DENBURY RESOURCES INC.
Information Circular - Proxy Statement
Annual and Special Meeting of Shareholders
to be held on Wednesday, May 21, 1997
INTRODUCTION AND GENERAL PROXY MATTERS
THIS INFORMATION CIRCULAR IS FURNISHED IN CONNECTION WITH THE SOLICITATION OF
PROXIES BY THE MANAGEMENT OF DENBURY RESOURCES INC. ("Denbury" or the
"Corporation") for use at the Annual and Special Meeting of the Shareholders of
Denbury (the "Meeting") to be held on the 21st day of May, 1997 at the time and
place and for the purposes set out in the accompanying Notice of Annual and
Special Meeting, and any adjournments thereof. The approximate date on which
this Information Circular - Proxy Statement and the enclosed Instrument of Proxy
will first be sent to shareholders is April 10, 1997. The dollar disclosures
contained herein are reported in U.S. dollars unless otherwise noted.
RECORD DATE
The Board of Directors of Denbury has fixed the record date for the
Meeting at the close of business on Wednesday, April 9, 1997 (the "Record
Date"). Only shareholders of Denbury of record as at the Record Date are
entitled to receive notice of the Meeting unless such person transfers his
shares after the Record Date and the transferee of those shares establishes that
he owns the shares and demands, not later than the close of business on May 10,
1997, that the transferee's name be included in the list of shareholders
entitled to vote.
APPOINTMENT AND REVOCATION OF PROXIES
An Instrument of Proxy accompanies the Notice of Annual and Special Meeting and
this Information Circular. In order to be valid and acted upon at the Meeting,
Instruments of Proxy must be received by the Secretary of Denbury c/o The R-M
Trust Company, Corporate Trust Department, 600 Dome Tower, 333 - 7th Avenue
S.W., Calgary, Alberta T2P 2Z1, not less than 48 hours (excluding Saturdays,
Sundays and holidays) before the time set for the holding of the Meeting or any
adjournment thereof.
The instrument appointing a proxy shall be in writing and shall be
executed by the shareholder or his attorney authorized in writing or, if the
shareholder is a corporation, under its corporate seal or by an officer or
attorney thereof duly authorized.
THE PERSONS NAMED IN THE ENCLOSED FORM OF PROXY ARE DIRECTORS AND/OR
OFFICERS OF DENBURY. EACH SHAREHOLDER HAS THE RIGHT TO APPOINT A PROXYHOLDER
OTHER THAN THE PERSONS DESIGNATED IN THE FORM OF PROXY, WHO NEED NOT BE A
SHAREHOLDER, TO ATTEND AND TO ACT FOR HIM AND ON HIS BEHALF AT THE MEETING. TO
EXERCISE SUCH RIGHT, THE NAME OF THE NOMINEES OF MANAGEMENT SHOULD BE CROSSED
OUT AND THE NAME OF THE SHAREHOLDER'S APPOINTEE SHOULD BE LEGIBLY PRINTED IN THE
BLANK SPACE PROVIDED.
A shareholder who has submitted a proxy may revoke it any time prior to
the exercise thereof. If a person who has given a proxy attends personally at
the Meeting at which such proxy is to be voted, such person may revoke the proxy
and vote in person. In addition to revocation in any other manner permitted by
law, a proxy may be revoked by instrument in writing executed by the shareholder
or his attorney authorized in writing or, if the shareholder is a corporation,
under it corporate seal or by an officer or attorney thereof duly authorized and
deposited either at the registered office of Denbury at any time up to and
including the last business day preceding the day of the Meeting, or any
adjournment thereof, at which the proxy is to be used, or with the Chairman of
the Meeting on the day of the Meeting, or any adjournment thereof, and upon
either of such deposits, the proxy is revoked.
2
<PAGE>
PERSONS MAKING THE SOLICITATION
THIS SOLICITATION IS MADE ON BEHALF OF THE MANAGEMENT OF DENBURY. The
costs incurred in the preparation and mailing of the Instrument of Proxy, Notice
of Annual and Special Meeting and this Information Circular will be borne by
Denbury. In addition to solicitation by mail, proxies may be solicited by
personal interviews, telephone or other means of communication by directors,
officers and employees of Denbury, who will not be specifically remunerated
therefor. While no arrangements have been made by Denbury to date, it may
contract for the distribution and solicitation of proxies for the Meeting, in
which event the costs incurred with respect to such solicitation will be borne
by Denbury.
EXERCISE OF DISCRETION BY PROXY
The shares represented by proxy in favour of management nominees shall
be voted on any ballot at the Meeting and, where the shareholder specifies a
choice with respect to any matter to be acted upon, the shares shall be voted on
any ballot in accordance with the specification so made.
IN THE ABSENCE OF SUCH SPECIFICATION, THE COMMON SHARES WILL BE VOTED
FOR THE ELECTION OF THE SIX DIRECTOR NOMINEES NAMED HEREIN AND IN FAVOUR OF THE
OTHER MATTERS TO BE ACTED UPON. THE PERSONS APPOINTED UNDER THE INSTRUMENT OF
PROXY FURNISHED BY DENBURY ARE CONFERRED WITH DISCRETIONARY AUTHORITY WITH
RESPECT TO AMENDMENTS OR VARIATIONS OF THOSE MATTERS SPECIFIED IN THE INSTRUMENT
OF PROXY AND NOTICE OF ANNUAL AND SPECIAL MEETING. AT THE TIME OF PRINTING THIS
INFORMATION CIRCULAR, MANAGEMENT OF DENBURY KNOWS OF NO SUCH AMENDMENT,
VARIATION OR OTHER MATTER.
