--------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14A
(RULE 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X}
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement.
[ ] Confidential, for use of the Commission Only (as permitted by Rule
14a-6(e)(2)).
[X] Definitive Proxy Statement.
[ ] Definitive Additional Materials.
[ ] Soliciting Material Pursuant to ss. 240.14a-12.
ENTERTAINMENT PROPERTIES TRUST
(Name of Registrant as Specified in its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(k)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule, or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
ENTERTAINMENT PROPERTIES TRUST
30 W. Pershing Road, Suite 201
Kansas City, Missouri 64108
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 10, 2006
To our shareholders:
The 2006 annual meeting of shareholders of Entertainment Properties Trust will
be held at the Leawood Town Centre Theatre, Leawood, Kansas, on May 10, 2006 at
10:00 a.m. (local time). At the meeting, our shareholders will vote upon
Proposal 1: The election of two Class III trustees for a three year term
Proposal 2: The ratification of the appointment of KPMG LLP as our
independent registered public accounting firm for 2006
and transact any other business that may properly come before the meeting.
All holders of record of our common shares at the close of business on February
15, 2006 are entitled to vote at the meeting or any postponement or adjournment
of the meeting.
You are cordially invited to attend the meeting. Whether or not you intend to be
present at the meeting, our Board of Trustees asks that you sign, date and
return the enclosed proxy card promptly. A prepaid return envelope is provided
for your convenience. Your vote is important and all shareholders are encouraged
to attend in person or vote by proxy.
Thank you for your support and continued interest in our Company.
BY ORDER OF THE BOARD OF TRUSTEES
/s/ Gregory K. Silvers
-------------------------------------------
Gregory K. Silvers
Vice President, Secretary, General Counsel
and Chief Development Officer
Kansas City, Missouri
April 3, 2006
ENTERTAINMENT PROPERTIES TRUST
30 W. Pershing Road, Suite 201
Kansas City, Missouri 64108
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PROXY STATEMENT
---------------------
This proxy statement provides information about the annual meeting of
shareholders of Entertainment Properties Trust to be held at the Leawood Town
Centre Theatre, Leawood, Kansas, on May 10, 2006, beginning at 10:00 a.m., and
at any postponement or adjournment of the meeting.
This proxy statement and the enclosed proxy card were first mailed to
shareholders on or about April 7, 2006.
ABOUT THE MEETING
What am I voting on?
The Board of Trustees is soliciting your vote for:
o The election of two Class III trustees for a three year term
o The ratification of the appointment of KPMG LLP as our independent
registered public accounting firm for 2006
Our management will report on the performance of the Company during 2005
and respond to questions from shareholders.
Who is entitled to vote at the meeting?
Holders of record of our common shares at the close of business on February
15, 2006, are entitled to receive notice of the annual meeting and to vote their
common shares held on that date at the meeting.
How many votes do I have?
Each common share has one vote. The enclosed proxy card shows the number of
common shares you are entitled to vote.
What constitutes a quorum?
The presence at the meeting, in person or by proxy, of the holders of a
majority of our common shares outstanding on the record date will constitute a
quorum, permitting the meeting to proceed. On the record date, 25,673,034 common
shares of the Company were outstanding. Proxies received but marked as
abstentions and broker non-votes will be included in calculating the number of
common shares present at the meeting for the purpose of establishing a quorum.
How do I vote?
If you complete and properly sign the enclosed proxy card and return it to
us before the meeting, your common shares will be voted as you direct. If you
are a shareholder of record and attend the meeting in person, you may deliver
your completed proxy card at the meeting. You are also invited to vote in person
at the meeting. You may request a ballot when you arrive.
If your shares are held in the name of a bank, broker or other nominee and
you wish to vote at the meeting, you must obtain a proxy form from the
institution that holds your shares.
If you are a participant in our dividend reinvestment and direct share
purchase plan, your plan shares will be voted as you instruct on your proxy
card.
Does EPR have a policy for confidential voting?
We have a confidential voting policy. Your proxy will be kept confidential
and will not be disclosed to third parties, other than our inspector of election
and personnel involved in processing the proxy cards and tabulating the vote.
Can I change my vote after I return my proxy card?
Yes. Even after you have submitted your proxy, you may change your vote or
revoke your proxy at any time before the meeting by sending a written notice of
revocation or a duly executed proxy with a later date to the Secretary of the
Company. Your proxy will also be revoked if you attend the meeting and vote in
person. If you merely attend the meeting but do not vote in person, your
previously granted proxy will not be revoked.
What are the Board's recommendations?
Unless you give other instructions on your proxy card, the persons named as
proxy holders on the proxy card will vote your common shares in accordance with
the recommendations of the Board of Trustees. The Board recommends you vote:
o For the election of the persons nominated as Class III trustees
o For the ratification of the appointment of KPMG LLP as our independent
registered public accounting firm for 2006
If any other matter properly comes before the meeting, the proxy holders
will vote as recommended by the Board of Trustees or, if no recommendation is
given, in their own discretion.
2
How many votes are needed to approve each item?
Election of Trustees. The affirmative vote of a plurality of the common
shares voted at the meeting is required for the election of the Class III
trustees. This means the two nominees in Class III receiving the greatest number
of votes will be elected. We will not count abstentions in the election of
trustees. If you check "WITHHOLD AUTHORITY" under the nominees' names on your
proxy card, your shares will be voted against both nominees. You may also vote
against a nominee by striking through his name on your proxy card.
Ratification of appointment of independent registered public accounting
firm. The affirmative vote of a majority of the common shares voted at the
meeting is required to ratify the appointment of KPMG LLP as our independent
registered public accounting firm. We will not count abstentions in the
ratification of KPMG LLP as our independent registered public accounting firm.
How will broker non-votes be counted?
Broker non-votes (which occur when a broker or other nominee has not
received directions from its customers and does not have discretionary authority
to vote the customers' shares) will not have the effect of a vote against either
proposal.
What does it mean if I receive more than one proxy card?
Some of your shares may be held in more than one account. Please date, sign
and return all of your proxy cards to ensure all your common shares are voted.
What if I receive only one set of proxy materials although there are multiple
shareholders at my address?
If you and other residents at your mailing address own common shares in
street name, your broker, bank or other nominee may have sent you a notice that
your household will receive only one annual report and proxy statement for each
company in which you hold shares through that broker, bank or nominee. This
practice is called "householding." If you did not respond that you did not want
to participate in householding, you are deemed to have consented to that
process. If these procedures apply to you, your nominee will have sent one copy
of our annual report and proxy statement to your address. You may revoke your
consent to householding at any time by contacting us at 30 W. Pershing Road,
Suite 201, Kansas City, Missouri 64108, (816) 472-1700, Attention: Secretary. If
you did not receive an individual copy of our annual report and proxy statement,
we will send copies to you if you contact us at the above address or telephone
number. If you and other residents at your address have been receiving multiple
copies of our annual report and proxy statement and desire to receive only a
single copy of these materials, you may contact your broker, bank or other
nominee or contact us at the above address or telephone number.
3
ITEM I
ELECTION OF TRUSTEES
The Board of Trustees consists of five members and is divided into three
classes having three-year terms that expire in successive years. The
nominating/company governance committee of the Board of Trustees has nominated
Morgan G. Earnest II and James A. Olson to serve as our Class III trustees for a
term expiring at the 2009 annual meeting or until their successors are duly
elected and qualified. Unless you withhold authority to vote for both nominees
or you mark through one or both of the nominees' names on your proxy card, the
common shares represented by your properly executed proxy will be voted for the
election of both nominees for trustee.
Here is a brief description of the backgrounds and principal occupations of
the persons nominated for election as trustee and each trustee whose term of
office will continue after the annual meeting.
Class III Trustees (nominated for a term expiring at the 2009 annual meeting)
Morgan G. Morgan G. ("Jerry") Earnest II, 50, is Executive Vice
Earnest II President of Capmark Financial Group, Inc. (formerly GMAC
Trustee since 2003 Commercial Mortgage Corporation, or "GMACCM") and is
responsible for the co-management of the North American
Lending Operation, consisting of the Proprietary Lending
Group, Specialty Lending, Agency/Affordable Lending, Project
Finance, GMAC Commercial Mortgage of Canada, and Capital
Markets. Previously, Mr. Earnest was responsible for
GMACCM's Specialty Lending Groups, which consisted of the
Healthcare, Hospitality and Construction Lending Divisions.
