manager or cancel any management or service contract with our Manager or its affiliates.
 
Management Fees for equipment (and interests in equipment) acquired by us prior to the effective date of our Manager’s withdrawal will be payable to our Manager when we receive the gross rental payment from the investments creating the obligation to pay the Management Fees. In the event that our Manager pledges the Management Fees receivable to a lender, the assignment to the lender will be binding in the event of our Manager’s voluntary or involuntary withdrawal.
 
Transfer of Our Shares
 
Withdrawal of a Member.  You may withdraw from Fund Twelve by selling, transferring or assigning your Shares or having all of your Shares repurchased or redeemed in accordance with our LLC Agreement and any applicable securities laws. You may generally transfer all or a portion of your Shares except to impermissible types of transferees or by transfers that would adversely affect us. However, in order to protect our status as a partnership for federal income tax purposes, your ability to sell, transfer or assign your Shares


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is subject to significant limitations. See Section 10.2 of our LLC Agreement and “Transfer of Our Shares / Withdrawal.”
 
Limited Repurchase of our Shares.  We have a share repurchase plan. In brief, after you have held your Shares for at least one year, and from time to time thereafter until the termination of Fund Twelve, you may request that we repurchase all or any portion of your Shares, subject to certain conditions. This right is subject to the availability of funds and the other provisions of the share repurchase plan. See “Share Repurchase Plan.”
 
Dissolution and Winding-Up
 
We will dissolve when any of the following events occurs:
 
  •  the withdrawal of our Manager, if a substitute manager has not been admitted as manager;
 
  •  our voluntary dissolution by our Manager with the consent of our members owning a majority of our Shares or, subject to Section 13 of our LLC Agreement, by the consent of the same majority without action by our Manager;
 
  •  the sale of all or substantially all of our assets;
 
  •  the expiration of our term;
 
  •  our operations are no longer legal activities under Delaware or any other applicable law; or
 
  •  any other event that causes our dissolution or winding-up under Delaware law.
 
Our Liquidation.  When a dissolution event occurs, our investments and other assets will be liquidated and the proceeds thereof will be distributed to our members after we pay our liquidation expenses and pay the debts, including our Manager’s fees, in the order of priority set forth in our LLC Agreement. Our existence will then be terminated. You are not guaranteed the return of, or a return on, your investment.
 
Access to Our Books and Records
 
Our Manager will maintain our books and records at its principal office. Such books and records include, among other things, the investor suitability records for a period of six years for any member whose Shares were sold by our Manager or any of its affiliates.
 
Our members will have the right to have a copy of the list of members mailed to them for a nominal fee. However, members requesting the list must certify that the list will not be sold or otherwise provided to another party or used for a commercial purpose other than for the member’s interest relative to his or her Shares. In addition, members or their representatives will have the right, upon written request, subject to reasonable notice and at their own expense, to inspect and copy other books and records that are maintained for us by our Manager.
 
If our Manager refuses or neglects to exhibit, produce or mail a copy of the membership list as requested, our Manager or its affiliates will be liable to any member requesting the membership list for the costs, including reasonable attorneys’ fees, incurred by that member for compelling the production of the membership list and for actual damages suffered by such member by reason of such refusal or neglect. It will be a defense that the actual purpose and reason for the request for inspection or for a copy of the membership list is to secure such list for the purpose of selling such list or of using the membership list for a commercial purpose unrelated to our business. Our Manager may require that the member requesting the membership list certify that it is not requesting the membership list for any of the prohibited reasons above. These remedies are in addition to, and will not in any way limit, other remedies available to members under federal law or the laws of any State.


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Meetings and Voting Rights of Our Members
 
Meetings.  Our Manager may call a meeting of our members at any time on its own initiative to act upon any matter on which our members may vote. If our Manger receives written requests for a meeting from members holding 10% or more of the outstanding Shares, our Manager will call a meeting as well. In addition, in lieu of a meeting, any matter that could be voted upon at a meeting of our members may be submitted for action by written consent of our members.
 
Voting Rights of Our Members.  Our members, with the consent of our members owning a majority of our Shares, may take action on the following matters without our concurrence:
 
  •  an amendment of our LLC Agreement (except as set forth in the following section);
 
  •  our dissolution;
 
  •  the sale of all or substantially all of our assets, except for sales while liquidating our investments during the liquidation period; and
 
  •  the removal of our Manager and the election of one or more substitute managers.
 
An affirmative vote of our members owning not less than a majority of our Shares (excluding Shares our Manager and its affiliates own) is required to remove our Manager (or anyone else) as manager or cancel any management or service contract or agreement with our Manager or its affiliates. Neither our Manager nor its affiliates may vote on those matters, and the total number of Shares that our Manager and its affiliates may purchase cannot exceed 10% of the number of Shares purchased by non-affiliates. Our members who dissent from any matter approved by our members owning a majority of our Shares are nevertheless bound by such vote and do not have a right to appraisal or automatic repurchase of their Shares. Our Manager and its affiliates are entitled to vote on all matters other than our Manager’s removal or the cancellation of any management or service contract or agreement with our Manager or its affiliates.
 
Amending Our LLC Agreement
 
Amendment by Our Members Without Our Manager’s Concurrence.  Our members may amend our LLC Agreement with the consent of our members owning a majority of our Shares without our Manager’s concurrence so long as the amendment does not allow our members to take part in the control or management of our business, or alter our Manager’s rights, powers and duties as set forth in our LLC Agreement. However, any amendment that will increase the liability of any member or adversely affect in a disproportionate manner (other than results that are due to a difference in relative number of Shares owned) any member’s Share of cash distributions, allocations of profits or losses for tax purposes, or of any investment tax credit will require the consent of each member affected by the change.
 
Amendment by Our Manager Without the Consent of Our Members.  Our Manager may, without the consent of our members, amend our LLC Agreement to effect any change for the benefit or protection of our members, including:
 
  •  adding to our Manager’s duties or obligations, or surrendering any of our Manager’s rights or powers;
 
  •  curing any ambiguity in our LLC Agreement, or correcting or supplementing any provision of our LLC Agreement that may be internally inconsistent;
 
  •  preserving our status as a “partnership” for federal income tax purposes;
 
  •  deleting or adding any provision that the Securities and Exchange Commission or any other regulatory body or official requires to be deleted or added;
 
  •  permitting our Shares to fall into an exemption from the definition of “plan assets” under DOL regulations;
 
  •  under certain circumstances, amending the allocation provisions, in accordance with the advice of tax counsel, accountants or the IRS, to the minimum extent necessary; and
 
  •  changing our name or the location of our principal office.


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TRANSFER OF OUR SHARES / WITHDRAWAL
 
You may withdraw from Fund Twelve only by selling or transferring all of your Shares, or if all of your Shares are repurchased by us in accordance with the share repurchase plan.
 
Restrictions on the Transfer of Our Shares and Withdrawal
 
There is no public market for our Shares, and none is expected to develop. Consequently, you may not be able to liquidate your investment in the event of emergencies or for other reasons, or obtain financing from lenders who may not accept our Shares as collateral. You may transfer your Shares only upon the satisfaction of the conditions and subject to the restrictions discussed below. In addition, the transfer of your Shares may subject you to the securities laws of the State or other jurisdiction in which the transfer is deemed to take place. The recipient must also own a sufficient number of our Shares to meet the minimum investment standard. Anyone to whom you transfer your Shares may become a substitute member only upon our approval, which is at our sole and absolute discretion; otherwise, they will be an assignee. While assignees will hold all economic rights that come with ownership of our Shares, they will not have the other rights that our members have, including voting rights and the right to a copy of the list of our members. We will also require that there be no adverse effect to us resulting from the transfer of our Shares, and that the assignee has signed a transfer agreement and other forms, including a power of attorney, as described in our LLC Agreement.
 
You may transfer or assign your own Shares to any person, whom we call an assignee, only if you and the assignee each sign a written assignment document, in form and substance satisfactory to us, which:
 
  (a)  states your intention that your Shares be transferred to the assignee;
 
  (b)  reflects the assignee’s acceptance of all of the terms and provisions of our LLC Agreement; and
 
  (c)  includes a representation by both you and the assignee that the assignment was made in accordance with all applicable state and federal laws and regulations, including minimum investment and investor suitability requirements under State securities laws.
 
Furthermore, unless we consent, no Shares may be transferred or assigned:
 
  •  to a minor or incompetent unless a guardian, custodian or conservator has been appointed to handle the affairs of the person;
 
  •  to any person if, in the opinion of counsel, the assignment would result in our termination for federal income tax purposes or change our status as a partnership for federal income tax purposes;
 
  •  to any person if the assignment would affect our existence or qualification as a limited liability company under Delaware law or the applicable laws of any other jurisdiction in which we are conducting business;
 
  •  to any person not permitted to be an assignee under applicable law, including, without limitation, applicable federal and State securities laws;
 
  •  to any person if the assignment would result in the transfer of less than the minimum required share purchase, unless the assignment is of all of the Shares owned by the member;
 
  •  if the assignment would result in your retaining a portion of your investment that is less than the minimum required Share purchase;
 
  •  if, in our reasonable belief, the assignment might violate applicable law;
 
  •  if, in the determination of our Manager, such assignment would not be in the best interests of us or our members; or
 
  •  if the assignment would cause our Shares to be owned by non-United States citizens.
 