OUTSTANDING VOTING SHARES
As at March 15, 1997, 20,101,607 common shares of Denbury were issued
and outstanding, each share carrying the right to one vote on a ballot at the
Meeting. Abstentions will be included in vote totals and, as such, will have the
same effect on each proposal as a negative vote. Broker non-votes, if any, will
not be included in vote totals and, as such, will have no effect on any
proposal. A quorum for the transaction of business at the Meeting is not less
than two (2) persons present, holding or representing not less than 5% of the
common shares entitled to be voted at the Meeting. All matters submitted to a
vote at the Meeting require a majority of the votes, present or represented by
proxy, for approval.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of March 15, 1997,
concerning beneficial ownership of the Common Shares by: (i) any shareholders
known to the Corporation to beneficially own more than 5% of the issued and
outstanding Common Shares, and (ii) all executive officers and directors
individually and as a group. Except as otherwise indicated and except for those
shares that are listed as being beneficially owned by more than one shareholder,
each shareholder identified in the table has sole voting and investment power
with respect to their shares.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP AS OF
MARCH 15, 1997
-----------------------------------------
NAME AND ADDRESS OF
BENEFICIAL OWNER SHARES PERCENT
- --------------------------------------------------------------- --------------------- --------------
Ronald G. Greene...............................................
Suite 700, 407 - 2nd Street
<S> <C> <C>
Calgary, Alberta T2P 2Y3 900,900 (1) 4.5% (1)
David Bonderman................................................
201 Main Street, Suite 2420
Ft. Worth, TX 76102 8,558,038 (2) 41.3% (2)
William S. Price, III..........................................
600 California Street, Suite 1850
San Francisco, CA 94108 8,411,038 (3) 40.6% (3)
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS OF
BENEFICIAL OWNER SHARES PERCENT
- --------------------------------------------------------------- --------------------- --------------
<S> <C> <C>
David M. Stanton............................................... - (4) *
Wieland F. Wettstein........................................... 154,989 (5) *
Gareth Roberts................................................. 515,675 (6) 2.6% (6)
Phil Rykhoek................................................... 19,253 (7) *
Mark A. Worthey................................................ 77,581 (7) *
Matthew Deso................................................... 67,381 (7) *
All of the executive officers and directors as a group (9
persons)....................................................... 10,298,817 (8) 49.2% (8)
TPG Advisors, Inc.............................................. 8,408,038 (3) 40.6% (3)
201 Main Street, Suite 2420
Ft. Worth, TX 76102
<FN>
* Less than 1%.
(1) Includes 30,150 Common Shares held by Mr. Greene's spouse in her
retirement plan, 900 shares held in trust for Mr. Greene's minor children
and 520,833 Common Shares held by Tortuga Investment Corp., which is
solely owned by Mr. Greene.
(2) Includes 150,000 Common Shares in a family partnership 100% controlled by
Mr. Bonderman. In addition, Mr. Bonderman is a director, executive officer
and shareholder of TPG Advisors, Inc., which is the general partner of TPG
GenPar, L.P., which in turn is the general partner of both TPG Partners,
L.P., and TPG Parallel I, L.P., which are the direct beneficial owners of
the remaining securities, including 625,000 Common Share purchase warrants
which, for the purposes of this disclosure, are assumed to be exercised.
(3) Includes 1,000 Common Shares held by Mr. Price and 2,000 Common Shares
held by Mr. Price's spouse. In addition, Mr. Price is a director,
executive officer and shareholder of TPG Advisors, Inc., which is the
general partner of TPG GenPar, L.P., which in turn is the general partner
of both TPG Partners, L.P., and TPG Parallel I, L.P., which are the direct
beneficial owners of the remaining securities, including 625,000 Common
Share purchase warrants which, for the purposes of this disclosure, are
assumed to be exercised.
(4) Although Mr. Stanton is not considered to be a "beneficial owner" as that
term is defined by the Securities and Exchange Commission, Mr. Stanton is
a managing director of TPG Partners, L.P.
(5) After giving effect to the pro forma exercise of the 18,000 Common Shares
which Mr. Wettstein has the right to acquire pursuant to vested stock
options. Also includes 110,489 Common Shares held by S.P. Hunt Holdings
Ltd., which is solely owned by a trust of which Mr. Wettstein is a
trustee, and 19,600 Common Shares owned by his spouse.
(6) After giving effect to the pro forma exercise of the 27,750 Common Shares
which Mr. Roberts has the right to acquire pursuant to vested stock
options. Also includes 138,330 Common Shares held by Ashley Petroleum,
Inc., which is solely owned by Mr. Roberts, and 1,724 Common Shares held
by his wife.
(7) After giving effect to the pro forma exercise, as applicable, of the
18,125, 73,250 and 62,500 Common Shares which Mr. Rykhoek, Mr. Worthey and
Mr. Deso, respectively, have the right to acquire pursuant to stock
options which are currently vested or which vest within 60 days from
March 15, 1997.
(8) After giving effect to the pro forma exercise of the 625,000 Common Share
purchase warrants and the pro forma exercise of the 199,625 Common Shares
which the officers and directors as a group have the right to acquire
pursuant to stock options which are currently vested or which vest within
60 days from March 15, 1997. Ownership does include the shares held by
affiliates of TPG, although Mr. Price and Mr. Bonderman, who are directors
of the Corporation, are not the owners of record of these securities. Mr.
Price and Mr. Bonderman are directors, executive officers and shareholders
of TPG Advisors, Inc., which is the general partner of TPG GenPar, L.P.,
which in turn is the general partner of both TPG Partners, L.P. and TPG
Parallel I, L.P., which are the direct beneficial owners of these
securities.
</FN>
</TABLE>
The Corporation is neither directly or indirectly owned or controlled by
another corporation or foreign government.
4
<PAGE>
EXECUTIVE OFFICERS
The names of the officers of the Corporation and the offices held by them
with the Corporation and the period during which such office has been held by
them are set forth below. Each executive officer holds office until his death,
resignation or removal or until his successor is duly elected and qualified.