Prior to joining GMACCM, Mr. Earnest was a principal of
Lexington Mortgage Company which was acquired by GMACCM in
March 1996. Mr. Earnest has an MBA from the Colgate Darden
Graduate School of Business Administration, University of
Virginia, and is a graduate of Tulane University.
James A. Olson James A. Olson, 63, is a principal and the Chief Financial
Trustee since 2003 Officer of Plaza Belmont Management Group, LLC, manager of
the Plaza Belmont private equity funds, which acquire and
operate companies in the food manufacturing industry. Prior
to joining Plaza Belmont in 1999, Mr. Olson was a partner
with Ernst & Young LLP. During his 32 years with Ernst &
Young, including six years in Europe, Mr. Olson served as
managing director of two of their offices and worked with a
number of multinational and domestic clients in a variety of
industries. In addition to providing his client companies
with the traditional audit services of Ernst & Young, Mr.
Olson advised them on their securities offerings, mergers
and acquisitions and corporate tax strategies. He is a past
president of the Missouri State Board of Accountancy and a
member of the American Institute of Certified Public
Accountants. Mr. Olson received his BS and MS degrees from
St. Louis University. Mr. Olson serves on the Board of
Directors and is Chairman of the audit committee of SCS
Transportation, Inc., a NASDAQ-listed transportation
company, and is an Advisory Director of American Century
Mutual Funds, a fund complex of registered investment
companies.
4
Class I Trustee (serving for a term expiring at the 2007 annual meeting)
Barrett Brady Barrett Brady, 59, is Senior Vice President of Highwoods
Trustee since 2004 Properties, Inc., a NYSE-listed REIT. Mr. Brady served as
President and Chief Executive Officer of J.C. Nichols
Company, a real estate company headquartered in Kansas City,
Missouri, until its acquisition by Highwoods in 1998. Before
joining J.C. Nichols Company in 1995, Mr. Brady was
President and CEO of Dunn Industries, Inc., a major
construction contractor. Mr. Brady received a BSBA from
Southern Methodist University and an MBA from The University
of Missouri. Mr. Brady serves on the Boards of Directors of
Midwest Research Institute and Dunn Industries, Inc., and
the Board of Trustees of The University of Missouri at
Kansas City. Mr. Brady also serves on the Board of Directors
of North American Savings Bank, FSB and its publicly held
parent NASB Financial, Inc., and is Chairman of the audit
committee of NASB Financial, Inc.
Class II Trustees (serving for a term expiring at the 2008 annual meeting)
Robert J. Druten Robert J. Druten, 58, is Chairman of our Board of Trustees.
Trustee since 1997 Mr. Druten is Executive Vice President and Chief Financial
Officer and a Corporate Officer of Hallmark Cards
Incorporated. Mr. Druten serves on the Boards of Directors
of Hallmark Cards Holdings, Ltd., Hallmark Entertainment,
Inc., Crown Media Holdings, Inc., a NASDAQ-listed company
that owns and operates cable television channels dedicated
to entertainment programming, and Kansas City Southern, a
leading NYSE-listed transportation company. Mr. Druten is
also Chairman of the audit committee of Kansas City
Southern. Mr. Druten received a BS in Accounting from The
University of Kansas and an MBA from Rockhurst University.
David M. Brain David M. Brain, 50, has served as our President and Chief
Trustee since 1999 Executive Officer and as a trustee since October 1999. He
served as our Chief Financial Officer from 1997 to 1999 and
as our Chief Operating Officer from 1998 to 1999. Mr. Brain
acted as a consultant to AMC Entertainment, Inc. in the
formation of the Company in 1997. From 1996 until that time
he was a Senior Vice President in the investment banking and
corporate finance department of George K. Baum & Company, an
investment banking firm headquartered in Kansas City,
Missouri. Before joining George K. Baum & Company, Mr. Brain
was Managing Director of the Corporate Finance Group of KPMG
LLP, a practice unit he organized and managed for over 12
years. He received a BA in Economics from Tulane University,
where he was awarded an academic fellowship.
Messrs. Earnest and Olson have consented to serve on the Board of Trustees for
their respective terms. If Mr. Earnest or Mr. Olson should become unavailable to
serve as a trustee (which is not expected), the nominating/company governance
committee may designate a substitute nominee. In that case, the persons named as
proxies will vote for the substitute nominee designated by the
nominating/company governance committee.
5
How are trustees compensated?
Each non-employee trustee receives:
o An annual retainer of $30,000, which must be taken in common shares,
valued at the latest closing price
o $1,500 in cash for each Board meeting he attends
o $1,000 in cash for each committee meeting he attends
o Reimbursement for any out-of-town travel expenses incurred in
attending Board or committee meetings and other expenses incurred on
behalf of the Company
The Chairman of the Board and the Chairmen of the audit, compensation and
nominating/company governance committees receive additional annual retainers of
$10,000, $10,000, $7,500 and $5,000, respectively, which may be taken in cash or
in common shares valued at 125% of the cash retainer amount.
Employees of the Company or its affiliates who are trustees are not paid
any additional compensation for their service on the Board.
Robert J. Druten received options to purchase 10,000 common shares on the
effective date of our initial public offering in 1997. Options to purchase 3,333
common shares were granted to each non-employee trustee on the date of each
annual meeting from 1998 to 2003. Options to purchase 5,000 common shares have
been granted to each non-employee trustee on the date of each annual meeting
since 2004. All of these options have an exercise price per share equal to the
closing price of our common shares on the annual meeting date. The options vest
after one year and expire after ten years unless terminated earlier because of a
trustee's termination from the Board. All of the options were issued under our
1997 Share Incentive Plan.
COMPANY GOVERNANCE
Our Board of Trustees is committed to effective company governance. We have
adopted Company Governance Guidelines, Independence Standards for Trustees and a
Code of Business Conduct and Ethics for all officers, employees and trustees.
Those documents and the amended and restated charters of our audit committee,
nominating/company governance committee and compensation committee may be found
at the Company Governance section of our website at www.eprkc.com and are
available in print to any shareholder who requests them.
Company Governance Guidelines
Our Company Governance Guidelines address a number of topics, including the
role and responsibilities of our Board, the qualifications of independent
trustees, the ability of shareholders to communicate directly with the
independent trustees, Board committees, separation of the offices of Chairman
and CEO, trustee compensation, and management succession. Our nominating/company
governance committee reviews our Company Governance Guidelines on a periodic
basis to ensure their continued effectiveness.
6
Who are our independent trustees and how was that determined?
Our Company Governance Guidelines and the governance rules of the New York
Stock Exchange ("NYSE") require that a majority of our trustees be independent.
To qualify as independent, our Board must affirmatively determine that a trustee
has no material relationship with the Company (either directly or as a partner,
shareholder or officer of an organization that has a relationship with the
Company). To assist our Board in making this determination, the Board has used
our Independence Standards for Trustees as categorical standards to evaluate the
independence of our independent trustees. Using those standards, the Board
reviewed the independence of Messrs. Druten, Earnest, Olson and Brady. Based
upon that review, the Board has affirmatively determined that Messrs. Druten,
Earnest, Olson and Brady, who constitute a majority of our Board of Trustees and
who serve on our audit, nominating/company governance and compensation
committees, have no material relationship with the Company and are thus
independent in accordance with NYSE rules.
The following is a summary of our Independence Standards for Trustees. For
a complete description of those standards, please review our Independence
Standards for Trustees at the Company Governance section of our website at
www.eprkc.com.
o A trustee is not independent if:
o The trustee is, or has been within the last 3 years, an employee
of EPR, or an immediate family member of the trustee is, or has
been within the last 3 years, an executive officer of EPR;
o The trustee has received, or has an immediate family member who
has received, during any 12 month period within the last 3 years,
more than $100,000 in direct compensation from EPR, other than
trustee and committee fees and pensions or other forms of
deferred compensation (provided such compensation is not
contingent on future service);
o (A) The trustee or an immediate family member is a current
partner of the firm that is our internal or external auditor, (B)
the trustee is a current employee of the firm, (C) the trustee
has an immediate family member who is a current employee of the
firm and who participates in the firm's audit, assurance or tax
compliance (but not tax planning) practice, or (D) the trustee or
an immediate family member was within the last 3 years (but is no
longer) a partner or employee of the firm and personally worked
on EPR's audit within that time;
o The trustee or an immediate family member is, or has been within
the last 3 years, employed as an executive officer of another
company where any of EPR's present executive officers at the same
time serves on that company's compensation committee; or
o The trustee is a current employee, or an immediate family member
is a current executive officer, of a company that has made
payments to, or received payments from, EPR for property or
services in an amount which, in any of the last 3 years, exceeds
the greater of $1 million or 2% of such other company's
consolidated gross revenues.
