Piper Jaffray Companies - Additional Proxy Soliciting Materials (definitive) (DEFA14A)
26 March 2008 - 3:01AM
Edgar (US Regulatory)
UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES
EXCHANGE ACT OF 1934
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Preliminary
Proxy Statement
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Confidential,
for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
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Definitive
Proxy Statement
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Definitive
Additional Materials
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Soliciting
Material Pursuant to Section 240.14a-12
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PIPER JAFFRAY COMPANIES
(Name of Registrant as Specified In Its Charter)
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Than the Registrant)
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PIPER JAFFRAY COMPANIES
Amended and Restated Incentive Plan
2008 Shareholder Proposal
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CAUTION REGARDING FORWARD-LOOKING STATEMENTS
Statements included in this presentation that are not historical or current facts,
including statements about beliefs and expectations, are forward-looking statements.
These forward-looking statements cover, among other things, statements other than
historical information or statements of current condition and may relate to our future
plans and objectives and results. Forward-looking statements involve inherent risks
and uncertainties, and important factors could cause actual results to differ materially
from those anticipated, including those factors identified under "Risk Factors" in Part I,
Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2007
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year ended
December 31, 2007, and as updated in our subsequent reports filed with the SEC
(available at our Web site at www.piperjaffray.com and at the SEC Web site at
www.sec.gov). Forward-looking statements speak only as of the date they are made,
and readers are cautioned not to place undue reliance on them. We undertake no
obligation to update forward-looking statements in light of new information or future
events.
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MISSION
Transformation to a capital markets model was facilitated by the sale
of Private Client Services
Within 14 months of the sale, we redeployed a major portion of the
proceeds into key acquisitions, debt repayment and a $180 million
share repurchase program
To advance our mission, we are focused on executing growth across
sectors, products and geographies, principal activities, and asset
management
Our goal is to achieve three outcomes from a successful execution:
Grow and diversify our revenue base
Expand margins
Enhance ROE
Equity is critical to our long-term strategy
Seeking shareholder approval for 1 million additional
shares available for grant
(in millions)
After tax proceeds from PCS sale (8/06)1 $ 510.0
Repayment of subordinated debt (8/06) (180.0)
Accelerated share repurchase (9/06) (100.0)
Additional share repurchases (Q1 & Q3) (80.0)
Cash paid for FAMCO acquisition1 (52.0)
Cash paid for Goldbond acquisition (47.0)
Current remaining proceeds1 $ 51.0
Private Client Sale Proceeds
Build a leading, international middle market investment bank
1All amounts are approximations
(in millions)
Plan shares available 0.6
(as of March 10, 2007)
2008 incremental grant for MC (0.4)
2009 annual award &
retention/recruiting (1.2)
Net additional shares needed (1.0)
Share Usage
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IMPORTANCE OF INCENTIVE PLAN
A competitive compensation program is essential to our long-term
performance
Without shareholder approval of additional shares, we will:
Have insufficient shares available to include equity as a meaningful part of 2009 annual
incentive compensation
Not be able to make the proposed incremental grant for 2008
Need to use additional cash to remain competitive in compensating key employees
Implications:
Negative impact on 2008 operating results
Required to increase cash component of total compensation, resulting in increased
compensation expense (expense associated with cash compensation is realized in the year
earned, compared to equity expense, which is realized over the 3-year vesting period)
Lack of sufficient levels of equity incentives places us at a competitive disadvantage in