NAME AGE POSITION
Gareth Roberts 44 President and Chief Executive Officer
Phil Rykhoek 40 Chief Financial Officer and Secretary
Mark Worthey 39 Vice President, Operations
Matthew Deso 43 Vice President, Exploration
Set forth below is a description of the business experience of each of the
executive officers.
Gareth Roberts - President, Chief Executive Officer and Director, is the
founder and President of Denbury Management, Inc. which was founded in April
1990. Mr. Roberts has more than 20 years of experience in the exploration and
development of oil and natural gas properties with Texaco, Inc., Murphy Oil
Corporation and Coho Resources, Inc. His expertise is particularly focused in
the Gulf Coast Region where he specializes in the acquisition and development of
old fields with low productivity. Mr. Roberts holds honors and masters degrees
in Geology and Geophysics from St. Edmund Hall, Oxford University.
Phil Rykhoek - Chief Financial Officer, a Certified Public Accountant, joined
the Corporation and was appointed to the position of Chief Financial Officer and
Secretary in June 1995. Prior to joining the Corporation, Mr. Rykhoek was
Executive Vice President and co-founder of Petroleum Financial, Inc., a company
formed in May 1991 to provide oil and natural gas accounting services on a
contract basis to other entities. From 1982 to 1991 (except for 1986), Mr.
Rykhoek was employed by Amerac Energy Corporation (formerly Wolverine
Exploration Company), most recently as Vice President and Chief Accounting
Officer. He retained his officer status during his tenure at Petroleum
Financial, Inc.
Matthew Deso - Vice President, Exploration, has been with Denbury
Management, Inc. since October 1990, first as a consultant then, when he moved
to Dallas in January 1994, as Vice President of Exploration. Mr. Deso has twenty
years of petroleum geology experience, and received a Bachelor of Science in
Geosciences from the University of Texas in 1976. Mr. Deso also worked for
Enserch Exploration (three years), Terra Resources (three years) and TXO
Production Corp. (eight years) in positions of varying responsibility.
Mark A. Worthey - Vice President, Operations, is a geologist and is
responsible for all aspects of operations in the field. He joined Denbury
Management, Inc. in September 1992. Previously he was with Coho Resources, Inc.
as an exploitation manager, beginning his employment there in 1985. Mr. Worthey
graduated from Mississippi State University with a Bachelor of Science degree in
petroleum geology in 1984.
STATEMENT OF EXECUTIVE COMPENSATION
For the purpose of reporting executive remuneration paid in 1996, there
were four individuals employed as executive officers of the Corporation during
the year. The aggregate cash compensation paid to these executive officers by
the Corporation and its subsidiaries for services rendered during fiscal 1996
was $614,744.
SUMMARY COMPENSATION TABLE
The following table sets out a summary of executive compensation for the
President and Chief Executive Officer of the Corporation and the Corporation's
next three most highly compensated executive officers for each of the
Corporation's last three completed financial years (collectively the "Named
Executive Officers").
5
<PAGE>
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (1) Long Term Compensation
--------------------------------------- -------------------------
Other Common Shares Under
Name and Principal Position Year Salary Bonuses Compensation (2) Option/SARs Granted
--------------------------- ---- -------- ------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
Gareth Roberts 1996 $172,917 $25,865 $12,401 25,000
President and Chief Executive 1995 150,000 2,885 525 Nil
Officer 1994 150,000 Nil Nil Nil
Phil Rykhoek 1996 $122,917 $12,404 $5,976 31,250
Chief Financial Officer and 1995 55,682 1,923 Nil 50,000
Secretary(3) 1994 Nil Nil Nil Nil
Mark Worthey 1996 $122,917 $17,404 $8,438 12,500
Vice President, Operations 1995 100,000 1,923 Nil Nil
Denbury Management, Inc. 1994 89,000 4,000 Nil 5,000
Matthew Deso 1996 $122,917 $17,404 $8,438 12,500
Vice President, Exploration 1995 100,000 1,923 Nil 5,000
Denbury Management, Inc. 1994 89,000 4,000 Nil 12,500
<FN>
(1) The aggregate amount of all other annual compensation as defined by
applicable securities regulations was not greater than the lesser of
$10,000 and 10% of the total annual salary and bonus of each Named
Executive Officer for each financial year.
(2) Includes stock purchase plan contributions by the Corporation and car
allowances.
(3) Mr. Rykhoek joined Denbury on June 12, 1995 and was appointed Chief
Financial Officer and Secretary on June 30, 1995.
</FN>
</TABLE>
Stock Options
The Corporation has an employee stock option plan (the "Plan") pursuant
to which stock options may be granted to full and part-time employees, officers
and directors of the Corporation and its subsidiaries, from time to time, as the
board of directors of the Corporation may determine. The Plan allows the
granting of either non-qualified or incentive stock options. Under the terms of
the Plan, the number of Common Shares reserved for future issuance may not
exceed 2,000,000 Common Shares, subject to shareholder ratification by Ordinary
Resolution at this meeting. See "Business to Be Conducted at The Meeting -
Amendment to Stock Option Plan". The term of options granted under the Plan are
determined by the board of directors provided that no option may be granted for
a period exceeding 10 years from the date of the grant, or such lesser period of
time as permitted, from time to time, by the applicable rules of The Toronto
Stock Exchange (the "TSE"). The purchase price of any shares subject to option
under the Plan is fixed by the board of directors but may not be less than the
lowest purchase price permitted under the rules of TSE or NASDAQ. All option
agreements granted under the Plan must be in accordance with the policies and
procedures of the TSE and NASDAQ.
As of December 31, 1996, options granted pursuant to the Plan were
incentive stock options representing rights to acquire an aggregate 634,250
Common Shares held by four officers and thirty-four employees and non-qualified
stock options representing rights to acquire an aggregate 418,750 Common Shares
held by one director, one officer/director, three officers, fourteen employees
and one other individual. These options are exercisable at prices ranging from
$3.65 to $14.87, with a weighted average price of $7.63. Of the total
outstanding, 532,375 options were exercisable as of December 31, 1996. The
Corporation granted 525,500 options during 1996.