o A person who is an executive officer or affiliate of an entity that
provides non-advisory financial services such as lending, check
clearing, maintaining customer accounts, stock brokerage services or
custodial and cash management services to EPR or its affiliates may be
determined by the Board to be independent if the following conditions
are satisfied:
7
o The entity does not provide financial advisory services to EPR;
o The annual interest and/or fees payable to the entity by EPR do
not exceed the numerical limitation described above;
o Any loan provided by the entity is made in the ordinary course of
business of EPR and the lender and does not represent EPR's
principal source of credit or liquidity;
o The trustee has no involvement in presenting, negotiating,
underwriting, documenting or closing any such non-advisory
financial services and is not compensated by EPR, the entity or
any of its affiliates in connection with those services;
o The Board affirmatively determines that the terms of the
non-advisory financial services are fair and reasonable and
advantageous to the Company and no more favorable to the provider
than generally available from other providers;
o The provider is a recognized financial institution, non-bank
commercial lender or securities broker;
o The trustee abstains from voting as a trustee to approve the
transaction; and
o All material facts related to the transaction and the
relationship of the person to the provider are disclosed by EPR
in its Exchange Act reports and proxy statement.
o No person who serves, or whose immediate family member serves, as a
partner, member, executive officer or comparable position of any firm
providing accounting, consulting, legal, investment banking or
financial advisory services to EPR, or as a securities analyst
covering EPR, shall be considered independent until after the end of
that relationship.
o No person who is, or who has an immediate family member who is, an
officer, director, more than 5% shareholder, partner, member,
attorney, consultant or affiliate of any tenant of the Company or any
affiliate of such tenant shall be considered independent until three
years after the end of the tenancy or such relationship.
How often did the Board meet during 2005?
The Board of Trustees met seven times in 2005. No trustee attended less
than 90% of the meetings of the Board and committees on which he served. Our
trustees discharge their responsibilities throughout the year, not only at Board
of Trustee and committee meetings, but also through personal meetings, actions
by unanimous written consent and communications with members of management and
others regarding matters of interest and concern to the Company.
Do the independent trustees hold regular executive sessions?
The independent trustees meet regularly in separate executive sessions
without management. Mr. Druten serves as the presiding trustee at those
meetings.
8
How can shareholders communicate directly with the Board?
Any shareholder is welcome to send a written communication to the
non-management trustees about any matter of interest related to the Company. You
may communicate with the non-management trustees by either sending a letter to
our address listed on the cover page of this proxy statement, or by visiting the
Company Governance section of our website at www.eprkc.com, clicking on
"Procedures for Confidential Anonymous Submissions," and following the
instructions for making a confidential submission. Your written or electronic
communication will be forwarded directly to the non-management trustees and will
not be screened by management. Shareholders may also make proposals and nominate
candidates for trustee for consideration at any annual meeting in accordance
with the procedures described in "Submission of Shareholder Proposals and
Nominations" below.
What committees has the Board established?
The Board of Trustees has established an audit committee, a
nominating/company governance committee and a compensation committee. All of our
non-management trustees serve on all three committees. The Board believes this
promotes access to a variety of views on all three committees and helps ensure
that all of the committees have a broad perspective on the Company's operations
as a whole. The Board has affirmatively determined that all of the committee
members are independent, as described above in "Who are our independent trustees
and how was that determined?" The members of our audit committee also meet the
additional independence standards prescribed by SEC Rule 10A-3. Each committee
has adopted a written charter that governs its duties and responsibilities.
Copies of the committee charters may be obtained at the Company Governance
section of our website at www.eprkc.com.
Audit Committee. The audit committee oversees the accounting, auditing and
financial reporting policies and practices of the Company. The committee is
directly responsible for assisting the Board of Trustees in its oversight of the
integrity of our financial statements, our compliance with legal and regulatory
requirements, the qualifications and independence of our independent registered
public accounting firm, and the performance of management's internal audit
function and internal control over financial reporting. The Board of Trustees
has determined that all of the members of the audit committee are "audit
committee financial experts" as defined by SEC rules, by virtue of their
experience and positions held as described in their biographies listed above.
Mr. Olson serves as Chairman of the audit committee. The committee met five
times in 2005.
Nominating/Company Governance Committee. The nominating/company governance
committee evaluates and nominates candidates for election to the Board of
Trustees and assists the Board in ensuring the effectiveness of our governance
policies and practices. Candidates for nomination to the Board are evaluated and
recommended on the basis of the value they would add to the Board in light of
their integrity, experience, training and judgment, their financial literacy and
sophistication and knowledge of corporate and real estate finance, their
knowledge of the real estate and/or entertainment industry, their independence
from Company management and other factors. The committee will consider
nominations made by shareholders in compliance with the procedures described in
"Submission of Shareholder Proposals and Nominations" below. The committee will
use the same criteria to evaluate nominees recommended in good faith by
shareholders as it uses to evaluate its own nominees, but may give greater
weight to nominees recommended by holders of more than 5% of our outstanding
common shares. Mr. Brady serves as Chairman of the nominating/company governance
committee. The committee met once in 2005.
9
Compensation Committee. The compensation committee approves Company goals
and objectives relevant to the compensation of our CEO, evaluates our CEO's
performance in light of those goals and objectives, determines and approves our
CEO's compensation in accordance with such evaluation, and makes recommendations
to the Board regarding the compensation of our other executive officers and our
independent trustees, as well as incentive compensation and equity-based plans
that are subject to Board approval. Mr. Earnest serves as Chairman of the
compensation committee. The committee met three times in 2005.
What is our policy regarding trustee attendance at annual meetings?
Our trustees are expected to attend each annual meeting of shareholders,
although conflict situations can arise from time to time. All of our trustees
attended the 2005 annual meeting.
Family relationships.
No family relationships exist between any of our trustees or executive
officers.
EXECUTIVE OFFICERS
Here are our executive officers and some brief information about their
backgrounds.
David M. Brain, 50, is our President and Chief Executive Officer. His
background is described on page 5.
Fred L. Kennon, 50, has served as our Chief Financial Officer since 1999
and as Vice President and Treasurer since 1998. From 1984 to 1998 he was with
Payless Cashways, Inc., most recently serving as Vice President - Treasurer. Mr.
Kennon graduated from Pittsburg State University in 1978 and holds an MBA from
The University of Missouri at Kansas City.
Gregory K. Silvers, 42, has served as our Vice President, Secretary and
General Counsel since 1998 and as Chief Development Officer since 2001. From
1994 to 1998, he practiced with the law firm of Stinson, Morrison Hecker, L.L.P.
specializing in real estate law. Mr. Silvers received his JD in 1994 from The
University of Kansas.
Mark A. Peterson, 42, was appointed our Vice President-Accounting and
Administration in June 2004. From 1998 to 2004, Mr. Peterson was with American
Italian Pasta Company, a publicly traded manufacturing company, most recently
serving as Vice President-Accounting and Finance. Mr. Peterson was Chief
Financial Officer of JC Nichols Company, a real estate company headquartered in
Kansas City, Missouri, from 1995 until its acquisition by Highwoods Properties,
Inc. in 1998. Mr. Peterson received a BS in Accounting, with highest honors,
from The University of Illinois in 1986.
10
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table contains information on the compensation earned by our
CEO and each of our other most highly compensated executive officers whose
compensation exceeded $100,000 in 2005.