Any attempt to transfer or assign our Shares in violation of the provisions of our LLC Agreement or applicable law will be null and void from the outset and will not bind us. Assignments of our Shares will be


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recognized by us as of the first day of the month following the date upon which all conditions to the assignment have been satisfied.
 
Our LLC Agreement provides further that we will not permit any Share (or interest in a Share) to be sold on a secondary market or the substantial equivalent of a secondary market, as defined by the federal income tax law or in a transaction that does not fall within certain safe harbors set forth in Treasury Regulations Section 1.7704-1. See “Federal Income Tax Consequences — Publicly Traded Partnerships.” If we determine that a proposed sale was effected on a secondary market or the substantial equivalent thereof or does not fall within such safe harbors, our Manager and we have the right and obligation to refuse to recognize the proposed sale and to take any action we deem necessary or appropriate so that such proposed sale is not in fact recognized.
 
All members and assignees must provide us with all information respecting assignments that we deem necessary in order to determine whether a proposed transfer occurred on a secondary market.
 
Additional Transfer Restriction for Residents of California
 
California law requires that all certificates for Shares that we issue to residents of California, if any, or that are subsequently transferred to residents of California, bear the following legend:
 
“It is unlawful to consummate a sale or transfer of a membership interest, or any interest therein, or to receive any consideration therefor, without the prior written consent of the Commissioner of Corporations of the State of California, except as permitted in the Commissioner’s rules.”
 
Consequences of Transfer
 
If you transfer or assign all of your Shares, you will cease to be a member and will no longer have any of the rights or privileges of a member. Whether or not any assignee becomes a substitute member, however, your assignment of all of your Shares will not release you from liability to us to the extent of any distributions, including any return of or on your investment, made to you in violation of Delaware law. See “Federal Income Tax Consequences — Sale or Other Disposition of Shares.”


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SHARE REPURCHASE PLAN
 
Optional Repurchase or Redemption.  We have a share repurchase plan that will provide eligible members with limited, interim liquidity by enabling them to sell their Shares back to us in limited circumstances. Our Manager can amend the provisions of the share repurchase plan without your approval. Our share repurchase plan permits you to sell your Shares back to us after you have held them for at least one year, subject to the significant restrictions and conditions described below.
 
The prices at which Shares may be sold back to us are as follows:
 
  •  during the offering period at $920 per share, less the total amount of cash distributions received during such period;
 
  •  during the operating period at (i) $950 per share, (ii) plus a 4% annual return for each full year your are a member, (iii) less the total amount of cash distributions you received up to and including the date of such sale; and
 
  •  during the liquidation period, at a price per Share equal to the net asset value per Share as determined from our most recent financial statements.
 
We will make repurchases under our repurchase plan quarterly, at our sole discretion, on a pro rata basis. Subject to funds being available, we will limit the number of our Shares repurchased during any calendar year to two percent (2%) of the weighted average number of our Shares outstanding during the prior calendar year.
 
Our Manager may, in its sole discretion, choose to terminate, amend or suspend our repurchase plan at any time.
 
We cannot guarantee that we will have sufficient funds to accommodate all requests made each year. Pending requests will be honored on a pro rata basis if insufficient funds are available to honor all requests. If no funds are available for the plan when a repurchase is requested, members may withdraw their requests or ask that we honor their requests when funds are available. In addition, members may withdraw a repurchase request upon written notice at any time prior to the date of repurchase. Members are not required to sell their Shares to us, except in the case of members who lose their U.S. citizenship or are no longer a resident alien or a resident in the Unites States or Puerto Rico.
 
The availability of funds for repurchasing or redeeming our Shares will be subject to us having sufficient cash. In this regard, it should be noted that we intend to reinvest a substantial portion of our cash during the operating period and possibly during the liquidation period. Furthermore, our Shares may be repurchased only if the repurchase would not impair our capital or our operations (which our Manager will decide in its sole discretion) and would not result in the termination of our taxable year or of our federal income tax status as a partnership. Any amounts used to redeem or repurchase Shares will reduce our available funds for making investments and distributions to our remaining members.
 
Repurchase or Redemption for Foreign Partners.  If, in the case of an individual, such investor is no longer a U.S. citizen, resident of the United States or Puerto Rico (individuals only), or a resident alien or if an investor otherwise is or becomes a foreign partner for purposes of Section 1446 of the Code at any time during the life of Fund Twelve, we have the right, but not the obligation, to repurchase all of such investor’s shares subject to the conditions set forth in Section 10.6 of our LLC Agreement.
 
Consequences of Repurchase or Redemption
 
If all of your Shares are accepted for repurchase or redemption by us, you will cease to be a member and will no longer have any of the rights or privileges of a member. A repurchase or redemption of all of your Shares will not release you from liability to us to the extent of any distributions, including any return of or on your investment, made to you in violation of Delaware law.
 
Gain or loss realized on the repurchase or redemption of your Shares, if you hold them as a capital asset and if you held them for more than one year, will be a capital gain or loss, as the case may be. However, any gain realized will be treated as ordinary income to the extent attributable to your share of potential depreciation recapture on our equipment, substantially appreciated inventory items and unrealized receivables. See “Federal Income Tax Consequences — Treatment of Cash Distributions Upon Redemption or Repurchase.”


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DISTRIBUTION REINVESTMENT PLAN
 
We have adopted a distribution reinvestment plan (“DRIP Plan”) that allows investors to have all of their distributions received from us during our offering period invested in additional Shares. A summary of our DRIP Plan is set forth below. This summary is not complete and is subject to and qualified by the provisions contained in our DRIP Plan. A copy of our DRIP Plan is included as Exhibit D to this prospectus. Potential participants in our DRIP Plan should read it in its entirety before making any decision to participate.
 
Who may participate?  You may elect to have all of the cash distributions you receive during our offering period invested in additional Shares pursuant to our DRIP Plan. In addition, until $200,000,000 in gross offering proceeds have been received by us, members of ICON Leasing Fund Eleven, LLC and/or ICON Income Fund Ten, LLC who have invested at least $5,000 for an individual account or $4,000 for a plan account (qualified plans or IRAs), may elect to invest all of the distributions that they receive with respect to their investments in those funds in our Shares pursuant to our DRIP Plan. We reserve the right to prohibit qualified plan investors from reinvesting their distributions if such participation would cause our underlying assets to constitute “plan assets.” See “Investment by Qualified Plans and IRAs” and “Subscriptions.”
 
How do I participate?  You may choose to invest all of your distributions during the offering period at any time by completing the subscription agreement that appears as Exhibit C to this prospectus or by submitting an enrollment form provided for that purpose. If you decide to participate in our DRIP Plan, all, but not less than all, of your distributions must be invested. In addition, once you have enrolled in our DRIP Plan, you may not terminate your participation in our DRIP Plan until the end of our offering period.
 
When will Shares be purchased?  We will invest distributions in additional Shares not later than 30 days from the distribution date, to the extent that our Shares are available for purchase. Investment of distributions in our Shares will begin with the next distribution payable after we receive your enrollment form or subscription agreement.
 
What is the purchase price of the Shares purchased under our DRIP Plan?  Shares purchased with the distributions that you choose to invest in our Shares will be purchased for $900.00 per Share, which represents the public offering price minus Sales Commissions and Underwriting Fees. The purchase of fractional Shares is a permissible, and likely, result of the investment of your distributions under our DRIP Plan.
 
How long will our DRIP Plan last?  Our DRIP Plan may be terminated at any time by our Manager, in its sole and absolute discretion; however, any termination that would have an adverse effect on the rights or obligations of a participant will require at least 10 business days notice to participants prior to termination. In addition, unless Shares to be issued pursuant to our DRIP Plan are registered with the Securities and Exchange Commission on a separate registration statement, our DRIP Plan will end upon the termination of the offering period.
 
What is the minimum investment under our DRIP Plan?  If you elect to participate in our DRIP Plan without making the minimum investment in us, you must meet the minimum investment amount in ICON Leasing Fund Eleven, LLC and/or ICON Income Fund Ten, LLC under the same social security number and the same registration type as your initial purchase of such funds. Multiple investments cannot be combined in order to meet the minimum investment requirement. For example, you cannot combine a $2,500 individual investment with a $2,500 joint tenant investment to meet the requirement.


