Management Incentives/Financial Focus:
Since the initiation of its financing activities, credit losses have been
less than 3% of Comdisco Ventures' total commitments originated. This
percentage does not reflect any significant loss experience from Comdisco
Ventures' subordinated debt products, which were only first introduced on a
large scale beginning in fiscal 1998.
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Comdisco Ventures believes that its low level of credit losses are
largely a result of its (1) transaction structuring experience, (2) due
diligence procedures specifically designed to analyze transactions with
emerging growth companies, (3) extensive monitoring and review of these
transactions, and (4) corrective approach to addressing delinquency. Comdisco
Ventures' loss experience has also benefited from the experience and diligence
of those established venture capital firms that typically precede Comdisco
Ventures into a financing relationship with its customers.
Competition
Comdisco Ventures' primary competitors include financial institutions,
equipment lessors and manufacturers, venture capital firms, and non-traditional
lenders that provide debt and/or equity financing to emerging, high technology
companies. The competition that Comdisco Ventures faces is situation-specific
and depends, in part, on the issues that concern the customer. For example, a
customer that has a financing need of several hundred thousand dollars, or that
is unconcerned about restrictive covenants, may find a venture-oriented bank
more attractive. Or, a customer that needs a large quantity of equipment from
one specific vendor may be able to negotiate vendor financing that is more
attractive than alternative financing offered by Comdisco Ventures. Some non-
traditional funding sources, such as distribution channel partners, joint
venture partners, and owners of complementary technologies, may be motivated to
provide attractive financing as one part of a larger collaboration. An
increasing number of public companies also provide substantial capital to
companies who might otherwise be candidates for Comdisco Ventures' financing
products. Comdisco Ventures believes it competes effectively with these
competitors based on its creative deal structuring and flexibility, willingness
to craft individual solutions to financing needs, reputation, quality of
service, ability to leverage its relationship with Comdisco, and ability to
respond rapidly.
Employees
As of March 31, 2000, Comdisco Ventures employed thirty-nine people on a
full time basis--twenty-five people personnel were involved in marketing and
sales, twelve were in processing, servicing and administrative support and two
were executive employees. No employees are represented by a labor union.
Facilities
Comdisco Ventures' principal executive offices are located and its
venture leasing and venture debt activities are conducted at 3000 Sand Hill
Road, Menlo Park, California. In addition to its principal offices, Comdisco
Ventures leases office space in Palo Alto, California, Waltham, Massachusetts
and Rosemont, Illinois.
Comdisco Ventures believes its current facilities are adequate for its
existing needs and that additional, suitable space will be available as
required.
Regulation, Licenses and Qualifications, Federal And State
Because Comdisco Ventures is a non-bank, commercial lender, it is not
subject to material federal regulation. Nevertheless, Comdisco Ventures may be
required to comply with the Equal Credit Opportunity Act ("ECOA"). Under the
ECOA, Comdisco Ventures is required to give all credit applicants notice of the
right to receive a written statement of reasons an application for credit is
denied, unless the applicant has gross revenues exceeding $1 million during its
last fiscal year.
Comdisco Ventures is not subject to material regulation in most states,
although some states do require licensing for some kinds of commercial
financing activities. Most states' usury laws, which limit the amount of
interest charged on loans originated in a state, either exempt commercial loans
or do not extend the benefit of the usury laws to corporate borrowers.
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To date, substantially all documentation relating to Comdisco Ventures'
financing products is accepted in, and funding is made through, Comdisco's
principal offices in Illinois and these transactions are intended to be
governed by Illinois law, which does not require licensing for those
activities. Hybrid Fund has applied for a license in California. Comdisco has
applied for a license in California as well, as it expands its funding sources.
Comdisco Ventures believes it is currently in material compliance with
any applicable state usury laws as well as other applicable federal and state
statutes and regulations.
Comdisco Ventures believes existing federal and state laws and
regulations have not had a material adverse effect on its operations. There
can, however, be no assurance that future laws and regulatory changes will not
occur and will not place additional burdens on its operations.
Management
The following table shows information about Comdisco Ventures'
management.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
James P. Labe 43 Chief Executive Officer
Geoffrey L. Tickner, Jr. 39 Chief Operating Officer
John J. Vosicky 51 Chief Financial Officer
</TABLE>
Jim Labe is Comdisco Ventures' Chief Executive Officer. He has been
involved in the debt-financing field within venture capital for more than
seventeen years. He founded Comdisco Ventures as a division of Comdisco in
early 1987, and served as President of the division until April 10, 2000, at
which time he was designated the chief executive officer of Comdisco Ventures.
Prior to Comdisco, Jim spent four years with Equitec Financial Group,
structuring "venture leases" with venture backed companies. His background also
includes computer marketing and new business development. Jim has been a
speaker at venture capital industry conferences. He has also participated in
programs on venture leasing and other forms of creative equity-linked financing
at both the University of Chicago Graduate School of Business and at Harvard
Graduate School of Business. Jim received his MBA degree from the University of
Chicago and his BA degree from Middlebury College. He has been a corporate
officer and Senior Vice President of Comdisco, Inc. since January, 1996.
