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ITEM 2 — APPROVAL OF THE PIPER JAFFRAY COMPANIESAMENDED AND RESTATED 2003 ANNUAL AND LONG-TERM INCENTIVE PLANWe are asking shareholders to approve our Amended and Restated 2003 Annual and Long-TermIncentive Plan. The amended and restated plan reflects amendments that have been approved by ourBoard of Directors, upon the recommendation of the Compensation Committee of the Board. Theprimary purpose of the amendments is to increase the maximum number of shares to be issued underour incentive plan by 400,000 shares to a total of 4,500,000 shares authorized for issuance under theplan. A marked copy of the plan reflecting the amendments is attached as Appendix B to this proxystatement.Shareholder approval of this plan is imperative if we are to continue to maintain an effective,competitive compensation program. Other firms in our industry historically have maintained highlevels of employee ownership serving as both a strong performance incentive and retention tool. Ourcompetitors have the benefit of having had a long time period over which to develop significantemployee ownership levels. In this regard, we are at a disadvantage, as our employees had noownership of our stock at the time of our spin-off from U.S. Bancorp and we have had just two yearsto build ownership since that time. We believe that equity ownership attracts talented individuals toour company and fosters a partnership culture within the company that motivates employees to thinkand act like owners through a focus on shareholder value creation and the long-term success of thecompany. We have been working since the spin-off to increase employee ownership levels, primarilythrough annual incentive awards designed to reward employees’ performance and to promote retentionand an ownership culture among employees. Our employee stock ownership has increased fromnothing at the time of the spin-off to approximately 2.95% as of December 31, 2004, and toapproximately 12.63% as of March 6, 2006.The plan as originally adopted in December 2003 authorized the issuance of 2,000,000 shares,and we obtained shareholder approval at our 2004 annual meeting of a 2,100,000-share increase inthe maximum number of shares to be issued under the plan for a total of 4,100,000. We granted1,420,271 shares and 872,664 shares in 2005 and 2004, respectively, and we anticipate that 2006grant levels will be consistent with those in 2005 as we continue to work towards our employeeownership objectives. Depending on the company’s performance, we expect that all shares that remainavailable for grant will be used in the next 12 months in connection with 2006 recruiting, retention,director compensation and annual incentive compensation and that we will need additional shares tocomplete our annual incentive grants to employees in February 2007. We currently expect that the400,000-share increase will cover our equity grants to employees through 2007. We maintain no otherincentive plan that permits us to grant equity awards.While we continue to strive to meet our employee ownership objectives, we are mindful that ourequity grants, coupled with our three-year cliff vesting, have created an increased level of stock‘‘overhang,’’ which measures potential shareholder dilution if all outstanding stock awards were to vestand be exercised. In 2005, we countered the dilutive effects of this overhang by repurchasing1,300,000 shares of our outstanding common stock. We anticipate that we will repurchase additionalshares during 2006, helping to offset shareholder dilution resulting from the continued grant of stockbasedawards under our incentive plan.In addition to increasing the number of shares authorized for grant under the plan, the Board hasapproved amendments that:) eliminate promissory notes as a form of consideration that may be accepted by us for paymentof awards granted under the plan;) eliminate the flexibility to grant below-market equity awards under the plan; and) effect certain other changes designed to ensure compliance with new Section 409A of theInternal Revenue Code relating to deferred compensation arrangements and the regulationspromulgated under Section 409A.24