OPTION GRANTS IN LAST FISCAL YEAR
The following table represents the options granted to the Named
Executive Officers during 1996 and the value of such options as of the date of
grant:
6
<PAGE>
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------
% OF
TOTAL OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS EMPLOYEES IN PRICE EXPIRATION GRANT DATE
NAME GRANTED # FISCAL YEAR ($/SH) DATE (1) PRESENT VALUE $ (2)
- ---- ---------- ----------- ------ --------- -------------------
<S> <C> <C> <C> <C> <C>
Gareth Roberts 25,000 (3) 5% $7.00 2/22/06 56,500
Phil Rykhoek 12,500 (3) 2% $7.00 2/22/06 28,250
18,750 (4) 4% $7.48 3/29/06 46,125
Mark Worthey 12,500 (3) 2% $7.00 2/22/06 28,250
Matthew Deso 12,500 (3) 2% $7.00 2/22/06 28,250
<FN>
(1) All of the granted options have a ten year term.
(2) Calculated in accordance with the Black-Scholes option pricing model,
using the following assumptions; expected volatility computed using, as
of the date of grant, the prior three year monthly average of the Common
Shares as listed on the TSE, which was 39%; expected dividend yield -
0%; expected option term - 3 years; and risk-free rate of return as of
the date of grant which ranged from 5.3% to 5.7%, based on the yield of
five year U.S. treasury securities.
(3) The options vest in their entirety three (3) years from the date of
grant with no vesting prior thereto.
(4) The options vest in installments of 25% six months from the date of
grant, 25% one year from the date of grant, 25% two years from the date
of grant, and 25% three years from the date of grant.
</FN>
</TABLE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the Named
Executive Officers concerning options exercised during 1996 and unexercised
options held as of December 31, 1996.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
VALUE OF UNEXERCISED IN-THE
SHARES VALUE NUMBER OF UNEXERCISED MONEY
ACQUIRED ON REALIZED OPTIONS AT OPTIONS AT FISCAL
EXERCISE (#) ($) (1) FISCAL YEAR-END # YEAR-END ($)(2)
------------- ----------- -------------------------------- --------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gareth Roberts - - 27,750 25,000 $ 255,994 $ 190,624
Phil Rykhoek 28,750 $ 66,847 13,438 39,062 109,386 304,351
Mark Worthey - - 73,250 12,500 541,576 95,313
Mark Deso - - 62,500 12,500 475,713 95,313
<FN>
(1) Aggregate value realized is calculated based upon the difference between
the exercise price of the options and the closing price of the Common
Shares on NASDAQ on the date of exercise. Canadian currencies were
converted to U.S. funds using the current exchange rate at the time of
exercise.
(2) Based on the closing sale price of the Common Shares on December 30,
1996, of $14.625 per share as reported by NASDAQ. A conversion exchange
rate of Cdn. $1.37 = U.S. $1.00 was assumed in the calculation as
certain of the options are denominated in Canadian dollars.
</FN>
</TABLE>
7
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, the compensation committee of the Corporation consisted of
Messrs. Ronald Greene, Martin Fortier and William Price, III, all independent
directors. Mr. Fortier resigned from the Board of Directors on August 30, 1996.
To the Corporation's knowledge, there are no inter-relationships involving
members of the Compensation Committee or other directors of the Corporation
requiring disclosure in this section of the Information Circular.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation committee of the Board of Directors (the "Committee")
is responsible for making recommendations to the Board of Directors regarding
the general compensation policies of the Corporation, the compensation plans and
specific compensation levels for officers and certain other managers and
administers, along with the specific stock option and stock purchase plan
committees, the Corporation's stock option and stock purchase plans for all
employees.
The basic policy adopted by the Board of Directors is to ensure that
salary levels and compensation incentives are designed to attract and retain
qualified individuals in key positions and are commensurate with the level of
executive responsibility, the type and scope of the Corporation's operations,
and the Corporation's financial condition and performance. The overall
compensation philosophy is (i) that the Corporation pay base salaries which are
high enough to attract good people, around the median salaries of comparable
companies, (ii) that the main focus of compensation be in long-term incentives,
(iii) that all employees be encouraged to be shareholders, and (iv) that all
employees be compensated for team effort rather than individual performance. The
components of this philosophy consist of (i) competitive base salaries, (ii) a
stock purchase plan for all employees, (iii) stock options for the
professionals, (iv) a profit sharing plan or bonus plan for all employees with
bonuses ranging from zero to ten percent of base salaries, and (v) a profit
sharing or bonus plan for the senior professional group.
In determining both salary and other compensation, the Committee weighs
individual performance, corporate overall performance, the executive's position
and responsibility in the organization, the executive's experience and expertise
and compensation for comparable positions at comparable companies. In making
recommendations, the Committee exercises subjective judgement using no specific
weights for these factors and also relies heavily on the recommendation of the
Chief Executive Officer with regard to individual performance.
Stock options are awarded to senior executives and key employees to
retain and motivate the grantees and to improve long-term company performance by
making executive rewards consistent with that of all shareholders. Options are
granted at the prevailing market price and will only have value if the market
price of the Common Shares increases. These options are structured to provide
incentives for key employees to remain with the Corporation and provide a
mechanism for these individuals to benefit from improvements in the performance
of the Corporation. Commencing in 1997, the Corporation modified the option
program for its key employees to have options vesting each year for the next
three to four years. Options granted at the time of employment vest ratably over
a period of four years, with additional option grants each year thereafter which
vest four years from the date of grant. The initial program which began in
August 1995 when the Corporation adopted its current stock option plan (the
"Plan") had a similar structure but was designed to vest over a three year
period vs. a four year period. To make the transition to a four year program, on
February 21, 1997 the Compensation Committee and Board of Directors granted two
series of options to its key employees with one series vesting 100% at the end
of three years and one series vesting 100% at the end of four years with the
intention of making all future option grants to existing employees four year
options. All of the options granted under the Plan expire ten years from the
date of grant.