retaining and attracting key employees instrumental in driving shareholder value
Without long-term equity compensation, difficult to attract employees from companies that
have equity programs
Retention would be severely compromised by lack of equity at risk of cancellation,
allowing competitors to recruit our talent at relatively inexpensive cost
No other form of compensation replicates the shareholder alignment benefits of company
equity
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BUILDING EMPLOYEE OWNERSHIP
U.S. Bancorp spun off Piper Jaffray Companies in December
2003
At spin-off, employees had essentially no PJC equity
Unable to convert USB equity to PJC equity
Cash award plan in lieu of PJC equity
Increasing employee ownership principally through annual
equity incentive awards, based on performance criteria
15-50% of an employee's annual incentive is awarded in
restricted stock; the more senior the position, the higher the
proportion of equity that is received
Employee ownership has increased since 12/31/03, but still lags
peers, placing us at a competitive disadvantage in recruiting and
retaining key employees who can be instrumental in driving
shareholder value
Current ownership is below our objective and low relative to our peers
Piper Jaffray Employee Ownership
Relative Employee Ownership1
1 From company SEC filings or management presentations
2 Includes management ownership through FBR Group
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ANNUAL INCENTIVE COMPENSATION
Equity is in lieu of - not in addition to - annual cash incentive compensation
Total compensation is comprised of base salary and a performance-based incentive
Performance goals are established at the beginning of each year
Incentive compensation is determined at the end of each year, based on performance against
the goals
Performance-based incentive is divided between cash and equity. The equity grants have three-
year cliff vesting, which provides a retention element
As total compensation increases, the equity portion of compensation also generally increases
Management Committee members receive approximately 40-50% of their annual incentive
compensation in equity awards
For fiscal 2007 we granted annual equity awards to approximately 500 employees, or 40% of total
employees
Approximately 210 employees who received awards, or 44%, were at the managing director
level or higher; these employees received 67% of the equity granted. These numbers exclude
the Management Committee.
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2008 INCREMENTAL GRANT
Critical to driving long-term strategic plan
In 2008 we intend to make an incremental performance-based grant to our Management
Committee to drive our long-term strategic plan to create shareholder value
We evaluated a number of alternatives and believe that an incremental equity grant is the
optimal vehicle:
Improves executive share ownership, links performance to shareholder value and adds a
retention element
In 2008 we intend to also make incremental equity grants for recruiting and retention purposes,
designed to attract top talent and to help maintain continuity of employee base, improving our
overall productivity
Plans to use incremental grants in 2008 depend on a variety of factors, including market
conditions, and are subject to change at the discretion of management and the Compensation
Committee
Awards could be reduced or postponed if we expect awards to negatively impact ability to
make Feb. 2009 annual incentive grants consistent with historical equity compensation
practices
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2008 INCREMENTAL EQUITY GRANT
Improving key measure of return on common equity
1Shareholders' equity minus $220 million of goodwill "pushed down" from U.S. Bancorp at the time of the spin-off
Executive Equity Ownership
Return on Equity
Management Committee
Performance-based
Cliff vest upon attaining return on adjusted common equity1 target over a 12-month period
Compensation Committee would consider several factors to set target, including:
Current capital structure
Current and historical ROE levels
Current peer ROE levels and historical trends
If target is not met, grant would be forfeited after five years
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DILUTION
Potential dilution from the additional authorized shares would be 5.3% based on 1 million
shares requested and 18,753,548 shares issued and outstanding as of March 10, 2007
We have more than offset dilution from past grants.