Geoffrey Tickner is Comdisco Ventures' Chief Operating Officer. He joined
Comdisco Ventures in 1998 after fifteen years in investment banking at Smith
Barney in San Francisco and New York. Geoff was a Managing Director in Smith
Barney's Technology Investment Banking Group where he was responsible for the
Communication Equipment and Enterprise Software sectors. Geoff received his BA
from Princeton University in 1982 and his MBA degree from Stanford University
in 1986.
John Vosicky is Comdisco Ventures' Chief Financial Officer. He is also
Executive Vice President and Chief Financial Officer of Comdisco and will
continue to serve in those capacities. John is also the Comdisco executive
officer in charge of Comdisco Ventures and the person to whom Mr. Labe reports
at Comdisco. He has served as Executive Vice President of Comdisco since July,
1994 and Chief Financial Officer of Comdisco since November, 1984. John was
Senior Vice President of Comdisco from November, 1985 to July, 1994. He joined
Comdisco in 1975 as controller and prior to doing so, worked for Peat, Marwick,
Mitchell & Company in Chicago, Illinois. John received his BA degree from St.
Mary's University in 1970 in accounting, and received his CPA certificate from
the State of Illinois in 1973.
Glen Howard is Comdisco Ventures' Managing Director and Group Head of
Venture Lease Investments. He has been involved in sales and marketing for more
than twenty years. He has been with Comdisco for more than thirteen years,
serving ten years in lease financing sales and marketing at Comdisco before
joining Comdisco Ventures three years ago. Prior to joining Comdisco, he had
more than six years of sales and financing experience at IBM Corporation. Glen
received his BS degree in Systems Industrial Engineering from the University of
Arizona and received his MBA degree from Saint Mary's College.
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Comdisco Ventures Management Compensation And Benefits
Cash Compensation. The following table shows fiscal 1999 cash
compensation we paid to Comdisco Ventures' management.
<TABLE>
<CAPTION>
Name Salary Bonus
---- -------- ----------
<S> <C> <C>
James P. Labe........................................... $300,000 $4,887,493 (a)
Geoffrey L. Tickner, Jr. ............................... 225,000 882,345 (a)
John J. Vosicky (b)..................................... 260,000 65,000
</TABLE>
--------
(a) Bonus payments earned for fiscal 1999.
(b) Mr. Vosicky is also the Executive Vice President and Chief Financial
Officer of Comdisco. Additional information about his compensation appears
in the proxy statement concerning the special meeting of stockholders held
April 20, 2000 relating to the tracking stock proposal, filed with the SEC
on March 20, 2000.
Profit Sharing Plans. Each of Messrs. Labe and Tickner are participants
in two Comdisco Ventures' profit sharing plans under which they are eligible to
receive cash bonus payments. The first of these plans was established on
October 1, 1996 ("1996 Plan"). Under the 1996 Plan, plan participants are
entitled to receive cash bonus payments out of a total pool of 20% of the pre-
tax earnings attributable to Comdisco Ventures' transactions documented and
executed between October 1, 1996 and December 31, 1999. Bonus payments under
the 1996 Plan are made semi-annually, and will continue until all profits
attributable to those transactions covered by the 1996 Plan are realized by
Comdisco Ventures. The amounts paid as a cash bonus to each of Messrs. Labe and
Tickner under the 1996 Plan for fiscal 1999 are included in the cash
compensation table above. Mr. Vosicky is not a participant in this plan.
Comdisco Ventures established another profit sharing plan as of January
1, 2000 ("2000 Plan"). Under the 2000 Plan, plan participants are entitled to
receive cash payments out of a total pool of 20% of the pre-tax earnings
attributable to Comdisco Ventures' transactions documented and executed on or
after January 1, 2000 and before completion of this initial public offering,
excluding any transactions effected through, or assigned to, Hybrid. Bonus
payments under the 2000 Plan are made semi-annually and will continue until all
profits attributable to those transactions covered by the 2000 Plan are
realized by Comdisco Ventures. Mr. Vosicky is not a participant in this plan.
Employment Agreements. Each of Messrs. Labe and Tickner have entered into
a management agreement with Comdisco Ventures, commencing effective on the
closing of this offering, that contains these material provisions:
. a term of three years for Mr. Labe and two years for Mr. Tickner;
. an increase in fiscal year 2000 current annual salary for Mr.
Labe, from $300,000 to $500,000, and Mr. Tickner, from $300,000 to
$450,000.
. severance arrangements if the executive's employment is terminated
without cause before the end of the agreement;
. percentage participation in the Management Incentive Plan (as
described in the immediately following section);
. protection of Comdisco Ventures' confidential or proprietary
information; and
. limitations on the ability of the executive to compete with
Comdisco Ventures' business, or to solicit Comdisco Ventures'
employees, during the term of employment and for one year after a
termination of employment with Comdisco Ventures.