To encourage ownership in the Corporation by all of the employees, the
Corporation has a stock purchase plan which allows each employee to contribute
up to 10% of their base compensation with the Corporation matching 75% of such
contributions. The combined funds are used at the end of each quarter to
purchase previously unissued shares at the current market price. The stock
purchase plan requires each employee to hold these shares for a minimum of one
year before disposition.
8
<PAGE>
During 1996, the Corporation achieved outstanding financial results as a
result of increased production and improved product prices with dramatic
improvement in almost all statistical categories. Production, on a BOE basis,
increased by 94% and cash flow from operations increased 263% from the prior
year. Net income increased over tenfold from $714,000 during 1995 to $8.7
million during 1996 and the proven reserves, on a BOE basis, increased by 91%
from 1995 to 1996. Based upon these overall results, in February, 1997, the
Compensation Committee awarded a bonus equal to 10% of base compensation to all
employees, after certain adjustments for tenure. In addition, the Compensation
Committee awarded approximately $230,000 of additional bonuses primarily to the
senior management. A total bonus of $35,000 was awarded to the CEO by the Board.
Consistent with the above policies and objectives, the base annual
salary for Mr. Gareth Roberts, President and CEO of the Corporation, was
increased in February, 1997 from $175,000 to $200,000. Consistent with the
philosophy of the Board of Directors that executive officers have their main
focus of compensation in the area of long-term incentives, the Corporation
awarded an additional 676,200 stock options in February, 1997 to employees of
the Corporation with one-half vesting in three years and one-half vesting in
four years. Of those option grants, 40,000 stock options were awarded to Mr.
Roberts and a total of 128,000 options were awarded to the Named Executive
Officers as a group.
The foregoing report has been furnished by the following members of the
Committee. None of the Committee members are former or current officers of the
Corporation or any of its subsidiaries, nor has any member of the Committee had
any Compensation Committee Interlocks during the year.
The Compensation Committee
William Price, III
Ronald Greene
TERMINATION OF EMPLOYMENT, CHANGE IN RESPONSIBILITIES AND EMPLOYMENT CONTRACTS
The Corporation has no Employment Contracts with any employees as at
December 31, 1996.
DIRECTORS AND OFFICERS INSURANCE
During 1996, the Corporation renewed its directors and officers
insurance coverage for all of its officers and directors at an annual cost of
$167,000. The insurance provides up to $10 million of coverage for the officers
and directors with deductibles ranging from zero to $350,000, depending on the
type of claim, and $10 million coverage for the Corporation with a 25%
co-insurance provision. The Corporation has paid for 100% of the cost of this
insurance.
BOARD MEETINGS, ATTENDANCE AND COMMITTEES
The Board of Directors met nine times during the year ended December 31,
1996, including the meetings by way of telephone conference. All incumbent
directors, except for Mr. Bonderman, attended at least 75% of the meetings. The
Board took all other actions by unanimous written consent during 1996. In
addition, all directors attended at least 75% of all meetings of each of the
committees on which they served. Mr. Martin Fortier served on the Compensation
Committee and Stock Purchase Plan Committee until his resignation on August 30,
1996.
The Board of Directors has an Audit Committee, a Compensation Committee,
a Stock Option Committee and a Stock Purchase Plan Committee. The Audit
Committee is comprised of Messrs. Greene, Stanton and Wettstein, with Mr.
Wettstein acting as Chairman. The Audit Committee is responsible for reviewing
the scope and audit plan of the independent auditors' examinations of the
Corporation's financial statements and receiving and reviewing their reports.
The Audit Committee reviews fees and non-audit engagements of the independent
accountants and each year recommends to the Board their selection of the firm of
independent accountants to audit the accounts and records of
9
<PAGE>
the Corporation. The Audit Committee also meets with the independent auditor,
conducts internal audits and investigations, receives recommendations or
suggestions for changes in accounting procedures, and initiates or supervises
any special investigations it may choose to undertake. The Audit Committee met
three times during 1996.
The Compensation Committee is comprised of Messrs. Greene and Price,
with Mr. Price acting as its Chairman. The Compensation Committee makes
recommendations to the Corporation's Board of Directors with respect to the
nature and amount of all compensation of the Corporation's officers, reviews the
benefit plans of the Corporation, including reports from the Corporation's Stock
Option Plan and Stock Purchase Plan Committees and the Corporation's health and
other benefit plans, and will at least annually prepare a compensation report in
accordance with the rules and regulations promulgated under applicable
securities laws. The Compensation Committee met once during 1996.
The Board also appointed a Stock Option Plan Committee and a Stock
Purchase Plan Committee in December, 1995 to administer the two respective
benefit plans and to report and coordinate their efforts with the Compensation
Committee. The Stock Option Committee and Stock Purchase Plan Committee is
comprised of Messrs. Greene and Price, with Mr. Greene acting as its Chairman.
These committees met as part of the Compensation Committee during 1996.
COMPENSATION OF DIRECTORS
Information regarding the compensation received, including options, from
the Corporation during the fiscal year ended December 31, 1996 by Mr. Roberts,
President, Chief Executive Officer and a director of the Corporation, is
disclosed under the heading "STATEMENT OF EXECUTIVE COMPENSATION - Summary
Compensation Table".
DIRECTORS FEES
The Corporation reimburses the Directors of the Corporation for
out-of-pocket traveling expenses in connection with each board meeting attended.
There are no other arrangements in respect of which Directors of the Corporation
receive monetary compensation for acting in that capacity.
DIRECTORS OPTIONS
Two of the directors have been granted options pursuant to the Stock
Option Plan. For details regarding the Stock Option Plan see "STATEMENT OF
EXECUTIVE COMPENSATION - Stock Options".