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REPORTS TO OUR MEMBERS
 
Annual Reports
 
By March 15 of each year, we will send you a statement of your share of our income, gains, losses, deductions and credits, if any, for the year most recently completed to enable you to prepare your federal income tax return.
 
Within 120 days after the end of the year, in addition to our Annual Report on Form 10-K that will be publicly available with the Securities and Exchange Commission through its EDGAR filing system, we will send to each person who was a member or assignee at any time during the year an annual report that will include:
 
  •  our financial statements for the fiscal year prepared in accordance with GAAP, including a balance sheet as of the year end and related statements of operations, cash flows and changes in members’ equity;
 
  •  a breakdown, by source, of distributions made during the year to you and to our Manager;
 
  •  a status report with respect to each item of equipment that individually represents at least 10% of the aggregate purchase price of our investments at the end of the year, including our knowledge of the condition and utilization of the equipment;
 
  •  a breakdown of the compensation and amounts reimbursed to our Manager (if any), and a summary of the terms and conditions of (a) any contract (if any) with our Manager that was not filed as an exhibit to the registration statement of which this prospectus forms a part and (b) any other programs our Manager sponsors, demonstrating the allocation of the compensation between us and the other programs; and
 
  •  until all amounts invested by members have been invested or committed to investments and reserves, used to pay permitted front-end fees or not committed to investment and therefore returned to investors, information regarding investments made by us during the fiscal year.
 
Quarterly Reports
 
Within 60 days after the end of each of the first three quarters of each year, in addition to our Quarterly Reports on Form 10-Q that will be publicly available with the Securities and Exchange Commission through its EDGAR filing system, we will send to each person who was a member or assignee at any time during the quarter an interim report for the quarter that will include:
 
  •  our unaudited financial statements for the quarter, including a balance sheet and related statements of operations, cash flows and changes in members’ equity;
 
  •  a tabular summary of the compensation paid, and any amounts reimbursed, to our Manager, including a statement of the services our Manager performed or expenses it incurred, and a summary of the terms and conditions of any contract (if any) with our Manager that was not filed as an exhibit to the registration statement of which this forms a part; and
 
  •  until all amounts invested by members have been invested or committed to investment and reserves, used to pay permitted front-end fees or not committed to investment and therefore returned to investors, information regarding investments made by us during the quarter.


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PLAN OF DISTRIBUTION
 
General
 
Subject to the conditions set forth in this prospectus and in accordance with the terms and conditions of our LLC Agreement, the dealer-manager will offer, on a best efforts basis, a maximum of 400,000 Shares in the offering, all of which are priced at $1,000.00 per Share, except for certain Shares that may be purchased by: (1) persons affiliated with our Manager or its affiliates (limited to the executive officers of our Manager, who are listed under “Management” in this prospectus); (2) by investors whose broker does not charge a commission for each investment; (3) broker dealers participating in this offering or any of their associated persons purchasing for their own account or their IRAs or qualified plans for the net price of $920.00 per Share or (4) investors who participate in our DRIP Plan for the net price of $900.00 per Share. The minimum subscription is five Shares, except for IRAs and qualified plans for which the minimum investment is four (4) Shares. If you purchased shares of ICON Leasing Fund Eleven, LLC, ICON Income Fund Ten, LLC or ICON Income Fund Nine, LLC, there is no minimum investment for investors who wish to have all of their distributions reinvested in our Shares pursuant to the terms and conditions of our DRIP Plan. The purchase of Shares by our Manager and its affiliates is limited to a maximum of 10% of the number of Shares sold to non-affiliates and our Manager has already purchased one Share. Not more than sixty (60) Shares purchased by our Manager or its affiliates will be treated as satisfying the minimum offering requirement. Neither our Manager nor its affiliates intend to resell our Shares. See “Subscriptions — How to Subscribe.”
 
Our offering period will begin on the date of this prospectus. We expect the offering period to terminate no later than two years after the date of this prospectus, but in no event will our offering period continue for longer than two years from the date of this prospectus. We have a reasonable period of time to conclude our closing after the termination of our offering period. We may terminate the offering period at our option at any time.
 
Subscribers will generally not have the right to withdraw or receive their funds from the escrow account unless and until our offering is terminated, which may be as late as two years after the effective date of this prospectus.
 
Shares will be sold primarily through Selling Dealers and, to a limited extent, by the dealer-manager. We will pay Selling Dealers or the Dealer-Manager, as the case may be, a sales commission of up to $80.00 per Share.
 
Payments of sales commissions and underwriting fees to the dealer-manager and participating Selling Dealers will not exceed 10.0% of the gross offering proceeds from the offering and will not be paid on Shares sold pursuant to our DRIP Plan. One of our Manager’s affiliates, ICON Securities Corp., is the dealer-manager of this offering and will be receiving non-accountable underwriting fees equal to $20.00 per Share in the offering (except for Shares sold pursuant to our DRIP Plan). A portion of the $20.00 per Share may be re-allowed to Selling Dealers to reimburse them for permissible marketing expenses, such as bona fide training and education conferences and seminars. Additionally, we may, in our sole discretion, pay bona fide due diligence expense reimbursements to the dealer-manager and prospective Selling Dealers up to an additional 0.5% of the gross offering proceeds (or such other amount permitted by the NASD Conduct Rules). Any payments or advances made in connection with due diligence activities will be paid only on a fully accountable basis and only for bona fide due diligence activities and expense reimbursements. We will require commissions and expenses to be proven by receipt of duly signed subscription documents, detailed and itemized invoices and other evidence satisfactory to us. The sums we may expend in connection with bona fide due diligence activities are included in the O&O Expense Allowance paid by us to our Manager. See “Compensation of our Manager and Certain Non-Affiliates.”
 
To show the maximum amount of dealer-manager and participating broker-dealer compensation that we may pay in this offering, the following table assumes that all of our Shares are sold in the offering and that all sales commissions are paid with respect to such Shares, but excludes Shares sold pursuant to our DRIP Plan, for which no Sales Commissions or Underwriting Fees will be paid.


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Dealer-Manager and Participating Broker-Dealer Compensation
 
                 
          Percentage of
 
    Amount(1)     Offering  
 
Sales Commissions(2)
  $ 32,000,000       8.0000%  
Wholesaling Commissions*
  $ 4,480,000       1.1200%  
Salaries(3)*
  $ 1,658,800       0.4147%  
Expense Reimbursements(4)*
  $ 918,800       0.2297%  
Reimbursement for bona fide due diligence expenses(5)
  $ 2,000,000       0.5000%  
Reimbursement for bona fide training and education conferences and seminars(6)*
  $ 942,400       0.2356%  
                 
TOTAL:
  $ 42,000,000       10.5000%  
                 
 
 
(1) Amounts shown are estimates.
 
(2) The amount shown does not reflect any potential reduction of the Sales Commissions that are not payable for our Shares purchased by affiliates of our Manager or by investors whose broker-dealer has waived or reduced the sales commissions payable.
 
(3) Allocation of salaries of sales and marketing managers who do not receive transaction based compensation and are involved in sales and distribution efforts related to the offering.
 
(4) Expense reimbursements made to personnel performing wholesaling activities based upon actual expenses incurred.
 
(5) We may reimburse the dealer-manager for reimbursements it may make to participating broker-dealers for reasonable bona fide due diligence expenses upon receipt of a detailed and itemized invoice up to a maximum of 0.50% of our gross offering proceeds (or such other amount permitted by the NASD Conduct Rules). Such reimbursements will be payable from a portion of our Manager’s O&O Expense Allowance.
 
(6) These payments may be reimbursements paid to the dealer-manager for amounts it has paid to participating broker-dealers for the costs and expenses of attending bona fide training and education conferences and seminars. These amounts consist primarily of reimbursements for travel, meals, lodging and attendance fees incurred by broker-dealer personnel, financial advisors and wholesalers attending such bona fide training and education conferences and seminars.
 
* These fees and costs will be paid from the Underwriting Fees payable to the dealer-manager.
 
Due diligence activities of broker-dealers that will be reimbursed from the O&O Expense Allowance are comprised of a review of this prospectus and verification of factual matters set forth herein (including operational matters), a review of the Securities and Exchange Commission and blue sky effectiveness letters once available, a review of our financial statements and those of our Manager, ongoing monitoring of our updated financial statements, a review of the financial statements, 10-Q’s and 10-K’s of the equipment leasing programs sponsored by our Manager that are still in operation, a review of the biographies of our Manager’s management and monitoring any future changes in management that may occur, an initial and an ongoing maintenance of files on literature associated with this offering, a review of policies and procedures for providing investors and registered representatives with statements on investments, and a review of NASD no objection letters for any literature that may at any time be used with prospective investors (when such literature is created).
 
Our total organizational and offering expenses are not expected to exceed 11.44% of our gross offering proceeds. A portion of our O&O Expense Allowance may be used for the reimbursement of bona fide due diligence expenses to the dealer-manager or participating broker-dealers and would be considered additional underwriting compensation as set forth in the table above.