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Management Incentive Plan
The Management Incentive Plan was approved by Comdisco stockholders at
the April 20, 2000 special meeting. The Management Incentive Plan provides
Comdisco Ventures' senior management with a proprietary stake in the
performance of Comdisco Ventures and the creation of stockholder value and
further aligns the interests of Comdisco Ventures' senior management with the
stockholders of Comdisco Ventures Stock.
The following is a summary of the material features of the Management
Incentive Plan. You should review the full text of the Management Incentive
Plan, which has been filed as an exhibit to the registration statement of which
this prospectus is a part.
Grants of Awards. Under the Management Incentive Plan, we will grant
options and/or restricted stock awards of Comdisco Ventures Stock to senior
management of Comdisco Ventures (other than Mr. Vosicky).
Shares Available for Issuance under the Management Incentive Plan. Under
the Management Incentive Plan, the number of shares of Comdisco Ventures Stock
available for grant is limited to 12,750,000 shares, representing 15% of the
shares of Comdisco Ventures Stock deemed issued and outstanding upon completion
of this offering assuming for this purpose that Comdisco Group's retained
interest in Comdisco Ventures is represented by issued and outstanding Comdisco
Ventures Stock. Shares subject to an award that expires unexercised, are
forfeited, or terminated, or settled in cash instead of Comdisco Ventures
Stock, and shares tendered to pay for the exercise of an option, will not again
be available for grant under the Management Incentive Plan.
Initial Awards Under the Management Incentive Plan. As of May 26, 2000 we
granted non-qualified stock options for Comdisco Ventures Stock under the
Management Incentive Plan to members of the current management of Comdisco
Ventures and to a former employee who recently resigned his position as a
senior investment professional with Comdisco Ventures. Of the options granted,
10,391,250 were granted at $2.5647 per share and 1,275,000 were granted at
$7.20 per share. The number of shares and exercise price of the options granted
assumed that 85,000,000 shares of Comdisco Ventures Stock would represent 100%
of the equity value of Comdisco Ventures as of the close of this offering. The
options are subject to adjustment if that is not the case.
The initial options will vest in equal installments over a three year
period. The number of shares subject to these options may be reduced over the
life of the options to reflect cash bonuses paid to those executives under the
Comdisco Ventures' profit sharing plans or other bonus arrangements.
Federal Income Tax Consequences. The following is a brief description of
the federal income tax consequences generally arising with respect to awards
under the Management Incentive Plan. The initial options granted under the plan
will be non-qualified stock options.
The grant of an option will create no tax consequences for the
participant or Comdisco. Upon exercising an option other than an incentive
stock option, the participant generally must recognize ordinary income equal to
the difference between the exercise price and fair market value of the freely
transferable and nonforfeitable shares acquired on the date of exercise. In the
case of an employee, withholding will apply to amounts recognized as ordinary
compensation income. A participant will not recognize taxable income upon
exercising an incentive stock option (within the meaning of Section 422 of the
Code) except that the alternative minimum tax may apply.
If the participant does not hold the Comdisco Ventures Stock acquired
upon exercise of an incentive stock option for at least one year from the date
of exercise and two years from the date of grant (the "holding period"), the
participant generally must recognize ordinary income equal to the lesser of (1)
the fair market value of the shares at the date of exercise of the incentive
stock option minus the
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exercise price or (2) the amount realized upon the disposition of the incentive
stock option shares minus the exercise price. Otherwise, a participant's
disposition of shares acquired upon the exercise of an option (including an
incentive stock option for which the incentive stock option holding periods are
met) generally will result in capital gain or loss measured by the difference
between the sale price and the participant's tax basis in those shares (the tax
basis generally being the exercise price plus any amount recognized as ordinary
income in connection with the exercise of the option). The holding period for
purposes of determining whether this capital gain or loss is long-term or
short-term does not begin until the option is exercised.
We generally will be entitled to a tax deduction equal to the amount
recognized as ordinary income by the participant in connection with an option.
We generally are not entitled to a tax deduction relating to amounts that
represent a capital gain to a participant. Accordingly, we will not be entitled
to any tax deduction with respect to an incentive stock option if the
participant holds the shares for the incentive stock option holding period
prior to disposition of the shares.
With respect to awards granted under the Management Incentive Plan that
result in the payment or issuance of cash or shares or other property that is
either not restricted as to transferability or not subject to a substantial
risk of forfeiture, the participant generally must recognize ordinary income
equal to the cash or the fair market value of shares or other property
received. We generally will be entitled to a deduction in an amount equal to
the ordinary income recognized by the participant.
With respect to awards involving the issuance of shares or other property
that is restricted as to transferability and subject to a substantial risk of
forfeiture (e.g., restricted stock), the participant generally must recognize
ordinary income equal to the fair market value of the shares or other property
at the first time the shares or other property becomes transferable or is not
subject to a substantial risk of forfeiture, whichever occurs earlier. We
generally will be entitled to a deduction in an amount equal to the ordinary
income recognized by the participant.
Related Transactions with Management
Mr. Labe and Mr. Tickner are managing members of the general partner of
Hybrid Fund. As managing members, they are entitled to participate in the
profits and losses of the general partner. See "--Hybrid Fund," beginning on
page 65. |