During 1996, Mr. Roberts was granted a total of 25,000 options with an
exercise price equal to the then current market price of U.S. $7.00. No other
options were issued to directors in 1996.
The following table shows the aggregate number of options exercised, the
value realized upon exercise of the options, the number of unexercised options
held at year end and the year end value of the unexercised options for options
held by directors of the Corporation other than Mr. Roberts. The options held by
Mr. Roberts are disclosed under the heading "STATEMENT OF EXECUTIVE
COMPENSATION"
<TABLE>
<CAPTION>
AGGREGATED SHARE OPTION EXERCISES IN THE 1996
FISCAL YEAR AND
YEAR-END OPTION VALUES FOR OPTIONS HELD BY DIRECTORS
COMMON
SHARES
ACQUIRED ON AGGREGATE VALUE NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
NAME EXERCISE REALIZED (1) OPTIONS AT YEAR-END MONEY OPTIONS AT YEAR-END(2)
--------------- ---------------- --------------------------- ------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Wieland Wettstein 14,925 $ 137,130 18,000 Nil $ 166,050 Nil
<FN>
(1) Aggregate value realized is calculated based upon the difference between
the exercise price of the options and the closing price of the Common
Shares on NASDAQ on the date of exercise. Currencies were converted
using the current exchange rate at the time of exercise.
2) Value is calculated based upon the difference between the exercise price
of the options and the closing price of the Common Shares on NASDAQ on
December 30, 1995 of $14.625. A conversion exchange rate of Cdn.
$1.37 = U.S. $1.00 was assumed in the calculation as these options are
denominated in Canadian dollars.
</FN>
</TABLE>
10
<PAGE>
SHARE PERFORMANCE GRAPH
The following graph illustrates changes over the five year period ended
December 31, 1996 in cumulative total shareholder return, assuming an initial
investment of $100 on December 31, 1991 and reinvestment of dividends as
measured against cumulative total return of the TSE 300 Index and the TSE Oil
and Gas Index. Since the Corporation has only been traded on NASDAQ since August
25, 1995, the Corporation used the share performance on the TSE for its
comparison.
CUMULATIVE TOTAL RETURN ON $100 INVESTMENT
(DECEMBER 31, 1991 - DECEMBER 31, 1996)
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
DENBURY $ 100 $ 430 $ 527 $ 521 $ 570 $ 1,389
TSE 300 100 95 123 120 134 169
TSE OIL & GAS INDEX 100 104 138 128 148 202
</TABLE>
11
<PAGE>
COMPLIANCE WITH SECTION 16(A)
Section 16(a) of the Securities Exchange Act of 1934 and the rules
thereunder require the Corporation's executive officers and directors, and
persons who own more than ten percent (10%) of a registered class of the
Corporation's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and exchanges on which the
securities of the Corporation are listed and posted for trading and to furnish
the Corporation with copies. The Corporation first became subject to Section
16(a) on December 21, 1995. Based solely on its review of the copies of such
forms received by it, or written representations from such persons, the
Corporation is not aware of any person who failed to file any reports required
by Section 16(a) to be filed for fiscal 1996 except for a late filing of Form 3
by Mr. David Bonderman after he first became a director on May 15, 1996.
INTERESTS OF INSIDERS IN MATERIAL TRANSACTIONS
Other than as described in the paragraphs that follow, there are no
material interests, direct or indirect, of any director, officer or any
shareholder of the Corporation who beneficially owns, directly or indirectly, or
exercises control or direction over more than 5% of the outstanding Common
Shares, or any known family member, associate or affiliate of such persons, in
any transaction within the last three years or in any proposed transaction that
has materially affected or would materially affect the Corporation, or any of
its subsidiaries. The Corporation believes that the terms of the transactions
described below were as favorable to the Corporation as terms that reasonably
could have been obtained from non-affiliated third parties.
TPG Placement
In December 1995, the Corporation closed a $40.0 million private
placement of securities with partnerships that are affiliated with TPG (the "TPG
Placement"). The TPG Placement was comprised of: (i) 4.2 million Common Shares
issued at $5.85 per share; (ii) 625,000 warrants at a price of $1.00 per
warrant, entitling the holder to purchase 625,000 Common Shares at $7.40 per
share; and (iii) 1.5 million shares of $10 stated value Convertible First
Preferred Shares, Series A ("Convertible Preferred"). The shareholders of the
Corporation at a Special Meeting on October 9, 1996 approved a resolution to
amend the terms of the Convertible Preferred which allow the Corporation to
require a conversion of the Convertible Preferred at any time. All of the
Convertible Preferred shares were converted into 2,816,372 Common Shares on
October 30, 1996. The Corporation may also force conversion of the warrants
after December 21, 1997, if the price of the Common Shares exceeds $10.00 per
share for a period of 40 consecutive trading days. As of December 31, 1996, TPG
is the beneficial owner of 8,403,038 Common Shares, which represents 40.6% of
the outstanding Common Shares. See "Security Ownership of Certain Beneficial
Owners and Management."
In connection with the TPG Placement, TPG received the right to nominate
three of the directors of the Corporation out of a maximum of seven. Of the
current nominees for director, Messrs. Bonderman, Price and Stanton were
nominated by TPG. See "Management - Executive Officers and Directors." In
addition, until December 21, 1997, TPG has certain "piggyback" registration
rights which allow TPG to include all or part of the Common Shares acquired by
TPG in any registration statement of the Corporation during that period.