------------------------------ ---------- ------------------------------ ------------------------------------ ------------------
Annual Compensation Long Term Compensation
-------------- --------------- ------------------------------------ ------------------
Awards
------------------------------ ---------- -------------- --------------- ---------------- ------------------- ------------------
Restricted
Share Securities
Awards(2)(3) Underlying All Other
Salary Bonus (1)(6) (5)(6) Options(5) Compensation(5)
Name and principal position Year ($) ($) (#) (#) ($)
------------------------------ ---------- -------------- --------------- ---------------- ------------------- ------------------
David M. Brain President 2005 $401,000 $361,000 24,516 31,585 $218,610
and Chief Executive Officer
------------------------------ ---------- -------------- --------------- ---------------- ------------------- ------------------
2004 $385,688 $462,825 18,335 50,931 --
------------------------------ ---------- -------------- --------------- ---------------- ------------------- ------------------
2003 $372,646 $447,174 15,449 42,913 --
------------------------------ ---------- -------------- --------------- ---------------- ------------------- ------------------
Fred L. Kennon Vice 2005 $253,000 $190,000 9,194 3,280 $114,353
President, Chief Financial
Officer and Treasurer
------------------------------ ---------- -------------- --------------- ---------------- ------------------- ------------------
2004 $243,280 $218,952 7,491 20,809 --
------------------------------ ---------- -------------- --------------- ---------------- ------------------- ------------------
2003 $235,053 $211,548 6,312 17,533 --
------------------------------ ---------- -------------- --------------- ---------------- ------------------- ------------------
Gregory K. Silvers Vice 2005 $253,000 $190,000 11,116 10,914 $111,994
President, Secretary,
General Counsel and Chief
Development Officer
------------------------------ ---------- -------------- --------------- ---------------- ------------------- ------------------
2004 $217,567 $217,567 7,052 19,589 --
------------------------------ ---------- -------------- --------------- ---------------- ------------------- ------------------
2003 $210,210 $191,008 5,699 15,831 --
------------------------------ ---------- -------------- --------------- ---------------- ------------------- ------------------
Mark A. Peterson Vice 2005 $181,500 $ 90,750 4,196 367 $ 56,466
President - Accounting and
Administration (4)
------------------------------ ---------- -------------- --------------- ---------------- ------------------- ------------------
2004 $ 93,019 $ 48,125 1,300 3,611 --
------------------------------ ---------- -------------- --------------- ---------------- ------------------- ------------------
(1) Performance bonuses are payable in cash, restricted common shares (valued
at 125% of the cash bonus amount) or a combination of cash and restricted
common shares, at the election of the executive. The restricted common
shares in which such bonuses may be paid vest at the rate of 33-1/3% per
year during a three-year period.
(2) The restricted common share awards vest at the rate of 20% per year during
a five year period. The dollar value of the shares vested under each
officer's restricted share award is based upon the closing price of our
common shares on the NYSE on the applicable vesting date. If all of the
restricted common shares awarded for 2005 had been vested as of December
31, 2005, the dollar value of the restricted share awards for 2005 (based
on the closing price of $40.75 for our common shares on the NYSE on
December 30, 2005) would be as follows:
------------------------------- -----------------------------
Officer 12/31/05 Value
------------------------------- -----------------------------
David M. Brain $999,027
------------------------------- -----------------------------
Fred L. Kennon $374,655
------------------------------- -----------------------------
Gregory K. Silvers $452,977
------------------------------- -----------------------------
Mark A. Peterson $170,987
------------------------------- -----------------------------
(3) The aggregate number of restricted common shares held by each named
executive officer on December 31, 2005 and the value of those shares (based
on the closing price of $40.75 for our common shares on the NYSE on
December 30, 2005) were as follows:
11
--------------------- -------------------- --------------------
Officer No. of Shares 12/31/05 Value
--------------------- -------------------- --------------------
David M. Brain 78,450 $3,196,838
--------------------- -------------------- --------------------
Fred L. Kennon 19,201 $ 782,441
--------------------- -------------------- --------------------
Gregory K. Silvers 31,126 $1,268,385
--------------------- -------------------- --------------------
Mark A. Peterson 3,002 $ 122,332
--------------------- -------------------- --------------------
The shares are registered with the SEC under the Securities Act of 1933,
but are restricted against transfer for a period of one year after the
issue date under our Share Incentive Plan. The shares in this table exclude
restricted shares awarded in 2006 based upon 2005 performance.
(4) Mr. Peterson was named our Vice President - Accounting and Administration
on June 14, 2004. His annual salary rate for 2004 was $165,000.
(5) Compensation paid under our Long-Term Incentive Program was based on 2005
performance and is payable 75% in the form of restricted common shares
included under "Restricted Share Awards," and 25% in the form of either
options or payment of the difference between the annual premium payable by
the Company on term life insurance for the benefit of the executive and the
annual premium for the same amount of whole life insurance for that
executive plus related income tax, or a combination of options and premium
differential payment plus related tax, at the election of the executive.
Amounts shown under "All Other Compensation" consist solely of such premium
differential payments plus related tax.
(6) The executive officers receive dividends on restricted common shares from
the date of issuance at the same rate paid to our other common
shareholders.
Option Grants in Last Fiscal Year
The following table provides information about options awarded to the named
executive officers in 2005.
------------------------------------------------------------------------------------------------ ---------------------
Individual Grants
----------------------- ------------------ ----------------- ------------------- --------------- ---------------------
Number Of
Securities Percent Of
Underlying Total Options
Options Granted To Exercise Grant Date Present
Granted Employees Price Expiration Value
Name (#) In Fiscal Year ($/Sh)(1) Date ($/Sh)(2)
----------------------- ------------------ ----------------- ------------------- --------------- ---------------------
David M. Brain 50,931 49% $42.01 11/2015 $3.78
----------------------- ------------------ ----------------- ------------------- --------------- ---------------------
Fred L. Kennon 20,809 20% $42.01 11/2015 $3.78
----------------------- ------------------ ----------------- ------------------- --------------- ---------------------
Gregory K. Silvers 19,589 19% $42.01 11/2015 $3.78
----------------------- ------------------ ----------------- ------------------- --------------- ---------------------
Mark A. Peterson 3,611 3% $42.01 11/2015 $3.78
----------------------- ------------------ ----------------- ------------------- --------------- ---------------------
(1) The options vest at the rate of 20% per year for five years and are
exercisable during a 10-year period.
(2) Based on the Black-Scholes Valuation Model. Black-Scholes, Binominal and
Minimum Value calculations performed in accordance with the requirements of
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" and using the following assumptions: expected
volatility using 52 weekly share prices commencing on 1/1/05 (20.7%),
expected life (eight years), share price on grant date ($42.01), exercise
price ($42.01), expected dividend yield (6.0%), and risk free rate of
return (4.0%).
12
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Options
Values
The following table provides information on the number of common shares
received upon the exercise of options by the named executive officers in 2005,
the value realized upon exercise of those options, and the number and value of
unexercised in-the-money options held by the named executive officers as of
December 31, 2005.
------------------------ ---------------------- --------------------- ---------------------- ----------------------
Number of shares
underlying Value of unexercised
unexercised options in-the-money options
at fiscal year end at fiscal year end
(#) ($)
Shares Acquired on Value Exercisable/ Exercisable/
Exercise Realized unexercisable unexercisable
Name (#) ($)
------------------------ ---------------------- --------------------- ---------------------- ----------------------
David M. Brain 12,745 $ 399,237 288,599/231,946 $6,240,097/$2,571,670
------------------------ ---------------------- --------------------- ---------------------- ----------------------
Fred L. Kennon 94,468 $ 2,463,151 3,506/94,140 $3,331/$1,043,791
------------------------ ---------------------- --------------------- ---------------------- ----------------------
Gregory K. Silvers 90,168 $ 2,345,646 3,167/83,793 $3,009/$883,357
------------------------ ---------------------- --------------------- ---------------------- ----------------------
Mark A. Peterson 2,978 $ 36,034 1,022/19,611 $7,328/$114,720
------------------------ ---------------------- --------------------- ---------------------- ----------------------
Equity Compensation Plan Information
The following table provides information with respect to compensation plans
(including individual compensation arrangements) under which common shares of
the Company were authorized for issuance to officers, employees and trustees as
of December 31, 2005.
------------------------------- ------------------------ ------------------------- -----------------------------------
Number of shares to be Number of shares remaining
issued upon exercise Weighted-average available for future issuance
Plan category of outstanding exercise price of under equity compensation plans
options, warrants and outstanding options, (excluding shares reflected in
rights warrants and rights column (a)) (2)
------------------------------- ------------------------ ------------------------- -----------------------------------
(a) (b) (c)
------------------------------- ------------------------ ------------------------- -----------------------------------
Equity compensation plans 890,176 $26.52 1,561,243
approved by shareholders(1)
------------------------------- ------------------------ ------------------------- -----------------------------------
Equity compensation plans not
approved by shareholders -- -- --
------------------------------- ------------------------ ------------------------- -----------------------------------
Total 890,176 $26.52 1,561,243
------------------------------- ------------------------ ------------------------- -----------------------------------
(1) All options have been issued under the Share Incentive Plan.
(2) Restricted common shares as well as options may be awarded under the Share
Incentive Plan. The Share Incentive Plan does not separately quantify the
number of options or number of restricted shares which may be awarded under
the Plan.
Employment Agreements
In 2000, we entered into employment agreements with David M. Brain, Fred L.