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Organizational and Offering Expenses
 
                 
          Percentage of
 
    Amount     Offering  
 
Sales Commissions
  $ 32,000,000       8.0000%  
Underwriting Fees
  $ 8,000,000       2.0000%  
O&O Expense Allowance(1)
  $ 5,750,000       1.4400%  
                 
TOTAL:
  $ 45,750,000       11.4400%  
                 
 
 
(1) Our Manager may reimburse the dealer-manager for reimbursements it may make to participating broker-dealers for reasonable bona fide due diligence expenses based upon a detailed and itemized invoice up to a maximum of 0.50% (or such other amount permitted by the NASD Conduct Rules) of our gross offering proceeds.
 
The dealer-manager agreement and the selling dealer agreements contain provisions for us to indemnify the participating Selling Dealers with respect to some types of liabilities, including liabilities arising under the Securities Act, unless such liability arises from information in this prospectus relating to the dealer-manager and supplied by the dealer-manager.
 
Segregation of Subscription Payments
 
In compliance with Rule 15c2-4 and Rule 10b-9 under the Securities Exchange Act of 1934, as amended, we will place all funds that the dealer-manager receives from subscribers in the offering in an escrow account at JPMorgan Chase Bank at our expense. We will do so beginning on the effective date of this prospectus and until we have accepted subscriptions for 1,200 Shares (or 20,000 Shares in the case of residents of Pennsylvania) and the subscribers have been admitted as members on the initial closing date (or a subsequent closing date in the case of Pennsylvania residents). Investors (other than Pennsylvania investors) who invest prior to the minimum offering size being achieved will receive, upon admission into Fund Twelve, a one-time distribution equal to the initial distribution rate, as determined by us, for each day their funds were held in escrow but without any interest on their escrow funds. Thereafter, we will deposit funds received through the termination date in an interest-bearing account pending the next closing.
 
We will promptly accept or reject subscriptions for Shares after we receive a prospective investor’s subscription documents and subscription funds. Broker-dealers have agreed to provide each investor with a final prospectus prior to an investor signing a subscription agreement. Each subscriber has the right to cancel his or her subscription for a period of five business days after receiving a final prospectus. The initial closing date will be as soon as practicable after we receive and accept subscriptions for 1,200 Shares excluding, for this purpose, subscriptions from residents of Pennsylvania. Subsequent to the initial closing date, we anticipate holding daily closings, provided the number of subscribed Shares is sufficient to justify the burden and expense of a closing. Once subscriptions total 20,000 Shares, including subscriptions from residents of Pennsylvania, we will release from escrow all subscription payments then remaining in escrow and terminate the escrow agreement. We anticipate holding daily closings, provided that the number of subscribed Shares is sufficient to justify the burden and expense of a closing. At each closing, we will admit as members, effective as of the next day, all subscribers whose subscriptions have been received and accepted by us and who are then eligible to be admitted.
 
If 1,200 Shares have not been subscribed on or before the first anniversary of the date of this prospectus, then we will direct the escrow agent to release the applicable subscription payments from escrow and return them within three business days to subscribers, together with all interest earned on the subscriptions, and our offering will be terminated. For a subscriber from Pennsylvania, this will happen if 20,000 Shares have not been sold within 120 days of the escrow agent’s receipt of their subscription, and the subscriber has been offered and has elected to rescind his or her subscription. We will apply the same procedure to return subscription payments which are held in the escrow account for one year from the date of this prospectus. In addition, any proceeds from the sale of our Shares that have not been invested or committed for investment within two years after the date of this prospectus, except for reserves and necessary operating capital, will be returned, without interest, to our members in proportion to their respective investments within three business days of determination of the amount of any reserves or working capital required by us. These returned proceeds will include a return of the proportionate share of the underwriting fees and any sales commissions paid to our Manager or any of its affiliates.


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SUBSCRIPTIONS
 
Minimum Investment
 
If you are a U.S. citizen with a resident address in the United States or Puerto Rico (individuals only) or a resident alien residing in the United States, the minimum number of Shares you can purchase is five (5). For IRAs and qualified plans, you must purchase at least four (4) Shares. There is no minimum investment if, among other requirements, you purchased shares in ICON Leasing Fund Eleven, LLC and/or ICON Income Fund Ten, LLC and wish to have all of your distributions reinvested in our Shares pursuant to the terms and conditions of our DRIP Plan. See “Distribution Reinvestment Plan.”
 
Subscriber Representations and Subscription Procedures
 
Each potential investor, whom we sometimes call a subscriber, must sign the Subscription Agreement found on pages C-1 to C-5. We will promptly review each subscription and will accept or decline to accept you as a member in our sole and absolute discretion. If we accept your subscription, either we or an agent of ours will give you prompt written confirmation of your admission as a member.
 
By your signature and initials in Section 5 of the Subscription Agreement (on page C-3), you are indicating your desire to become a member and to be bound by all the terms of our LLC Agreement. You also appoint ICON Capital Corp., as the manager, to be your true and lawful attorney-in-fact to sign documents, including our LLC Agreement, that may be required for your admission as a member.
 
Your signature and initials in Section 5 also serve as your affirmation that the representations printed in that section and on page C-4 of the Subscription Agreement are true, by which you confirm that:
 
  (1)  you have received a copy of the prospectus;
 
  (2)  you received a copy of the prospectus at least five business days before we accepted your subscription (except for residents of the States of Maine and Minnesota);
 
  (3)  you have read the General Instructions on Page C-2 of the Subscription Agreement;
 
  (4)  you understand that an investment in our Shares is not a liquid investment;
 
  (5)  you affirm that we may rely on the accuracy of the factual data about yourself that you report in the Subscription Agreement, including your representation that:
 
  a.  if you are purchasing Shares for an IRA, qualified plan or other benefit plan, you have accurately identified the subscriber as such;
 
  b.  you have accurately identified yourself, or the investing entity, as a U.S. citizen, having determined citizenship in the manner described below;
 
  c.  you have accurately reported your social security number or the federal taxpayer identification number of the investing entity;
 
  d.  you are not subject to backup withholding of federal income taxes; and
 
  e.  you agree to redeem all of your Shares if you are an individual and are no longer a U.S. citizen with a resident address in the United States or Puerto Rico (individuals only) or a resident alien, or if you otherwise are or become a foreign partner for purposes of Section 1446 of the Code at any point during the life of Fund Twelve.
 
  (6)  you meet the minimum income and net worth standards established by us; and
 
  (7)  you are purchasing Shares for your own account and not with a view to distribution.
 
We will require that everyone who wishes to purchase our Shares make these representations in order to assist NASD-registered securities sales representatives, Selling Dealers and the Dealer-Manager in determining


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whether this investment is suitable for each subscriber. We will rely upon the accuracy and completeness of your representations in complying with our obligations under State and federal securities laws.
 
The Subscription Agreement asks that you acknowledge receipt of this prospectus and of the instruction to rely only on information contained in this prospectus and certain related materials, including supplements to the prospectus and promotional brochures marked as being prepared by us or by the dealer-manager for use in connection with the offering, so that we may make an informed judgment as to whether we should accept your offer to subscribe for our Shares. While we recognize that in the sales process a potential investor will usually discuss an investment in our Shares with his or her broker, it is possible that you may misunderstand what you are told or that someone might tell you something different from, or contrary to, the information contained in this prospectus. You might also read or hear something that contradicts the information contained in this prospectus.
 
If you become a member and later make a claim against us, the dealer-manager and/or us alleging that you did not receive a prospectus for this offering, or that although you received a prospectus you relied on information that is contradictory to that disclosed in this prospectus, then we anticipate relying on the representations you made in your Subscription Agreement. Your signature on the Subscription Agreement is your acknowledgment that you did receive this prospectus and the instructions to rely exclusively on the information contained in the prospectus in making your investment decision. Do not sign the Subscription Agreement if you do not understand this section.
 
Instructions Concerning “Important Information”
 
The Important Information on page C-2 of the Subscription Agreement asks you to review the disclosures in this prospectus concerning certain conflicts of interest we face, certain risks involved in this investment, our Manager’s management, and possible adverse effects on the federal income tax treatment we expect may occur as a result your purchase of Shares. These disclosures are found in the sections entitled “Risk Factors,” “Conflicts of Interest,” “Management” and “Federal Income Tax Consequences.”
 
We included this instruction because, as this investment involves inherent conflicts of interest and risks, we do not intend to admit you as a member unless we have reason to believe that you are aware of the risks involved in this investment. If you become a member and later make claims against us, the dealer-manager and/or our Manager to the effect that you were not aware that this investment involved the inherent risks described in this prospectus, we, our Manager, and the dealer-manager anticipate relying on this instruction as evidence that you were aware of the risks involved in this investment.
 