Commencing December 21, 1997 and until December 21, 2000, TPG may request and
receive one demand registration whereby TPG may make a written request to the
Corporation for registration under the Securities Act of the Common Shares
acquired by TPG. Finally, the agreement provides that TPG shall have the right,
but not the obligation, to maintain its pro rata ownership interest (after the
assumed exercise of its warrants and Convertible Preferred) in the equity
securities of the Corporation, in the event that the Corporation issues any
additional equity securities or securities convertible into Common Shares of the
Corporation, by purchasing additional shares of the Corporation on the same
terms and conditions. This right, however, expires should TPG's share holdings
represent less than 20% of the outstanding Common Shares. TPG waived its
registration rights and its right to maintain its pro rata ownership with regard
to the public offering by the Corporation in October, 1996, but did purchase
800,000 Common Shares included in the offering directly from the Corporation.
These shares were sold for 93.5% of the public offering price, or the same net
price that the remainder of the shares included in the offering were being sold
to the underwriters.
12
<PAGE>
The Corporation issued 333,333 Common Shares to Tortuga Investment Corp.
as a financial advisory fee for its services in connection with the TPG
Placement. Tortuga Investment Corp. is a corporation wholly-owned by Mr. Ronald
Greene, currently Chairman of the Board of Directors. Mr. Greene was not a
director of the Corporation, nor had he held any director or officer position
with the Corporation prior to the time of the issuance of such Common Shares.
Modification of Debentures
In addition to modifying the terms of the Convertible Preferred at the
special meeting of the shareholders on October 9, 1996, the shareholders
approved the issuance of 7,948 Common Shares in lieu of interest, plus an
additional 308,642 Common Shares for the principal amount to redeem the
outstanding 9.5% Convertible Debentures (the "Debentures") in accordance with
their existing terms. Mr. Ronald G. Greene, Chairman of the Board of Directors,
owned 80% of the Debentures which were purchased by him at market value prior to
his election to the Board of Directors. These Debentures were redeemed on
October 15, 1996. Mr. Greene also purchased Cdn. $1,500,000 of 6 3/4%
Convertible Debentures at market value prior to his election to the Board of
Directors that were converted into 187,500 Common Shares on July 31, 1996 in
accordance with the terms of the 6 3/4% Convertible Debentures.
Purchase of Working Interests
In May 1996, the Corporation purchased oil and natural gas working
interests from four employees for an aggregate consideration of $387,000, which
included $158,000 paid to Mr. Matthew Deso, Vice President of Exploration of the
Corporation, $133,000 paid to Mr. Mark Worthey, Vice President of Operations of
the Corporation and $26,000 paid to the spouse of Mr. Gareth Roberts, President
of the Corporation. The purchase prices were determined by the Corporation based
on the present value of the estimated future net revenue to be generated from
the estimated proved reserves of the properties using a 15% discount rate. The
acquisition was for additional working interests in properties in which the
Corporation also holds an interest. To the best of the Corporation's knowledge,
none of the Corporation's officers or directors have any remaining interests in
properties owned by the Corporation.
INDEBTEDNESS OF DIRECTORS AND SENIOR OFFICERS
Management of the Corporation is not aware of any indebtedness
outstanding by directors or senior officers of the Corporation to the
Corporation or its subsidiaries at any time during the year ended December 31,
1996.
CORPORATE GOVERNANCE
The Toronto Stock Exchange Committee on Corporate Governance in Canada
recently issued a series of proposed guidelines for effective corporate
governance (the "TSE Report"). The guidelines address matters such as the
constitution and independence of corporate boards, the functions to be performed
by boards and their committees and the effectiveness and the education of board
members. The Toronto Stock Exchange (the "TSE") has adopted as a listing
requirement the disclosure by each listed corporation, on an annual basis, of
its approach to corporate governance with reference to the guidelines contained
in the TSE Report.
The following describes the Corporation's approach to corporate
governance in relation to the guidelines contained in the TSE Report.
COMPOSITION OF THE BOARD
The Board has determined that of its six (6) director nominees, five (5)
are unrelated directors as that expression is defined in the TSE Report. The
sole related director is the President and CEO. In addition, two (2) of its six
(6) director nominees do not have interests in or relationships with either the
Corporation or its largest shareholder, TPG. Although TPG is not considered a
significant shareholder as defined by the TSE Report, they are
13
<PAGE>
the beneficial owner of 40.6% of the outstanding Common Shares (assuming
exercise of the Common Share Purchase Warrants beneficially owned by TPG) and as
such is the Corporation's largest single shareholder (see "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT"). The Corporation believes that such
representation fairly reflects the investment in the Corporation by
shareholders. The Chairman of the Board is not a member of management of the
Corporation.
COMMITTEES OF THE BOARD
The Board has appointed four different committees, the Audit Committee,
the Compensation Committee, the Stock Option Plan Committee and the Stock
Purchase Plan Committee. All of these committees are composed entirely of
unrelated directors. For a description of the duties of such committees, see,
"BOARD MEETINGS, ATTENDANCE AND COMMITTEES".
MANDATE AND RESPONSIBILITY OF THE BOARD
Under its statutory mandate, the Board is responsible for management of
the business and affairs of the Corporation and in addition has assumed
responsibility for certain key matters. In the area of strategic planning, the
management of the Corporation provides an operational analysis of the
Corporation to the Board on a regular basis. In connection therewith, the board
discusses various strategic planning matters and identifies business risks
associated with the activities of the Corporation, as it considers appropriate,
including an analysis and discussion of whether these systems and techniques
proposed by management to manage the risks are adequate.
In accordance with its legal mandate, the Board takes responsibility for
recruiting those members of senior management who become officers of the
Corporation. Currently the officers are as described under "EXECUTIVE OFFICERS".
Through its Compensation Committee, the Board reviews all appointments to the
senior management team. The Compensation Committee also has responsibility for
assessing the requirements and performance, on an overview basis, of the
President and CEO and the senior management team in order to set salaries and
approve bonus awards for performance.
The Corporation currently communicates with investors and shareholders
through various channels. Examples include, annual and quarterly reports, news
releases, briefing sessions, analyst meetings and group meetings. During 1996,
the Corporation adopted a formal communications and insider trading policy.
