Questions and Answers about this offering
- What is ICON Leasing Fund Twelve, LLC?
- What does ICON Leasing Fund Twelve, LLC do?
- How will our Manager select potential equipment for acquisition?
- What will be the terms of our leases?
- What can you expect to happen after you make an investment in our Shares?
- How do our planned cash distributions compare to fixed income investments?
- How does an investment in an equipment lease compare to an investment in another class of asset, such as real estate?
- Are there tax considerations of this investment of which you need to be aware?
- Can you have your distributions redirected elsewhere each month?
- What ability will you have to sell your investment in our Shares?
1. What is ICON Leasing Fund Twelve, LLC?
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.
2. What does ICON Leasing Fund Twelve, LLC do?
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.
3. How will our Manager select potential equipment for acquisition?
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.
4. What will be the terms of our leases?
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.
5. What can you expect to happen after you make an investment in our Shares?
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.
6. How do our planned cash distributions compare to fixed income investments?
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.
7. How does an investment in an equipment lease compare to an investment in another class of asset, such as real estate?
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.
8. Are there tax considerations of this investment of which you need to be aware?
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.
9. Can you have your distributions redirected elsewhere each month?
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."
10. What ability will you have to sell your investment in our Shares?
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.