Kennon and Gregory K. Silvers, each for a term of three years, with automatic
one-year extensions on each anniversary date. The employment agreements
generally provide for:
13
o An original annual base salary of $325,000 for Mr. Brain, $205,000 for
Mr. Kennon and $175,000 for Mr. Silvers, subject to any increases
awarded by the compensation committee. The 2005 base salary amounts
for Messrs. Brain, Kennon and Silvers are listed in the Summary
Compensation Table.
o An annual incentive bonus in an amount established by the compensation
committee if performance criteria adopted by the compensation
committee are achieved.
o A loan to Mr. Brain of $1,407,645 for the purchase of 80,000 common
shares and loans of $281,250 to each of Mr. Kennon and Mr. Silvers for
the purchase of 20,000 common shares each under the Share Purchase
Program. The loans, which were made by us prior to passage of the
Sarbanes-Oxley Act, are evidenced by ten-year recourse promissory
notes, with principal and accrued interest payable at maturity. A
portion of each officer's share purchase loan will be forgiven upon
his death or permanent disability, or if he is terminated without
cause or terminates his employment for good reason, as defined in the
employment agreement. The entire amount of each executive's loan will
be forgiven if he is terminated without cause following a hostile
change in control of the Company. The officers are entitled to
reimbursement for taxes on income resulting from loan forgiveness.
o A rolling three-year term, subject to termination by the Company with
or without cause.
o Salary and bonus continuation following an officer's death, disability
or termination without cause.
Mr. Brain is entitled to severance compensation equal to his base salary
and bonus for the remainder of a three-year employment period if he resigns
following a change in control of the Company or upon his death, termination by
the Company without cause or termination by Mr. Brain for good reason. Messrs.
Kennon and Silvers are entitled to similar severance compensation upon their
death, termination by the Company without cause or termination by the executive
for good reason.
We entered into an employment agreement with Mr. Peterson in 2005 on terms
similar to those of Messrs. Brain, Kennon and Silvers, except that no share
purchase loan has been or will be made to Mr. Peterson. The agreement is for a
term of two years with automatic one-year extensions on each anniversary date,
and provides for an original base salary of $181,500, subject to any increases
awarded by the compensation committee.
How are our executive officers compensated?
We have adopted various compensation programs to attract and retain quality
executive officers, to provide incentives to maximize our Funds from Operations,
and to provide executive officers with an interest in the Company parallel to
that of our shareholders.
Our executive compensation programs are administered by the compensation
committee, which is authorized to select from among EPR's eligible employees the
individuals to whom awards will be granted and to establish the terms and
conditions of those awards. No member of the compensation committee is eligible
to participate in any compensation program other than as a non-employee trustee
of the Company.
14
Annual Incentive Program. The Annual Incentive Program provides for
incentive bonuses to executives designated by the compensation committee if
selected performance criteria are achieved. The performance criteria and the
amount of the bonuses are established each year by the compensation committee.
Bonuses are payable in cash, restricted common shares or a combination of cash
and restricted common shares at the election of the executive.
Share Incentive Plan. We encourage our executive officers to own common
shares in the Company. To assist executives with this goal, we provide officers
the opportunity to acquire shares through various programs:
o Share Purchase Program. We may allow executives to purchase common
shares from us at fair market value. The shares may be subject to
transfer restrictions and other conditions imposed by the compensation
committee.
o Restricted Share Program. We may award restricted common shares to
executives, subject to conditions adopted by the compensation
committee. In general, restricted shares may not be sold until the
restrictions expire or are removed by the compensation committee.
Restricted shares have full voting and dividend rights from the date
of issuance. All restrictions on restricted shares lapse upon a change
in control of the Company.
o Share Option Program. We may grant options to our officers and
employees to purchase common shares subject to conditions imposed by
the compensation committee.
Long-Term Incentive Program. The compensation committee may award incentive
compensation to our executive officers, payable 75% in the form of restricted
common shares and 25% in the form of either options or payment of the difference
between the annual premium payable by the Company on term life insurance for the
benefit of the executive and the annual premium for the same amount of whole
life insurance for that executive plus related income tax, or a combination of
options and premium differential payment plus related tax, at the election of
the executive.
Under the Share Incentive Plan, a maximum of 3,000,000 common shares,
subject to adjustment upon significant Company events, are reserved for issuance
under the Plan. There is no limit on the number of total options or restricted
common shares an individual may receive under the Plan. The maximum number of
shares or options which may be awarded to an employee subject to the
deductibility limitation of Section 162(m) of the Internal Revenue Code is
250,000 for each twelve-month performance period (or, to the extent the award is
paid in cash, the maximum dollar amount equal to the cash value of that number
of shares).
Compensation committee interlocks and insider participation
No member of the compensation committee is or has been at any time an
officer or employee of the Company or any of its subsidiaries. No member of the
compensation committee had any contractual or other relationship with the
Company during 2005. No executive officer of EPR serves or has served as a
director or as a member of the compensation committee of any entity of which any
member of EPR's compensation committee or any independent trustee serves as an
executive officer.
As we have previously reported, Morgan G. Earnest II, who serves as
Chairman of our compensation committee, is Executive Vice President of Capmark
Financial Group, Inc., whose Canadian affiliate GMAC Commercial Mortgage of
Canada provided US $97 million in mortgage financing in 2004 secured by our
Canadian properties. The Canadian loan meets the conditions for institutions
15
providing non-advisory financial services to the Company described in "Company
Governance - Who are our independent trustees and how was that determined?" Mr.
Earnest received no direct or indirect compensation from any party in connection
with the loan. The loan was approved by our independent trustees other than Mr.
Earnest. The independent trustees other than Mr. Earnest have determined that
the loan does not constitute a material relationship between Mr. Earnest and the
Company and that Mr. Earnest is thus independent and qualified to serve as an
independent trustee and a member of the audit, nominating/company governance and
compensation committees.
COMPENSATION COMMITTEE REPORT
The Board of Trustees has appointed a compensation committee consisting of
all of the non-management trustees. All members of the compensation committee
are independent as described in "Company Governance - Who are our independent
trustees and how was that determined?" The primary responsibilities of the
compensation committee are to (i) review and approve Company goals and
objectives relevant to the CEO's compensation, evaluate the CEO's performance in
light of those goals and objectives, and determine and approve the CEO's
compensation level based on that evaluation, and (ii) make recommendations to
the Board regarding the compensation of the Company's other executive officers
and the independent trustees, as well as incentive compensation and equity-based
plans that are subject to Board approval.
The committee has adopted an amended and restated charter which is
available for review on the Company's website at www.eprkc.com.
What is the Company's executive compensation philosophy?
EPR's compensation philosophy has several key objectives:
o create a well-balanced and competitive compensation program utilizing
base salary, annual incentives, equity-based compensation and
long-term incentive compensation
o reward executives for performance on measures designed to increase
shareholder value
o use restricted share awards to ensure that executives are focused on
providing appropriate dividend levels and building shareholder value
o create alignment between the Company's executives and its shareholders
by encouraging key executives to purchase shares
The compensation committee used the following programs to meet its
compensation objectives for executive officers:
Base Salary. The compensation committee established base salaries of
$481,000 for Mr. Brain, $253,000 for Mr. Kennon, $316,000 for Mr. Silvers and
$227,000 for Mr. Peterson for 2006. The salary levels were intended to provide a
level of compensation competitive with those of other executives performing
similar functions at comparable companies and to reward EPR's executives for
their efforts on behalf of the Company and the Company's financial performance
during 2005.
Annual Incentive Awards. Under the Annual Incentive Plan, the compensation
committee established specific annual "performance targets" for each covered
executive. The performance targets were based on increases in Funds from
Operations ("FFO") per share and other factors aimed at providing
16
shareholders with an acceptable rate of return. Performance bonuses are payable
in cash, restricted common shares (valued at 125% of the cash bonus amount) or a
combination of cash and restricted common shares, at the election of the
executive. The compensation committee awarded bonuses of $361,000 to Mr. Brain,
$190,000 to Mr. Kennon, $190,000 to Mr. Silvers and $90,750 to Mr. Peterson for
2005.
Long-Term Incentive Program. In 2006, the committee adopted a Long-Term
Incentive Program under which compensation may be provided to executive officers
of the Company. Under the program, 75% of the compensation is payable in the
form of restricted common shares and 25% is payable in the form of either
options or payment of the difference between the annual premium payable by the
Company on term life insurance for the benefit of the executive and the annual
premium for the same amount of whole life insurance for the executive plus
related income tax, or a combination of options and premium differential payment
plus related tax, at the election of the executive. The committee awarded
$1,352,000 to Mr. Brain, $507,000 to Mr. Kennon, $613,000 to Mr. Silvers and
$231,413 to Mr. Peterson under the plan for 2005.