Binding Effect of Our LLC Agreement on You
 
The representation in the Subscription Agreement that you have agreed to all the terms and conditions of our LLC Agreement is necessary because our Manager and every member are bound by all of the terms and conditions of that agreement, notwithstanding the fact that members do not actually sign our LLC Agreement. Though you do not actually sign our LLC Agreement, your signature on the Subscription Agreement gives our Manager the power of attorney pursuant to which it obligates you to be bound by each of the terms and conditions of our LLC Agreement. If you become a member and later make claims against us, our Manager and/or the dealer-manager that you did not agree to be bound by all of the terms of our LLC Agreement and the Subscription Agreement, we, our Manager and/or the dealer-manager anticipate relying on your representation and on the power of attorney as evidence of your agreement to be bound by all of the terms of our LLC Agreement and the Subscription Agreement.
 
Your Citizenship and Residency
 
All investors will be required to represent and warrant that they are either a United States citizen or a resident alien, each with an address in the United States. We will not admit anyone as a member who is either a United States citizen living outside of the United States or a non-resident of the United States. All investors will be required to tender to us for sale, upon demand, all of their Shares pursuant to our share repurchase plan if, in the case of an individual, such investor is no longer a United States citizen, resident in the


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United States or Puerto Rico (individuals only), or a resident alien or if an investor otherwise is or becomes a foreign partner for purposes of Section 1446 of the Code at any time during the life of Fund Twelve.
 
Co-Signature By Selling Dealer
 
Selling Dealers must countersign each Subscription Agreement for subscribers solicited by their firm. By this signature, the Selling Dealer certifies that it has obtained information from the potential investor sufficient to enable the Selling Dealer to determine that the investment is suitable for the investor based on the investor’s income, net worth and other characteristics. Since our Manager and the Dealer-Manager will not have had the opportunity to obtain financial and other relevant information directly from you, we will rely on the Selling Dealer’s representation to determine whether to admit you as a member. If you become a member and later make claims against us, the Dealer-Manager and/or our Manager alleging that our Shares were not a suitable investment because you did not meet the financial requirements contained in the investor suitability standards, our Manager and the Dealer-Manager anticipate relying upon the selling broker-dealer’s representation (and your representation) as evidence that you did meet the financial requirements for this investment. The NASD’s conduct rules require that any member of or person associated with the Dealer-Manager or a Selling Dealer who sells or offers to sell Shares must make every reasonable effort to ensure that a potential subscriber is a suitable investor for this investment in light of such subscriber’s age, education level, knowledge of investments, need for liquidity, net worth and other pertinent factors.
 
How to Subscribe
 
If you are an individual investor, you must personally sign the Subscription Agreement and deliver it, together with a check for all subscription monies payable in connection with your subscription, to a Selling Dealer. In the case of IRA, SEP and Keogh Plan, the trustee or custodian must sign the Subscription Agreement. In the case of donor trusts or other trusts in which the donor is the fiduciary, the donor must sign the Subscription Agreement. In the case of other fiduciary accounts in which the donor neither exercises control over the account nor is a fiduciary of the account, the plan fiduciary alone may sign the Subscription Agreement.
 
Until subscriptions for 1,200 Shares (or 20,000 Shares in the case of residents of Pennsylvania) from the offering are received by us, checks for the purchase of our Shares should be made payable to “JPMorgan Chase Bank as Escrow Agent for ICON Leasing Fund Twelve, LLC.” After the initial closing date, checks for the purchase of Shares should be made payable to “ICON Leasing Fund Twelve, LLC” for deposit into an interest bearing account pending the next closing.


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FURTHER INFORMATION
 
Experts
 
The audited balance sheet of Fund Twelve as of December 31, 2006 and ICON Capital Corp. and subsidiaries as of March 31, 2006 have been included herein in reliance on the reports of Hays & Company LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
 
Legal Matters
 
Arent Fox LLP of Washington, D.C. has provided us with an opinion on the legality of our Shares offered in this prospectus and the tax matters set forth under “Federal Income Tax Consequences.”
 
Additional Information
 
A registration statement under the Securities Act of 1933, as amended, has been filed with the Securities and Exchange Commission, Washington, D.C., with respect to our Shares. This prospectus, which forms a part of the registration statement, contains information concerning us and includes a copy of our LLC Agreement, but it does not contain all the information set forth in the registration statement and its exhibits. The information omitted may be examined at the public reference room of the Securities and Exchange Commission located at 100 F Street, N.E., Washington, D.C. 20549 (1-800-SEC-3030), without charge, and copies may be obtained from that office upon payment of the fee prescribed by the rules and regulations of the Securities and Exchange Commission. Additionally, it can be viewed via the website of the Securities and Exchange Commission at http://www.sec.gov. We will file periodic reports with the Securities and Exchange Commission, copies of which will be available on our Manager’s website at http://www.iconcapital.com. The information on our Manager’s website does not constitute a part of this prospectus.
 
Tabular Information Concerning Prior Public Programs
 
Exhibit B contains prior performance and investment information for nine of our previous publicly offered income-oriented programs: Series D; Series E; LP Six; LP Seven; Fund Eight A; Fund Eight B; Fund Nine, Fund Ten and Fund Eleven. Tables I through V of Exhibit B contain unaudited information relating to our Manager’s experience in raising and investing funds, the compensation paid to our Manager and its affiliates, the operating results of, and sales or dispositions of investments by most of these prior public programs. Purchasers of Shares will not acquire any ownership interest in any of these prior public programs and should not assume that the results of any of these prior public programs will be indicative of our future results. Moreover, the operating results for these prior public programs should not be considered indicative of the future results of these prior public programs or of whether the prior public programs will achieve their investment objectives. Future results and the achievement of investment objectives will in large part depend on facts that we cannot determine, including the residual value of equipment held by these prior public programs.
 
Sales Material
 
In addition to this prospectus, we may use sales material in connection with the offering of our Shares. In some jurisdictions sales material may not be available. This material will include information relating to this offering, our Manager and to its affiliates, and may include brochures, articles and publications about equipment leasing. If required by regulatory agencies, we will use only sales material that they have approved. The offering of our Shares, however, is made only by means of this prospectus. Although the information contained in sales material does not conflict with any of the information contained in this prospectus, the material does not purport to be complete and should not be considered as a part of this prospectus or the registration statement of which this prospectus is a part, or as incorporated in this prospectus by reference or as forming the basis of this offering of our Shares.


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GLOSSARY
 
The following terms used in this prospectus have the meanings set forth below:
 
“Acquisition Fee” means, in connection with any investment, the amount payable from all sources in respect of all fees and commissions paid by any party in connection with the selection and purchase of any item of Equipment or Lease, however designated and however treated for tax and accounting purposes.
 
“Affiliate” means:
 
  (1)  any person or entity, directly or indirectly controlling, controlled by or under common control with another person or entity;
 
  (2)  any person or entity owning or controlling 10% or more of the outstanding voting securities or beneficial interests of another entity; or
 
  (3)  any officer, director, member or partner of an entity; and
 
  (4)  if such person is an officer, director, member or partner, any other business entity for which the person acts in such capacity.
 
However, affiliates will not include a person or entity who is a partner in a partnership, member of a limited liability company or joint venturer in a joint venture with Fund Twelve if such person or entity is not otherwise an affiliate.
 
“Dealer-Manager” means ICON Securities Corp., an affiliate of our Manager, who will act as the manager of this offering of Shares.
 
“DRIP Plan” means our Distribution Reinvestment Plan, a copy of which is attached to this prospectus as Exhibit D.
 
“Fund Twelve” means ICON Leasing Fund Twelve, LLC, a Delaware limited liability company.
 
“Gross Rental Payments” means the total amount of rental payments paid, whether directly to us or pledged or assigned, by lessees of our equipment. For the avoidance of doubt, Gross Rental Payments includes receipts from any and all sources (whether received by us or by a lender) realized and whether or not recognized as income with respect to any Growth Lease or Income Lease that is a net lease, as applicable, regardless of whether (a) such receipts are pledged and/or assigned for payment to a lender by us, the Lessee or a third party or (b) title to the equipment is held by us or a lender.
 
“Growth Leases” means equipment leases that will generate little or no current cash flow for us because the rental payments will be paid directly to the lender that provided us a portion of the purchase price of the equipment. For the avoidance of doubt, a Growth Lease includes any agreement, arrangement or other understanding entered into or acquired by us, whether directly or indirectly by us and regardless of whether such lease is structured as an acquisition of a lease agreement or similar document or of an interest in the residual value of the investment that is the subject of such agreement, arrangement or other understanding.
 
“ICON Capital Corp.” means the corporation (and its successors and assigns) that serves as the manager of Fund Twelve, and is referred to in this prospectus as “our Manager.”
 