Our book value per share has increased 68% since our spin-off
Increased to $58.26 at December 31, 2007 from $34.64 at December 31, 2003
We are cognizant of shareholder concerns about dilution
Year Shares Granted Under Incentive Plan Shares Repurchased
During Fiscal Year Shares Issued & Outstanding
at Fiscal Year End
2004 870,664 -0- 19,865,146
2005 1,420,271 1,300,000 19,782,621
2006 898,229 1,648,527 18,544,719
2007 750,482 1,590,477 17,483,635
Total 3,941,646 4,539,004 N/A
Piper Jaffray Share Repurchases
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INCENTIVE PLAN
Our objective of achieving a meaningful level of employee ownership has resulted in our current
overhang
Current overhang (outstanding employee equity grants and equity reserved for future grants
divided by shares outstanding): 17.4% as of March 10, 2007, before the shares requested for
approval
Overhang assuming approval of the 1 million new shares: 20.9%
Equity Plan Overhang
We do not expect ISS to support our proposal to increase shares
PJC practices are evaluated against a very broad group of companies (with a similar GICS
code), most of which are not direct peers and are not as dependent upon the use of equity
compensation in attracting and retaining top talent as PJC and our direct peers
We believe our pay practices, when compared to our direct peers, are customary and reasonable
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INCENTIVE PLAN AND AWARDS
Currently, our Management Committee members do not have employment agreements which
cover annual compensation or golden parachute payments in a change of control
As we have disclosed in our proxy statement, perks for management are negligible
Incentive compensation is directly related to performance against established objectives and
operating income
Management Committee receives 40-50% of their annual incentive compensation in equity
awards
Key Compensation Practices
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INCENTIVE PLAN AND AWARDS
Vesting is determined by the Compensation Committee; historically all employee awards have
three-year cliff vesting
Awards are subject to cancellation for, among other things, termination for cause or failing to
comply with certain post-termination restrictions
Incentive Plan is the only equity plan that permits us to grant equity awards
Directors and executive officers are subject to stock ownership guidelines
Management Committee: 7x base salary for the CEO and 2x-5x base salary for other
members, within five years after becoming subject to the guidelines
Management Committee is subject to a share retention policy requiring members to hold at
least 50% of the shares awarded to them through our incentive plan
Currently, Management Committee members hold 100% of all shares that have been
awarded to them
Incentive Plan prohibits the grant of stock options at a price below fair market value and the
repricing of stock options without shareholder approval
Review of key provisions
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2007 PEER COMPARISON
Net Revenues ($ in mm)
Pre-Tax Margin
Net Revenue Growth
Compensation Ratio
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APPENDIX
Additional Business Information
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FOCUSED, HIGHLY EXPERIENCED MANAGEMENT TEAM
Piper Jaffray Management Committee
Andrew Duff
Chairman and Chief Executive Officer
More than 25 years of experience with the Firm
President of Piper Jaffray from 1996 to 2003 and Chairman and CEO post
spin-off from U.S. Bancorp
Bachelor's degree in economics from Tufts University and attended the
Advanced Executive Program at the J.L. Kellogg Graduate School of
Management.
Tom Schnettler
Vice Chairman and Chief Financial Officer
More than 20 years of experience with the Firm
Previously Head of Corporate and Institutional Services
Former investment banker and Head of Investment Banking; built the Piper
Jaffray Health Care Investment Banking group into one of the largest in the
U.S.
Graduate of St. John's University and Harvard Law School
Jon Salveson
Head of Investment Banking
More than 10 years of experience with the Firm
Previously a Health Care investment banker with Piper Jaffray and was
instrumental in beginning a west coast presence for Piper Jaffray's Health
Care practice
Graduate of St. Olaf College and received a MBA from the J.L. Kellogg
Graduate School of Management at Northwestern University
Bob Peterson
Head of Equities
More than 10 years of experience with the Firm
Previously Head of Private Client Services and, prior to that, was Head of
Equity Research
Joined the firm as an Equity Research Analyst
BBA from the University of St. Thomas
Ben May
Head of High-Yield & Structured Products
More than 24 years of experience in fixed-income and credit products
Previously with Wachovia Corp., holding several positions including Head
of High-Yield Sales, Trading and Research; Head of Fixed-Income Sales,
Trading and Research; and Head of Credit Products
Bachelor's degree from Yale University and Master's degree in finance from
New York University
Frank Fairman
Head of Public Finance Services
More than 20 years of experience with the Firm
Former investment banker responsible for a wide variety of bond issues
throughout the western United States