How was the Company's President and CEO compensated?
EPR's President and CEO, David M. Brain, was compensated in 2005 pursuant
to an employment agreement entered into in 2000. In establishing Mr. Brain's
compensation, the compensation committee took into account the compensation of
similar officers of REITs with comparable market capitalizations, Mr. Brain's
contributions to the Company's financial performance and its increase in FFO and
dividends per common share during 2005, the achievement of Company acquisition
and financing strategies during 2005, and Mr. Brain's success in meeting the
performance criteria established by the compensation committee.
Mr. Brain received a base salary of $401,000 in 2005 and a bonus of
$361,000 for 2005. The incentive award paid to Mr. Brain was based on the
Company's achievement of target financial results and shareholder return,
including increases in FFO and dividends per share, as well as a subjective
evaluation of Mr. Brain's performance during 2005. Based upon its review of the
various factors described above, the committee believes Mr. Brain's compensation
is reasonable and not excessive.
How will 2006 incentive compensation be determined?
The committee may rely on any of the following factors in determining
executive incentive compensation levels for 2006: Funds from Operations, Cash
Available for Distribution, return on equity, return on assets, return on
acquisitions, net operating income, total shareholder return, dividend growth,
financial statement management, and/or achievement of acquisition and financing
targets. In evaluating Company performance, the committee may consider 2006
performance against historical performance, budgeted performance, peer
organization performance, REIT indices performance, broad market indices
performance and/or other factors.
How is EPR addressing Internal Revenue Code limits on deductibility of
compensation?
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to public companies for compensation in excess of $1,000,000 paid for
any fiscal year to the company's chief executive officer and the four other most
highly compensated executive officers. The statute exempts qualifying
performance-based compensation from the deduction limit if stated requirements
are met.
Although the compensation committee has designed the Company's executive
compensation program so that compensation will be deductible under Section
162(m), at some future time it may not be
17
possible or practicable or in the Company's best interests to qualify an
executive officer's compensation under Section 162(m). Accordingly, the
compensation committee and the Board of Trustees reserve the authority to award
non-deductible compensation in circumstances they consider appropriate.
By the compensation committee:
Morgan G. Earnest II
Robert J. Druten
James A. Olson
Barrett Brady
This compensation committee report is not deemed "soliciting material" and is
not deemed filed with the SEC or subject to Regulation 14A or the liabilities
under Section 18 of the Exchange Act.
18
TRANSACTIONS BETWEEN THE COMPANY AND
TRUSTEES, OFFICERS OR THEIR AFFILIATES
Pursuant to their 2000 employment agreements, Messrs. Brain, Kennon and
Silvers are indebted to the Company in the principal amounts of $1,407,645,
$281,250 and $281,250, respectively, for the purchase of 80,000, 20,000 and
20,000 common shares, respectively. Each loan is represented by a 10-year
recourse note with principal and interest at 6.24% per annum payable at
maturity.
19
COMPANY PERFORMANCE
The following performance graph shows a comparison of cumulative total
returns for EPR, the Morgan Stanley REIT Index (in which EPR is included) and
the Russell 2000 Index (in which EPR is included) for the five fiscal year
period beginning December 31, 2000 and ending December 31, 2005.
The graph assumes that $100 was invested on December 31, 2000 in each of
the Company's common shares, the Morgan Stanley REIT Index and the Russell 2000
Index, and that all dividends were reinvested. The information presented in the
performance graph is historical and is not intended to represent or guarantee
future returns.
TOTAL RETURN TO SHAREHOLDERS
(Assumes $100 investment on 12/31/00)
600
$
$
500
400 $
Dollars
300
$
%
200 $ %
% * *
*
100 *% %
*
0
12/31/2000 12/31/2001 12/31/2002 12/31/2003 12/31/2004 12/31/2005
$ - Entertainment Properties Trust
% - Morgan Stanley REIT Index
* - Russell 2000 Index
-------------------------------- --------------- -------------- -------------- --------------- -------------- --------------
Total Return Analysis 12/31/2000 12/31/2001 12/31/2002 12/31/2003 12/31/2004 12/31/2005
-------------------------------- --------------- -------------- -------------- --------------- -------------- --------------
Entertainment Properties Trust $100.00 $195.33 $257.50 $406.24 $551.77 $534.63
-------------------------------- --------------- -------------- -------------- --------------- -------------- --------------
Morgan Stanley REIT Index $100.00 $112.83 $116.94 $159.91 $210.26 $228.89
-------------------------------- --------------- -------------- -------------- --------------- -------------- --------------
Russell 2000 Index $100.00 $101.03 $ 79.23 $115.18 $134.75 $139.23
-------------------------------- --------------- -------------- -------------- --------------- -------------- --------------
Source: CTA Public Relations www.ctapr.com (303) 665-4200. Data from BRIDGE
Information Systems, Inc.
This Company performance information is not deemed "soliciting material" and is
not deemed filed with the SEC or subject to Regulation 14A or the liabilities
under Section 18 of the Exchange Act.
20
AUDIT COMMITTEE REPORT
The Board of Trustees has appointed an audit committee consisting of all of
the non-management trustees. All members of the audit committee are independent
as described in "Company Governance - Who are our independent trustees and how
was that determined?" The committee members also meet the additional
independence standards of SEC Rule 10A-3. We believe all members of the audit
committee are "audit committee financial experts," as defined by SEC rules, by
virtue of their experience and positions held as described elsewhere in this
proxy statement.
The primary responsibility of the audit committee is to assist Board
oversight of the integrity of the Company's financial statements, the Company's
compliance with legal and regulatory requirements, the qualifications and
independence of the Company's independent registered public accounting firm, and
the performance of the Company's internal audit function and internal control
over financial reporting. The independent registered public accounting firm is
responsible for auditing the Company's annual financial statements and
expressing an opinion on the conformity of those audited financial statements
with generally accepted accounting principles. The independent registered public
accounting firm is also responsible for auditing the effectiveness of
management's internal control over financial reporting and expressing an opinion
on management's evaluation of the effectiveness of its internal control over
financial reporting.
The committee has adopted an amended and restated charter which is
available on the Company's website at www.eprkc.com.
The audit committee has sole authority to engage the independent registered
public accounting firm to perform audit services (subject to shareholder
ratification), audit-related services, tax services and permitted non-audit
services and the fees therefor. The independent registered public accounting
firm reports directly to the committee and is accountable to the committee.
The audit committee has adopted policies and procedures for the
pre-approval of the performance of services by the independent registered public
accounting firm on behalf of the Company. Those policies generally provide that:
o the performance by the firm of any audit services, audit-related
services, tax services or other permitted non-audit services, and the
fees therefor, must be specifically pre-approved by the committee or,
in the absence of one or more of the committee members, a designated
member of the committee
o pre-approvals must take into consideration, and be conducted in a
manner that promotes, the effectiveness and independence of the firm
o each particular service to be approved must be described in detail and
be supported by detailed back-up documentation
In fulfilling its oversight responsibilities, the audit committee reviewed
the Company's 2005 audited financial statements with management and the
independent registered public accounting firm. The committee discussed with the
firm the matters required to be discussed in Statement of Auditing Standards No.
61, "Communications with Audit Committees," and the rules of the SEC and NYSE.
This included a discussion of the firm's judgments regarding the quality, not
just the acceptability, of the Company's accounting principles and the other
matters required to be discussed with the committee under the rules of the NYSE
and the Public Company Accounting Oversight Board ("PCAOB"). In addition, the
committee received from the firm the written disclosures and letter required by
Independence
21
Standards Board Standard No. 1, "Independence Discussions with Audit
Committees." The committee also discussed with the firm its independence from
management and the Company, including the matters covered by the written
disclosures and letter provided by the firm.
The committee discussed with management and the firm the overall scope and
plans for the audit of the financial statements. The committee meets
periodically with management and the independent registered public accounting
firm to discuss the results of their examinations, their evaluations of the
Company, the Company's disclosure controls and procedures, internal control over
financial reporting and internal audit function, and the overall quality of the
Company's financial reporting. The committee held five meetings during 2005.