“Income Leases” means equipment leases that are expected to provide current cash flow to us, as none or very little of the cash flow from these leases have been pledged or assigned. For the avoidance of doubt, an Income Lease includes any agreement, arrangement or other understanding entered into or acquired by us, whether directly or indirectly by us and regardless of whether such lease is structured as an acquisition of a lease agreement or similar document or of an interest in the residual value of the investment that is the subject of such agreement, arrangement or other understanding.
 
“Lessee” means the party that is leasing the equipment from the owner of the equipment.
 
“Leverage” means the use of debt in the acquisition of equipment.
 
“Liquidation Period” means the phase after the Operating Period during which we will sell our assets; however, if our Manager believes it would benefit our members to reinvest the proceeds received from our investments in additional investments during the liquidation period, we may do so.


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“LLC Agreement” means the Limited Liability Company Agreement of Fund Twelve, as it may be amended from time to time.
 
“Management Fee” means the fee payable by us to our Manager for actively managing our equipment portfolio.
 
“Maximum Offering” means the offering of up to 400,000 Shares of Fund Twelve and up to 12,000 Shares offered pursuant to the DRIP.
 
“Member” means a holder of at least one Share and who has been admitted into Fund Twelve as a member.
 
“Non-Recourse Indebtedness” means indebtedness for which the lender can only look to our assets acquired with the debt as a source for repayment of the loan obligation in the event of default.
 
“O&O Expense Allowance” means an allowance payable by us to our Manager, the dealer-manager or both for expenses incurred in our organization as well as expenses relating to this offering of our Shares. We will pay or advance bona fide due diligence fees and expenses of the Dealer-Manager and actual and prospective Selling Dealers on a fully accountable basis from the O&O Expense Allowance based upon a detailed and itemized invoice up to a maximum of 0.50% of the gross offering proceeds (or such other amount permitted by the NASD Conduct Rules).
 
“Operating Period” means the time frame during which we will make investments, which period is anticipated to last 5 years commencing with the completion of the offering, but which may be extended at our Manager’s discretion for an additional 3 years.
 
“Payout” means the point in time when members have received total cash distributions equal to the amount of their investment, plus an 8% cumulative annual return, compounded daily, on their unreturned investment.
 
“Publicly Traded Partnership” means a limited liability company or other unincorporated business association that is taxed as a corporation rather than a partnership.
 
“Recourse Indebtedness” means indebtedness for which the lender can look to all of our assets as a source for repayment of the loan obligation in the event of default.
 
“Reinvestment” means the use of cash generated from our investment portfolio to acquire additional items of equipment.
 
“Re-Leasing Fee” means the fee payable to our Manager in connection with re-leasing our investment portfolio during the operating period.
 
“Repurchase” means the purchase of our Shares from a member by us pursuant to the share repurchase plan.
 
“Re-Sale Fee” means the fee payable by us to our Manager in connection with the sale of our equipment portfolio, but not payable with respect to any investments made during the liquidation period.
 
“Residual Value” means the value of an item of equipment upon the expiration of its lease.
 
“Sales Commission” means a commission payable by us to Selling Dealers who are not affiliated with our Manager for selling Shares.
 
“Selling Dealer” means brokers unaffiliated with our Manager who will be selling our Shares in this offering.
 
“Shares” means ownership interests in Fund Twelve, which entitle the holder to the rights described in the prospectus and in our LLC Agreement.
 
“Underwriting Fees” means the fees payable by us to ICON Securities Corp., the dealer-manager of this offering and an affiliate of our Manager, in connection with the sale of Shares.


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The Members
ICON Leasing Fund Twelve, LLC
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
We have audited the accompanying balance sheet of ICON Leasing Fund Twelve, LLC (a Delaware limited liability company) as of December 31, 2006. The financial statement is the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statement based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
 
In our opinion, the financial statement referred to above presents fairly, in all material respects, the financial position of ICON Leasing Fund Twelve, LLC as of December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.
 
/s/  Hays & Company LLP
 
March 8, 2007
New York, New York


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ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)

Balance Sheet
December 31, 2006
 
         
ASSETS
Cash
  $ 2,000  
         
 
LIABILITIES AND MEMBERS’ EQUITY
Commitments and Contingencies
       
Members’ equity:
       
Manager (one share outstanding, $1,000 per share original issue price)
  $ 1,000  
Additional member (one share outstanding, $1,000 per share original issue price)
    1,000  
         
    $ 2,000  
         
 
See accompanying notes to balance sheet.


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ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)

NOTES TO BALANCE SHEET
December 31, 2006
 
(1)  The Limited Liability Company
 
ICON Leasing Fund Twelve, LLC (the “LLC”) was formed on October 3, 2006 as a Delaware limited liability company. The initial capitalization of the LLC was $2,000. The LLC will continue until December 31, 2026, unless terminated sooner. The LLC is offering membership interests on a “best efforts” basis with the intention of raising up to $410,800,000 of capital, consisting of 412,000 shares of limited liability interests, of which 12,000 have been reserved for the LLC’s Distribution Reinvestment Plan. Upon raising a minimum of $1,200,000, members will be admitted.
 
With the proceeds from membership interests sold, the LLC intends to invest in equipment subject to leases and in residual ownership rights in leased equipment and establish a cash reserve as described more fully in the LLC’s prospectus. The Manager of the LLC is ICON Capital Corp. (the “Manager”), a Connecticut corporation. The Manager will acquire the assets on behalf of and manage the business of the LLC.
 
During the offering period prior to the commencement of operations, the Manager will pay on behalf of the LLC, sales commissions incurred to third parties, as outlined in the LLC’s prospectus. The LLC will also make payments to the Manager and its affiliates for various fees upon commencement of operations, as outlined in the LLC’s prospectus.
 
(2)  Capital Contribution
 
The Manager has made an initial capital contribution of $1,000 to the LLC. In addition, an additional member was admitted on October 3, 2006. The additional member is an officer and director of the Manager.


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ICON Capital Corp. and Subsidiaries
 
December 31, 2006
 
         
ASSETS
Cash and cash equivalents
  $ 885,036  
Receivables from Managed Funds
    1,339,113  
Prepaid expenses and other assets
    381,846  
Related party loans, notes and advances receivable
    492,117  
Deferred charges, net
    1,248,768  
Fixed assets and leasehold improvements, net of accumulated depreciation and amortization of $2,251,481
    736,566  
Restricted cash
    884,527  
         
Total assets
  $ 5,967,973  
         
 
LIABILITIES AND STOCKHOLDER’S EQUITY
Liabilities:
       
Accounts payable and accrued expenses
  $ 1,320,015  
Deferred revenue
    770,874  
Deposits payable
    487,016  
Due to Parent and affiliates, net
    93,717  
Notes payable
    234,327  
Capitalized lease obligations
    13,627  
Deferred state income taxes
    22,544  
         
Total liabilities
    2,942,120  
         
Commitments and contingencies (Notes 3, 4, 5, 6 and 7)
       
Stockholder’s Equity:
       
Common stock: no par value; $10 stated value: 3,000 shares authorized; 1,500 shares issued and outstanding
    15,000  
Additional paid-in capital
    1,087,400  
Retained earnings
    1,923,453  
         
Total stockholder’s equity
    3,025,853  
         
Total liabilities and stockholder’s equity
  $ 5,967,973  
         
 
See accompanying notes to consolidated balance sheet.


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ICON Capital Corp. and Subsidiaries
 
December 31, 2006
(Unaudited)
 
(1)  Organization
 
ICON Capital Corp. (the “Company”) is a wholly-owned subsidiary of ICON Holdings Corp. (“Holdings” or “Parent”). The primary activity of the Company is the development, marketing and management of publicly registered equipment leasing funds in the United States of America.
 
The Company is the general partner or managing member of six publicly owned Partnerships or Limited Liability Companies (the “Managed Funds”), as well as one Limited Liability Company which is in the registration process:
 
  •  ICON Cash Flow Partners L.P. Seven (“ICON Cash Flow Seven”)
 
  •  ICON Income Fund Eight A L.P. (“ICON Fund Eight A”)
 
  •  ICON Income Fund Eight B L.P. (“ICON Fund Eight B”)
 
  •  ICON Income Fund Nine, LLC (“ICON Fund Nine”)
 
  •  ICON Income Fund Ten, LLC (“ICON Fund Ten”)
 
  •  ICON Leasing Fund Eleven, LLC (“ICON Fund Eleven”)
 
  •  ICON Leasing Fund Twelve, LLC (“ICON Fund Twelve”)
 
The Managed Funds are publicly registered equipment leasing entities that were formed for the purpose of acquiring equipment and leasing such equipment to third parties. The Company has a one percent interest in each of the Managed Funds.
 