Bachelor's degree from Yale University and MBA from the Wharton
School of the University of Pennsylvania
Jim Chosy
General Counsel
Previously, was vice president, associate general counsel and secretary of
U.S. Bancorp
Prior to joining U.S. Bancorp, was a lawyer for Deluxe Corporation and the
law firm of Dorsey & Whitney LLP
Bachelor's degree from the University of Wisconsin-Madison and law
degree from the University of Minnesota
Todd Firebaugh
Chief Administrative Officer
Previously, held product and general management positions at Citigroup, JP
Morgan Chase and, most recently, U.S. Bancorp
Bachelor's degree from Cornell University and MBA from New York
University
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STRATEGIC INITIATIVES OVERVIEW
Sectors
Continue to build out alternative
energy, business services and
industrial growth sectors
Strengthen existing equity sectors
Building public finance hospitality
expertise and grow existing banking
platform
Geographies
Extend public finance capability in
select U.S. states
Build on UK leadership in Europe
Expand Asian presence and leverage
Goldbond acquisition
Piper Jaffray Strategic Initiatives
Capital Markets
Asset Management
Fiduciary Asset
Management
Leverage FAMCO acquisition
through increased distribution and
new products
Private Equity
Utilize proprietary capital to make
equity and equity-linked security
investments in sponsor related
change-of-control and recapitalization
transactions
Expect returns on equity investments
as well as traditional 2% / 20%
management fees
Principal Activities
Proprietary Trading
Proprietary capital used in four
primary trading activities: high-yield
and structured products, equity,
municipal arbitrage and convertible
debt
Merchant Banking
Targeted proprietary equity and
structured debt investments in
change-of-control, recap and bridge
transactions
Products
Addition of proprietary lending
allows Piper Jaffray to provide
financing solutions to every part of
the capital structure
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FINANCIAL INFORMATION-CONTINUING OPERATIONS
Net Revenues
Pre-Tax Margin
Diluted EPS
1 See Slide 19 for a reconciliation of non-GAAP financial measures
1
1
1
1
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FINANCIAL INFORMATION-CONTINUING OPERATIONS
Compensation Ratio
Non-Compensation Ratio
Where noted certain adjustments have been made to make period-to-period comparisons more meaningful:
1Reported non-compensation expenses for 2005 were $141.4 million, or 33.6% of net revenues. These expenses included an $8.6 million restructuring
charge; excluding this charge, non-compensation expenses were 31.5% of net revenues, or $132.8 million.
2Reported non-compensation expenses were $113.8 million, or 22.6% of net revenues. These expenses included a benefit from the reduction of a
litigation reserve of $21.3 million; excluding this benefit, non-compensation expenses were 26.9% of net revenues, or $135.0 million.
2
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1
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FOOTNOTE
(1) In 2006 Piper Jaffray Companies recognized a $21.3 million benefit from a reduction of a litigation reserve, and in 2005 the Company recognized an $8.6 million
restructuring charge. Management believes that excluding the impact of both of these items increases the comparability of period-to-period results and allows for a
more meaningful representation of results from continuing operations.
The following table sets forth a reconciliation of net income from continuing operations, earnings per diluted common share from continuing operations, income from
continuing operations before income tax expense, and the ratio of income from continuing operations before income tax expense to net revenues, excluding the impact
of the noted items in the relevant years.
For the Year Ended Dec. 31, Dec. 31, (Dollars in thousands) 2006 2005 Net income from continuing operations $62,899 $ 25,168 Deduct: Benefit from a reduction of a litigation reserve, net of income tax 13,094 -Add: Restructuring charge, net of income tax -5,630 Net income from continuing operations, excluding the impact of the noted items in the relevant years $49,805 $ 30,798
For the Year Ended Dec. 31, Dec. 31, 2006 2005 Earnings per diluted common share from income from continuing operations $3.32 $ 1.32 Deduct: Benefit from a reduction of a litigation reserve, net of income tax 0.69 -Add: Restructuring charge, net of income tax -0.29 Earnings per diluted common share from income from continuing operations, excluding the impact of the noted items in the relevant years $2.63 $ 1.61
For the Year Ended Dec. 31, Dec. 31, 2006 2005 Income from continuing operations, before income tax expense $97,873 $ 36,031 Deduct: Benefit from a reduction of a litigation reserve, before income tax 21,250 -Add: Restructuring charge, before income tax -8,595 Income from continuing operations before income tax expense, excluding the impact of the noted items in the relevant years $76,623 $ 44,626 Net Revenues $502,934 $ 421,308 Ratio of income from continuing operations before income tax expense to net re
venues, excluding the impact of the noted items in the relevant years 15.2% 10.6%
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