The audit committee discussed with management and the independent
registered public accounting firm the critical accounting policies of the
Company, the impact of those policies on the 2005 financial statements, the
impact of known trends, uncertainties, commitments and contingencies on the
application of those policies, and the probable impact on the 2005 financial
statements if different accounting policies had been applied.
Based on the reviews and discussions referred to above, the audit committee
recommended to the Board of Trustees, and the Board approved, that the audited
financial statements be included in the Company's annual report on Form 10-K for
the year ended December 31, 2005 for filing with the SEC.
The audit committee has engaged KPMG LLP as the Company's independent
registered public accounting firm to audit the 2006 financial statements and
management's internal control over financial reporting for 2006, subject to
shareholder ratification, and has engaged KPMG to perform specific tax return
preparation and compliance, tax consulting and tax planning services during
2006. See Item II - "Ratification of Appointment of Independent Registered
Public Accounting Firm."
The audit committee does not itself prepare financial statements or perform
audits, and its members are not auditors or certifiers of the Company's
financial statements. The members of the audit committee are not professionally
engaged in the practice of accounting and, notwithstanding the designation of
the audit committee members as "audit committee financial experts" pursuant to
SEC rules, are not experts in the field of accounting or auditing, including
auditor independence. Members of the audit committee rely without independent
verification on the information provided to them and the representations made to
them by management and the independent registered public accounting firm, and
look to management to provide full and timely disclosure of all material facts
affecting the Company. Accordingly, the audit committee's oversight does not
provide an independent basis to determine that management has maintained
appropriate accounting and financial reporting policies, appropriate internal
controls and procedures to ensure compliance with accounting standards and
applicable laws and regulations, appropriate disclosure controls and procedures,
appropriate internal control over financial reporting, or an appropriate
internal audit function, or that the Company's reports and information provided
under the Exchange Act are accurate and complete. Furthermore, the audit
committee's considerations and discussions referred to above and in its charter
do not assure that the audit of the Company's financial statements has been
carried out in accordance with PCAOB rules, that the financial statements are
free of material misstatement or presented in accordance with generally accepted
accounting principles, that there were no significant deficiencies or material
weaknesses in the Company's internal control over financial reporting, that the
Company's independent registered public accounting firm is in fact
"independent," or that the matters required to be certified by the Company's
Chief Executive Officer and Chief Financial Officer in the Company's annual
reports on Form 10-K and quarterly reports on Form 10-Q under the Sarbanes-Oxley
Act and related SEC rules have been properly and accurately certified.
22
By the audit committee:
James A. Olson
Robert J. Druten
Morgan G. Earnest II
Barrett Brady
This audit committee report is not deemed "soliciting material" and is not
deemed filed with the SEC or subject to Regulation 14A or the liabilities under
Section 18 of the Exchange Act.
23
ITEM II
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The audit committee has engaged, subject to shareholder ratification, the
registered public accounting firm of KPMG LLP as our independent registered
public accounting firm to audit our financial statements for the year ending
December 31, 2006 and to audit management's internal control over financial
reporting as of December 31, 2006. KPMG audited our financial statements for the
years ended December 31, 2005, 2004 and 2003 and audited management's internal
control over financial reporting as of December 31, 2005 and 2004.
Representatives of KPMG are expected to be present at the annual meeting
and will be available to respond to appropriate questions about their services.
Audit Fees
KPMG billed the Company an aggregate of $292,975 for professional services
rendered in the audit of our financial statements for the year ended December
31, 2004, the audit of certain of our subsidiaries and joint ventures, the audit
of management's internal control over financial reporting as of December 31,
2004, the review of the quarterly financial statements included in our Form 10-Q
reports filed with the SEC during 2004, the review of other filings we made with
the SEC during 2004, and the provision of comfort letters and performance of
related procedures in connection with the public offering of our common shares
in 2004.
KPMG billed the Company an aggregate of $228,500 for professional services
rendered in the audit of our financial statements for the year ended December
31, 2005, the audit of certain of our subsidiaries and joint ventures, the audit
of management's internal control over financial reporting as of December 31,
2005, the review of the quarterly financial statements included in our Form 10-Q
reports filed with the SEC during 2005, the review of other filings we made with
the SEC during 2005, and the provision of comfort letters and performance of
related procedures in connection with the public offering of our common shares
and Series B preferred shares in 2005.
Audit-Related Fees
KPMG billed the Company an aggregate of $122,330 in 2004 and $0 in 2005 for
audit-related services, consisting of assurance and due diligence services in
connection with our acquisition of properties in Canada.
Tax Fees
KPMG billed the Company an aggregate of $118,160 in 2004 and $156,321 in
2005 for professional services rendered in the areas of tax return preparation
and compliance, tax consulting and advice and tax planning, including REIT tax
compliance, U.S. and Canadian tax compliance and the determination of the
portion of our dividends representing a return of capital. The fees for 2004
also included $30,340 in charges incurred in connection with a tax protest in
the State of Florida. Of the $118,160 and $156,321 in tax fees billed for 2004
and 2005, respectively, a total of $73,175 and $126,750, respectively, was for
tax return preparation and compliance and $44,985 and $29,571, respectively, was
for tax consulting and advice and tax planning.
24
All Other Fees
KPMG did not bill the Company for any other services during 2004 or 2005.
The audit committee has adopted policies which require that the provision
of services by the independent registered public accounting firm, and the fees
therefor, be pre-approved by the audit committee. The policies are more
particularly described in the audit committee report included elsewhere in this
proxy statement. The services provided by KPMG in 2004 and 2005 were
pre-approved by the audit committee in accordance with those policies.
The audit committee considered whether KPMG's provision of tax services in
2004 and 2005 was compatible with maintaining its independence from management
and the Company, and determined that the provision of those services was
compatible with its independence.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our trustees, executive officers
and holders of more than 10% of our common shares to file reports with the SEC
regarding their ownership and changes in ownership of our shares.
We believe that, during 2005, our trustees and executive officers complied
with all Section 16(a) filing requirements, with the exception of one Form 4 by
Mr. Druten on the transfer of 560 common shares to his daughter, which was filed
late. In making this statement, we have relied upon an examination of the copies
of Forms 3, 4 and 5 provided to us and the written representations of our
trustees and executive officers.
SHARE OWNERSHIP
Who are the largest owners of our common shares?
Except as stated below, we know of no single person or group that is the
beneficial owner of more than 5% of our common shares.
------------------------------------------- ----------------------------------- --------------------------------------
Name and address of Amount and nature of Percent of shares
beneficial owner beneficial ownership outstanding
------------------------------------------- ----------------------------------- --------------------------------------
The Vanguard Group, Inc. 1,335,042(1) 5.16%
100 Vanguard Blvd.
Malvern, PA 19355
------------------------------------------- ----------------------------------- --------------------------------------
Earnest Partners, LLC
75 Fourteenth Street, Suite 2300 1,951,289(2) 7.5%
Atlanta, GA 30309
------------------------------------------- ----------------------------------- --------------------------------------
Barclays Global
Investors, N.A. 2,221,417(3) 8.58%
45 Fremont Street, 17th Floor
San Francisco, CA 94105
------------------------------------------- ----------------------------------- --------------------------------------
(1) Based solely on disclosures made by The Vanguard Group, Inc., filing
as an investment adviser, in a report on Schedule 13G filed with the
Securities and Exchange Commission.
(2) Based solely on disclosures made by Earnest Partners, LLC, filing as
an investment adviser, in a report on Schedule 13G/A filed with the
Securities and Exchange Commission. Earnest Partners, LLC has shared
voting power with others over a portion of the shares.
25
(3) Based solely on disclosures made by Barclays Global Investors, N.A.
and its affiliates, filing on behalf of trust accounts for the
economic benefit of the beneficiaries of such accounts, in a report on
Schedule 13G/A filed with the Securities and Exchange Commission.
Includes shares held by affiliates of Barclays Global Investors, N.A.
Certain affiliates of Barclays Global Investors, N.A. have shared
voting or investment power over some of the shares.
How many shares do our trustees and executive officers own?
The following table shows as of December 31, 2005, the number of our common
shares beneficially owned by each of our trustees, the nominees for trustee and
our executive officers, and by all of the trustees and executive officers as a
group. All information regarding beneficial ownership was furnished by the
trustees, nominees and officers listed below.