The following table includes pertinent offering information for each of the Managed Funds:
 
                 
    Date of Initial
  Date of Final
  Gross Proceeds
 
    Offering   Offering   Raised  
 
ICON Cash Flow Seven
  January 19, 1996   September 16, 1998     99,999,683  
ICON Fund Eight A
  October 14, 1998   May 17, 2000     75,000,000  
ICON Fund Eight B
  May 25, 2000   October 17, 2001     75,000,000  
ICON Fund Nine
  December 18, 2001   April 30, 2003     99,653,474  
ICON Fund Ten
  August 22, 2003   April 15, 2005     149,994,501  
ICON Fund Eleven
  May 6, 2005   Active     328,149,551 *
ICON Fund Twelve
  In Process   In Process      
                 
            $ 827,797,209  
                 
 
 
* Total gross proceeds raised as of March 1, 2007.
 
ICON Fund Eleven was formed on December 2, 2004 as a Delaware limited liability company with the Company contributing its initial capital of $1,000 for a 1% interest. ICON Fund Eleven began offering membership interests to the public on April 21, 2005.
 
ICON Fund Eleven originally was offering members shares with the intention of raising up to $200,000,000 of capital. On March 8, 2006, ICON Fund Eleven commenced a consent solicitation of its members to amend and restate its Limited Liability Company Agreement in order to increase the maximum offering amount from up to $200,000,000 to up to $375,000,000. The consent solicitation was completed on April 21, 2006 with the requisite consents received from its members.


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Table of Contents

 
ICON Capital Corp. and Subsidiaries
 
Notes to Consolidated Balance Sheet — (Continued)
December 31, 2006
(Unaudited)

(1)  Organization — (Continued)
 
 
ICON Fund Twelve was formed on October 3, 2006 as a Delaware limited liability company. The initial capitalization was $2,000. ICON Fund Twelve will continue until December 31, 2026, unless terminated sooner. ICON Fund Twelve will be offering membership interests on a “best efforts” basis with the intention of raising up to $410,800,000 of capital, consisting of 412,000 shares of limited liability company interests, of which 12,000 shares have been reserved for ICON Fund Twelve’s Distribution Reinvestment Plan. Upon raising a minimum of $1,200,000, the initial closing date, members will be admitted to ICON Fund Twelve.
 
The Company earns fees from the Managed Funds from the sales proceeds of limited partnership units or limited liability member shares. Additionally, the Company earns acquisition and management fees during the Managed Funds’ operating lives and shares in each Managed Fund’s earnings and cash distributions, generally at 1%.
 
ICON Securities Corp., a wholly-owned subsidiary of the Company, is a registered broker-dealer and a member of the National Association of Securities Dealers, Inc. Its primary business activity is to underwrite and sell units in the Managed Funds.
 
(2)  Summary of Significant Accounting Policies
 
Consolidation
 
The consolidated balance sheet includes the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
 
Cash and Cash Equivalents
 
The Company considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents. Restricted cash is unavailable to the Company until certain contractual terms and conditions are met.
 
The Company has deposits with commercial financial institutions, which, at times, may exceed FDIC insured limits. Management periodically evaluates the credit worthiness of these institutions and has not experienced any losses on such deposits.
 
Concentrations of Credit Risk
 
Concentrations of credit risk with respect to receivables from Managed Funds are limited to the various funds that the Company manages. Accordingly, the Company is exposed to business and economic risk. Although the Company does not currently foresee a significant credit risk associated with these receivables, repayment is dependent upon the financial stability of each of the Managed Funds.
 
Allowance for Doubtful Accounts
 
When evaluating the adequacy of the allowance for doubtful accounts, the Company estimates uncollectibility of receivables from the Managed Funds by analyzing historical bad debts, concentrations, credit worthiness and current economic trends. Management of the Company has determined that no allowance was required at December 31, 2006.
 
Deferred Charges
 
Under the terms of the offering agreements with the Managed Funds, the Company is entitled to a fee for organizing and offering units of the Managed Funds from the gross proceeds raised, subject to certain


F-7


Table of Contents

 
ICON Capital Corp. and Subsidiaries
 
Notes to Consolidated Balance Sheet — (Continued)
December 31, 2006
(Unaudited)

(2)  Summary of Significant Accounting Policies — (Continued)
 
limitations, based on the number of units sold. The costs of organizing and offering the Managed Funds are capitalized by the Company and amortized over the Managed Fund’s estimated offering period, generally two years from the initial closing date of the Managed Fund. The unamortized balance of these costs is reflected in the consolidated balance sheet as deferred charges, net.
 
Fixed Assets and Leasehold Improvements
 
Fixed assets and leasehold improvements are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight line method over the estimated useful lives of the assets. Estimated useful lives are generally three years for computer equipment and software and five years for furniture and fixtures, office equipment and telephone equipment. Amortization of leasehold improvements is computed using the shorter of the lease term or the estimated useful life of the improvement. Normal maintenance and repair costs, which do not extend the useful lives of the fixed assets and leasehold improvements, are expensed as incurred while renewal, betterments and major repairs that materially extend the useful lives of the assets are capitalized.
 
Impairment of Long-Lived Assets
 
The Company reviews long-lived assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recoverable. An impairment loss is recognized only if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. If there is an indication of impairment, the Company estimates the future cash flows (undiscounted and without interest charges) expected to result from the use of the asset and its eventual disposition. Future cash flows are the future cash inflows expected to be generated by an asset less the future outflows expected to be necessary to obtain those inflows. If an impairment is determined to exist, an impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value.
 
Deposits Payable
 
The Company may require a deposit when evaluating a transaction with a potential lessee. If the Company decides not to pursue the transaction the deposit is returned. If the Company approves the transaction on behalf of a Managed Fund and the potential lessee decides not to pursue the transaction the Company records the deposit as other income. If the transaction is completed the deposit is often used to pay a portion of the first months rent and the deposit is transferred to the appropriate Managed Fund.
 
Revenue Recognition
 
The Company earns fees from the Managed Funds for the organization and offering of each Managed Fund, ranging from 1.5% to 3.5% of the gross proceeds and is recognized at each closing. Additionally, the Company earns an underwriting fee of 2.0% of the gross proceeds from the capital raised which is recognized at each closing.
 
The Company also earns an acquisition fee equal to 3.0% of the gross value of the equipment acquired by the Managed Funds. Under the terms of the Managed Funds’ agreements with the Company, the Company is entitled to receive acquisition fees upon the execution of a binding agreement to acquire equipment on behalf of the Managed Funds and substantially all of the material conditions to closing are satisfied. The payment of acquisition fees is recorded as deferred revenue until completion of the related transaction at which time it is recognized as revenue.


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Table of Contents

 
ICON Capital Corp. and Subsidiaries
 
Notes to Consolidated Balance Sheet — (Continued)
December 31, 2006
(Unaudited)

(2)  Summary of Significant Accounting Policies — (Continued)
 
 
The Company earns a management fee from each of the Managed Funds ranging from 1.0% to 7.0% based on a percentage of the rentals recognized either directly by the Managed Funds or through their joint ventures. In addition, the Company is reimbursed for administrative expenses incurred based upon an allocation of the time its employees spend working on each Managed Funds’ operations. From time to time, the Company has agreed to waive certain of its fees and expense reimbursements due from the Managed Funds.
 
Income Taxes
 
Warrenton Capital Corp., the parent of Holdings, files a consolidated federal income tax return and combined state income tax returns with the Company in states where such a filing is permitted. These consolidated income tax returns include the operations of the Company and its wholly-owned subsidiaries. In states that do not permit or require the Company to file on a combined basis, the Company files separate state income tax returns.
 
Deferred state income taxes are provided for in states in which the Company files separate income tax returns. The Company accounts for its deferred state income taxes using the liability method. Under this method, deferred state income tax assets and liabilities are determined based on the differences between the financial reporting basis and tax basis of assets and liabilities. Deferred state income tax assets and liabilities are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are established when it is determined that it is more likely than not that the deferred state income tax assets will not be realized.
 
The Company records its provision for federal and combined state income taxes as amounts due to its Parent based upon the estimated taxes that would be due if the Company had filed its income tax returns on a separate entity basis. The Company’s share of current and deferred consolidated federal tax obligations and its share of current and deferred combined state tax obligations are recorded as payables to Holdings. Amounts due to Holdings for current and deferred income taxes are included in due to Parent and affiliates in the accompanying consolidated balance sheet.
 
Use of Estimates
 
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements. Actual results could differ from those estimates.