The Board of Directors recommends that you vote FOR approval of the Piper Jaffray CompaniesAmended and Restated 2003 Annual and Long-Term Incentive Plan. Proxies will be voted FORapproval of the plan unless otherwise specified.PurposeThe following paragraphs provide more detail about the plan and the proposed amendments.The purpose of our incentive plan is to promote the interests of our company and ourshareholders by giving us a competitive advantage in attracting, retaining and motivating officers,employees, directors and consultants, to offer these persons incentives directly linked to theprofitability of our businesses and increases in our shareholder value, and to provide these persons anopportunity to acquire a proprietary interest in Piper Jaffray.Eligible IndividualsOur current and prospective directors, officers, employees and consultants, as well as those of ouraffiliates, are eligible to participate in our incentive plan. As of February 27, 2006, approximately2,830 persons were eligible to participate in the plan.AdministrationOur incentive plan is administered by the Compensation Committee of our Board of Directors.The Committee is authorized to delegate certain administrative responsibilities with respect to the planto directors and certain officers selected in the Committee’s discretion. The Committee determines theeligible individuals to whom and the time or times at which awards will be granted, the number ofshares subject to awards to be granted to any eligible individual, the life of any award and any termsand conditions of the grant that are not contained in the incentive plan. Each grant under the plan isconfirmed by and subject to the terms of an award agreement.Authorized SharesThe maximum number of shares of common stock that may be delivered to participants and theirbeneficiaries under the plan will be increased from 4,100,000 shares to 4,500,000 shares. Currentlyavailable shares are expected to cover award grants to employees, officers and directors through 2006and to cover part, but not all, of our annual equity grant to employees in February 2007 in connectionwith 2006 annual incentive compensation. The additional 400,000 shares are expected to cover awardgrants to employees, officers and directors through 2007. With respect to employees (includingofficers), we expect these grants to be based on performance and retention objectives, in addition toany other objectives that our Compensation Committee may determine to be relevant. We do notcurrently have any arrangements or understandings with our officers and employees regarding specificamounts to be granted under the incentive plan. With respect to our directors, these grants will becompensatory and will be in the amounts described above under ‘‘Information Regarding the Board ofDirectors and Corporate Governance — Compensation Program for Non-Employee Directors.’’Shares that may be issued under the plan may be authorized but unissued shares or sharesreacquired and held in our treasury. In general, we use treasury shares to the extent available beforeissuing new shares in connection with awards. No more than 250,000 shares of common stock may besubject to ‘‘qualified performance-based awards’’ granted to any eligible individual in any fiscal year ofthe company.If an award entitles the holder to receive or purchase shares, the number of shares covered by theaward or to which the award relates will be counted on the date of grant of the award against theaggregate number of shares available for granting awards under the plan. Any shares that are used bya participant as full or partial payment to us of the purchase price relating to an award, including inconnection with the satisfaction of tax obligations relating to an award, will again be available for25
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Page 5 and 6: PROXY STATEMENT2006 ANNUAL MEETING
Page 7 and 8: What does it mean if I receive more
Page 9 and 10: espect to which you abstained from
Page 11 and 12: CLASS I DIRECTORS — TERMS ENDING
Page 13 and 14: ) Has authority to call meetings of
Page 15 and 16: shareholder meetings must timely pr
Page 17 and 18: (3)(4)Each non-employee director ex
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Page 21 and 22: strategic initiatives. His annual i
Page 23 and 24: (6)respectively; for Mr. Peterson,
Page 25 and 26: compensation program. The cash awar
Page 27: STOCK PERFORMANCE GRAPHThe followin
Page 31 and 32: waive in whole or in part any or al
Page 33 and 34: obligations under the plan are cond
Page 35 and 36: Beneficial Ownership of Directors,
Page 37 and 38: (2)(3)This information is based on
Page 39 and 40: Auditor FeesErnst & Young LLP serve
Page 41 and 42: ‘‘If you believe that one-year
Page 43 and 44: APPENDIX AI. PurposePIPER JAFFRAY C
Page 45 and 46: under ‘‘Management’s Discussi
Page 47 and 48: APPENDIX BSECTION 1. PurposePIPER J
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Page 51 and 52: shares subject to outstanding Stock
Page 53 and 54: (d) Performance Awards. The Committ
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Page 57 and 58: SECTION 10. General Provisions(a) N
Page 59 and 60: SECTION 11. Effective Date of PlanU

You are cordially invited to join us for our 2006 annual ... - Piper Jaffray

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