------------------------------------------- -------------------------------------- ---------------------------
Amount and nature of Percent of shares
Name of beneficial owners beneficial ownership (1) outstanding (1)
------------------------------------------- -------------------------------------- ---------------------------
David M. Brain 577,302 2.29%
------------------------------------------- -------------------------------------- ---------------------------
Robert J. Druten 42,469 *
------------------------------------------- -------------------------------------- ---------------------------
James A. Olson 19,771 *
------------------------------------------- -------------------------------------- ---------------------------
Morgan G. Earnest II 20,609 *
------------------------------------------- -------------------------------------- ---------------------------
Barrett Brady 14,538 *
------------------------------------------- -------------------------------------- ---------------------------
Fred L. Kennon 137,971 *
------------------------------------------- -------------------------------------- ---------------------------
Gregory K. Silvers 116,474 *
------------------------------------------- -------------------------------------- ---------------------------
Mark A. Peterson 7,002 *
------------------------------------------- -------------------------------------- ---------------------------
All trustees and executive 936,136 3.71%
officers as a group (8 persons)
------------------------------------------- -------------------------------------- ---------------------------
* Less than 1 percent.
(1) Includes the following common shares which the named individuals
have the right to acquire within 60 days under existing options:
David M. Brain (288,599), Fred L. Kennon (3,506), Gregory K.
Silvers (3,167), Mark A. Peterson (1,022), Robert J. Druten
(34,998), James A. Olson (15,000), Morgan G. Earnest II (18,333)
and Barrett Brady (12,500).
The above table reports beneficial ownership in accordance with Rule 13d-3
under the Exchange Act and includes common shares underlying options that are
exercisable within 60 days after December 31, 2005. This means all common shares
over which trustees, nominees and executive officers directly or indirectly have
or share voting or investment power are listed as beneficially owned. The
persons identified in the table have sole voting and investment power over all
shares described as beneficially owned by them.
26
SUBMISSION OF SHAREHOLDER PROPOSALS AND NOMINATIONS
Do I have a right to nominate trustees or make proposals for consideration by
the shareholders?
Yes. Our Declaration of Trust and Bylaws establish procedures which you
must follow if you wish to nominate trustees or make other proposals for
consideration at an annual shareholder meeting.
How do I make a nomination?
If you are a common shareholder of record and wish to nominate someone to
the Board of Trustees, you must give written notice to the Company's Secretary.
Your notice must be given not less than 60 days and not more than 90 days prior
to the first anniversary of the date of the previous year's meeting. A
nomination received less than 60 days or more than 90 days prior to the first
anniversary of the date of the previous year's meeting will be deemed untimely
and will not be considered. Your notice must include:
o for each person you intend to nominate for election as a trustee, all
information related to that person that is required to be disclosed in
solicitations of proxies for the election of trustees in an election
contest, or is otherwise required, pursuant to Regulation 14A under
the Exchange Act (including the person's written consent to being
named in the proxy statement as a nominee and to serve as a trustee if
elected)
o your name and address and the name and address of any person on whose
behalf you made the nomination, as they appear on the Company's books
o the number of common shares owned beneficially and of record by you
and any person on whose behalf you made the nomination
How do I make a proposal?
If you are a common shareholder of record and wish to make a proposal to be
considered at an annual shareholder meeting, you must give written notice to the
Company's Secretary. Pursuant to Rule 14a-8 of the SEC, your notice must be
received at the Company's executive offices not less than 120 calendar days
before the date of the Company's proxy statement released to shareholders in
connection with the previous year's meeting. Any proposal received less than 120
days before that date will be deemed untimely and will not be considered. Your
notice must include:
o a brief description of your proposal and your reasons for making the
proposal
o your name and address and the name and address of any person on whose
behalf you made the proposal, as they appear on the Company's books
o any material interest you or any person on whose behalf you made the
proposal have in the proposal
o the number of common shares owned beneficially and of record by you
and any person on whose behalf you made the proposal
27
Are there any exceptions to the deadline for making a nomination or proposal?
Yes. If the date of the annual meeting is scheduled more than 30 days prior
to or more than 60 days after the anniversary date of the previous year's
meeting, your notice must be delivered:
o not earlier than 90 days before the meeting; and
o not later than (a) 60 days before the meeting or (b) the 10th day
after the date we make our first public announcement of the meeting
date, whichever is earlier
If the Board increases the number of trustees to be elected but we do not
make a public announcement of the increased Board or the identity of the
additional nominees within 70 days prior to the first anniversary of the
previous year's meeting, your notice will be considered timely (but only with
respect to nominees for the new positions created by the increase) if it is
delivered to the Company's Secretary not later than the close of business on the
10th day following the date of our public announcement.
Must the Board of Trustees approve my proposal?
Our Declaration of Trust provides that the submission of any action to the
shareholders for their consideration must first be approved by the Board of
Trustees.
OTHER MATTERS
As of the date of this proxy statement, we have not been presented with any
other business for consideration at the annual meeting. If any other matter is
properly brought before the meeting for action by the shareholders, your proxy
(unless revoked) will be voted in accordance with the recommendation of the
Board of Trustees, or the judgment of the proxy holders if no recommendation is
made.
28
MISCELLANEOUS
Proxy Solicitation
The enclosed proxy is being solicited by the Board of Trustees. We will
bear all costs of the solicitation, including the cost of preparing and mailing
this proxy statement and the enclosed proxy card. After the initial mailing of
this proxy statement, proxies may be solicited by mail, telephone, telegram,
facsimile, e-mail or personally by trustees, officers, employees or agents of
the Company. Brokerage houses and other custodians, nominees and fiduciaries
will be requested to forward soliciting materials to the beneficial owners of
shares held of record by them, and their reasonable out-of-pocket expenses,
together with those of our transfer agent, will be paid by us.
Annual Report
Our annual report to shareholders, containing financial statements for the
year ended December 31, 2005, is being mailed with this proxy statement to all
shareholders entitled to vote at the annual meeting. You must not regard the
annual report as additional proxy solicitation material.
We will provide without charge, upon written request to the Secretary of
the Company at the address listed on the cover page of this proxy statement, a
copy of our annual report on Form 10-K, including the financial statements and
financial statement schedules, filed with the Securities and Exchange Commission
for the year ended December 31, 2005.
Shareholder Proposals for the 2007 Annual Meeting
At this time, we anticipate that the 2007 annual meeting of shareholders
will be held on May 9, 2007. Shareholder proposals intended for inclusion in the
proxy statement for the 2007 annual meeting must be received by the Company's
Secretary at 30 W. Pershing Road, Suite 201, Kansas City, Missouri 64108, within
the time limits described in "Submission of Shareholder Proposals and
Nominations." Shareholder proposals and nominations must also comply with the
proxy solicitation rules of the SEC.
By the order of the Board of Trustees
/s/ Gregory K. Silvers
Gregory K. Silvers
Vice President, Secretary, General Counsel and Chief
April 3, 2006 Development Officer
ENTERTAINMENT PROPERTIES TRUST
This proxy is solicited on behalf of the Board of Trustees
for the Annual Meeting of Shareholders on Wednesday, May 10, 2006
As a shareholder of Entertainment Properties Trust (the "Company"), I
appoint Fred L. Kennon and Gregory K. Silvers as my attorneys-in-fact and
proxies (with full power of substitution), and authorize each of them to
represent me at the Annual Meeting of Shareholders of the Company to be held at
the Leawood Town Centre Theatre, 11701 Nall, Leawood, Kansas, on Wednesday, May
10, 2006 at ten o'clock a.m., and at any adjournment of the meeting, and to vote
the common shares of beneficial interest in the Company held by me as designated
on the reverse side.
Dated , 2006
----------------
---------------------------------------------
Signature
---------------------------------------------
Signature (if held jointly)
Please sign exactly as your name appears on this
proxy. When shares are held by joint tenants, both
should sign. When signing as attorney, executor,
trustee or other representative capacity, please
give your full title. If a corporation, please
sign in full corporate name by President or other
authorized officer.
This proxy, when properly executed, will be voted in the manner directed herein by the shareholder. If no choice
is indicated on the proxy, the persons named as proxies intend to vote FOR both proposals.
The Board of Trustees unanimously recommends a vote FOR proposals 1 and 2.
Proposal #1. Election of Trustees: (1) Morgan G. Earnest II (2) James A. Olson
|_| FOR both nominees listed above |_| WITHHOLD AUTHORITY
(except as otherwise indicated) to vote for both nominees listed above
To withhold authority to vote for either nominee, strike through that nominee's name.
Proposal #2. Proposal to ratify the appointment of KPMG LLP as the Company's independent registered public
accounting firm for 2006.
|_| FOR |_| AGAINST |_| ABSTAIN
To act upon any other matters that may properly come before the meeting.