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Table of Contents

 
ICON Capital Corp. and Subsidiaries
 
Notes to Consolidated Balance Sheet — (Continued)
December 31, 2006
(Unaudited)

(3)  Fixed Assets and Leasehold Improvements
 
Fixed assets and leasehold improvements at December 31, 2006 consist of the following:
 
         
Computer equipment and software
  $ 1,326,036  
Furniture and fixtures
    422,004  
Office and other equipment
    424,779  
Telephone equipment
    125,087  
Leasehold improvements
    690,141  
         
      2,988,047  
Less accumulated depreciation and amortization
    (2,251,481 )
         
    $ 736,566  
         
 
The Company has entered into leases for certain of its equipment which have been accounted for as capitalized leases. Fixed assets acquired under capitalized leases, and included in the above table, consist of the following:
 
         
Office and other equipment
  $ 98,762  
Less accumulated depreciation
    (48,809 )
         
    $ 49,953  
         
 
(4)  Accounts Payable and Accrued Expenses
 
Accounts payable and accrued expenses at December 31, 2006 consist of the following:
 
         
Accounts payable
  $ 832,244  
Accrued salaries and benefits
    487,771  
         
    $ 1,320,015  
         
 
(5)  Notes Payable
 
On September 1, 2004, the Company issued a note payable for the purchase of computer software. The note payable accrues interest at 7.5% per year, is payable in thirty-six equal monthly installments of $2,939, including principal and interest, and matures on September 1, 2007. At December 31, 2006, the remaining outstanding principal balance of this note payable was $25,651.
 
On November 1, 2004, the Company issued a note payable for the purchase of additional computer software for use in its lease management business. The note payable accrues interest at 7.5% per year, is payable in thirty-six equal installments of $523, including principal and interest, and matures on November 1, 2007. At December 31, 2006 the remaining outstanding principal balance of this note payable was $5,543.
 
On July 19, 2005, the Company issued a note payable for the purchase of fixed assets. The note payable accrues interest at 6.1% per year, is payable in sixty equal monthly installments of $2,463, including principal and interest, and matures on August 2, 2010. At December 31, 2006, the remaining outstanding principal balance of this note payable was $96,869.


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Table of Contents

 
ICON Capital Corp. and Subsidiaries
 
Notes to Consolidated Balance Sheet — (Continued)
December 31, 2006
(Unaudited)

(5)  Notes Payable — (Continued)
 
 
On June 30, 2006, the Company issued a note payable for the purchase of fixed assets. The note payable accrues interest at 6.99%, is payable in thirty-six installments of $1,513 and matures on July 14, 2009. At December 31, 2006 the remaining outstanding principal balance was $46,897.
 
On July 1, 2006, the Company issued a note payable for the purchase of various types of business insurance. The note payable accrues interest at 6.99% per year, is payable in ten equal installments of $12,082, including principal and interest and matures on May 1, 2007. At December 31, 2006 the remaining outstanding principal balance was $59,367.
 
The aggregate annual maturities of notes payable at December 31, 2006 are as follows:
 
         
Year Ending
     
December 31,
     
2007
  $ 133,028  
2008
    43,993  
2009
    38,049  
2010
    19,257  
         
    $ 234,327  
         
 
(6)  Leases
 
The Company leases certain office equipment for use in its leasing management business and accounts for these leases as capitalized leases. At December 31, 2006, the Company has one remaining capital lease obligation which requires a monthly payment of $1,286, accrues interest at 7.5% per year and matures on December 1, 2007.
 
The Company has entered into non-cancelable operating leases for its office space located in New York, Massachusetts, California, Florida and London, England, with terms expiring through September 2012.
 
On September 22, 2006, the Company entered into a lease extension for its office space in Braintree, Massachusetts, which expires on October 31, 2009. Under the terms of this office lease, the Company is obligated to pay certain operating and escalation charges associated with this lease. Rent expense is charged to operations on the straight line basis over the life of the lease.
 
Effective October 1, 2005 the Company entered into a new lease for its office space in New York, New York, which expires on September 30, 2012. Under the terms of this office lease, the Company was entitled to rent abatements, ranging from one to three months, as defined in the lease, and is obligated to pay certain operating and escalation charges associated with the lease. Rent expense is charged to operations on the straight line basis over the life of the lease.
 
On June 1, 2005, the Company entered into a new lease for its office space in San Francisco, California, which expires on February 29, 2008. Under the terms of this office lease, the Company is obligated to pay certain operating and escalation charges associated with this lease. Rent expense is charged to operations on the straight line basis over the life of the lease.
 
On August 1, 2006, the Company entered into a new lease for office space in London, England, which expires on July 31, 2007. The Company has the option to extend the lease for two additional one year terms. Rent expense is charged to operations on the straight line basis over the life of the lease.


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Table of Contents

 
ICON Capital Corp. and Subsidiaries
 
Notes to Consolidated Balance Sheet — (Continued)
December 31, 2006
(Unaudited)

(6)  Leases — (Continued)
 
 
Non-cancelable rents due under the terms of the Company’s office leases are as follows:
 
         
Year Ending
     
December 31,
     
2007
  $ 971,500  
2008
  $ 621,600  
2009
  $ 587,600  
2010
  $ 562,500  
2011
  $ 562,500  
 
(7)  Transactions with Related Parties
 
As discussed in Note 2, the Company earns fees from the Managed Funds for the organization and offering of each Managed Fund and for the underwriting, asset acquisition, management and reimbursement for administrative expenses of each Managed Fund’s investments. At December 31, 2006, the Company had amounts due from the Managed Funds for the various fees earned and reimbursements totaling $1,339,113. Substantially all of these amounts have been collected subsequent to December 31, 2006.
 
At December 31, 2006, the Company has a net payable due to its Parent of $130,973, which principally relates to changes in current and deferred income taxes. In addition, at December 31, 2006, the Company is owed $37,256 from its affiliates for advances made in the current and prior years. Amounts owed between the Parent and other affiliates are non-interest bearing and due on demand.
 
Total dividends declared and paid to Holdings for the nine months ended December 31, 2006, amounted to $3,318,260.
 
In accordance with the terms of a management agreement dated August 29, 2003 between the Company and its Parent (the “Agreement”) the Company is required to pay to its Parent a monthly management fee computed under the terms of the Agreement. For the nine months ended December 31, 2006, the Company paid $844,477 of management fees to its Parent under the terms of the Agreement.
 
From time-to-time, the Company advances funds to its employees. Employee loans accrue interest at the Applicable Federal Rate in effect at the time the loan is made. The outstanding balance at December 31, 2006 is approximately $402,000.
 
On January 13, 2006, in connection with the acquisition of substantially the entire equipment leasing portfolio of Clearlink Capital Corporation (“Clearlink”), an Ontario corporation, on behalf of ICON Fund Eleven, the Company established a restricted cash account for the settlement of certain acquisition related obligations. The cash is unavailable to the Company until March 7, 2008 and may be reduced if the Company has any indemnification obligations to Clearlink prior to that time. At December 31, 2006, the restricted cash balance is $884,527. No indemnification obligations have been incurred through December 31, 2006.


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Table of Contents

 
INDEPENDENT AUDITOR’S REPORT
 
The Board of Directors
ICON Capital Corp.
 
We have audited the accompanying consolidated balance sheet of ICON Capital Corp. and Subsidiaries as of March 31, 2006. This consolidated financial statement is the responsibility of the Company’s management. Our responsibility is to express an opinion on this consolidated financial statement based on our audit.
 
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statement referred to above presents fairly, in all material respects, the consolidated financial position of ICON Capital Corp. and Subsidiaries as of March 31, 2006, in conformity with accounting principles generally accepted in the United States of America.
 
/s/  Hays & Company LLP
 
June 16, 2006
New York, New York


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Table of Contents

ICON Capital Corp. and Subsidiaries
 
 
         
ASSETS
Cash and cash equivalents
  $ 203,814  
Receivables from Managed Funds
    842,471  
Prepaid expenses and other assets
    425,443  
Notes and advances receivable — related parties
    470,762  
Deferred charges, net
    1,468,183  
Fixed assets and leasehold improvements, net of accumulated depreciation and amortization of $2,024,481
    866,861  
Restricted cash
    861,082  
         
Total assets
  $ 5,138,616  
         
 
LIABILITIES AND STOCKHOLDER’S EQUITY
Liabilities:
       
Accounts payable and accrued expenses
  $ 1,280,663  
Deferred revenue
    143,480  
Due to Parent and affiliates, net
    521,270  
Notes payable
    298,704  
Capitalized lease obligations
    31,909  
Deferred state income taxes
    22,544  
         
Total liabilities
    2,298,570  
         
Commitments and contingencies (Notes 3, 4, 5, 6 and 7)
       
Stockholder’s Equity:
       
Common stock: no par value; $10 stated value: 3,000 shares authorized; 1,500 shares issued and outstanding
    15,000  
Additional paid-in capital
    1,087,400  
Retained earnings
    1,737,646  
         
Total stockholder’s equity
    2,840,046  
         
Total liabilities and stockholder’s equity
  $ 5,138,616  
         
 
See accompanying notes to consolidated balance sheet.


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Table of Contents

ICON Capital Corp. and Subsidiaries
 
March 31, 2006
 
(1)  Organization
 
ICON Capital Corp. (the “Company”) is a wholly-owned subsidiary of ICON Holdings Corp. (“Holdings” or “Parent”). The primary activity of the Company is the development, marketing and management of publicly registered equipment leasi