The Board through its Audit Committee assumes responsibility for the
integrity of the Corporation's internal control and management information
systems. The Audit Committee meets with the external auditors to discuss the
results of the annual audit which includes, in accordance with generally
accepted auditing standards, a review of the Corporation's financial systems and
related internal controls. This committee also discusses with management and
with the independent auditors all significant accounting matters. In addition,
the Board regularly reviews the Corporation's development programs, budgets,
projected cash flows and other financial reports.
The Corporation allows any member of the Board to engage an outside
advisor at the expense of the Corporation in appropriate circumstances.
DECISIONS REQUIRING PRIOR APPROVAL BY THE BOARD
The Board has delegated to the CEO and senior management the
responsibility for day to day management of the business of the Corporation,
subject to compliance with the plans approved from time to time by the Board.
The Board retains responsibility for significant changes in the Corporation's
affairs such as approval of major capital expenditures, debt refinancing
arrangements, equity offerings and significant acquisitions and divestitures. As
mandated by the Corporation's Articles of Continuance, certain matters of a
significant nature require a 2/3rds majority vote of the Board.
14
<PAGE>
RECRUITMENT OF NEW DIRECTORS AND ASSESSMENT OF BOARD PERFORMANCE
The Board does not formally review individual board members or committee
members and their contributions. Although the Corporation does not have a formal
process of orientation or education for new members of the board, senior
management and the other directors spend a significant amount of time with new
directors to help them become acquainted with the Corporation. This includes
reviewing financial reports, projections, budgets, geological data and other
items.
As all Board members are significant shareholders or represent
significant shareholders of the Corporation, the Corporation does not pay any
compensation to its directors, other than to reimburse them for out of pocket
expenses that they incur in their duties as a Board member. The Corporation
believes that each Board member's Common Share ownership should be sufficient
compensation and motivation to perform their duties as a Board member.
SHAREHOLDER FEEDBACK AND CONCERNS
The Corporation communicates regularly with its shareholders and the
President and CEO spends a significant portion of his time in shareholder
relations, as do other directors and senior management to a lesser degree. This
includes published communications, meetings with investors, analysts, and
investment fund managers with respect to financial results and other
announcements of the Corporation, as well as meetings with individual investors
and shareholders. Any shareholder concerns are reported regularly to the Board.
EXPECTATIONS OF MANAGEMENT
As part of the Corporation's annual budgeting process, the Board's
expectations of management over the next year are approved and specified. The
President and CEO and other members of senior management review the
Corporation's progress at board and committee meetings, which are normally held
every quarter. These reviews report on strategic, operational and financial
issues facing the Corporation.
The Board believes that the board and its committees carry out effective
governance of the Corporation's affairs. The Board will continue to review the
Corporations governance practices, particularly in relation to the TSE Report
and will make changes as required.
BUSINESS TO BE CONDUCTED AT THE MEETING
RECEIPT OF THE CONSOLIDATED FINANCIAL STATEMENTS AND AUDITORS' REPORT
At the Meeting, shareholders will receive and consider the consolidated
financial statements of Denbury for the year ended December 31, 1996 and the
auditors' report thereon, but no vote by the shareholders with respect thereto
is required or proposed to be taken.
ELECTION OF DIRECTORS
The Articles of Incorporation of Denbury provide that the board of
directors shall consist of a minimum of three (3) and a maximum of fifteen (15)
directors. Each of the directors are to be elected annually and each shall hold
office until the close of the next annual meeting of shareholders or until he
ceases to be a director by operation of law or until his resignation becomes
effective. There are presently six (6) directors of Denbury, each of whom retire
from office at the Meeting. The Corporation currently has a vacancy on its Board
of Directors caused by the resignation of Mr. Martin Fortier on August 30, 1996.
If replaced, this vacancy will be filled by a non-TPG nominee.
Unless otherwise directed, it is the intention of management to vote
proxies in the accompanying form in favour of the election as directors of the
six (6) nominees hereinafter set forth. All six nominees are currently
15
<PAGE>
members of the board of directors. If any nominee should become unavailable or
unable to serve as a director, the proxy may be voted for a substitute selected
by persons named as proxies or the board may be reduced accordingly; however,
the board of directors is not aware of any circumstances likely to render any
nominee unavailable.
David Bonderman
Ronald G. Greene
William S. Price, III
Gareth Roberts
David M. Stanton
Wieland F. Wettstein
The names, municipalities of residence, ages, offices held, period of
time served as director and the principal occupation of each of the persons
nominated for election as directors are as follows:
<TABLE>
<CAPTION>
OFFICER
OR
NAME AND MUNICIPALITY OF OFFICES DIRECTOR
RESIDENCE AGE HELD SINCE PRINCIPAL OCCUPATION
- ------------------------------- -------- --------------------- --------- ---------------------------------------
<S> <C> <C>
Ronald Greene (1)(2) 48 Chairman and 1995 Sole Shareholder, Officer and Director
Calgary, Alberta Director of Tortuga Investment Corp.
William Price, III(2) 40 Director 1995 Managing General Partner of the Texas
San Francisco, California Pacific Group
David Stanton(1) 34 Director 1995 Managing Director of the Texas Pacific
San Francisco, California Group
Wieland Wettstein(1) 47 Director 1990 Executive Vice-President, Finex
Calgary, Alberta Financial Corporation Ltd. (a
merchant banking company)
Gareth Roberts 44 President, Chief 1992 President and Chief Executive Officer,
Dallas, Texas Executive Officer Denbury Resources Inc.
and Director
David Bonderman 54 Director 1996 Managing General Partner of the
Forth Worth, Texas Texas Pacific Group
<FN>
(1) Member of the Audit Committee.
(2) Member of the Compensation, Stock Option Plan and Stock Purchase Plan
Committees.
</FN>
</TABLE>
Directors (other than Gareth Roberts)
Ronald G. Greene - Chairman of the Board, has been a director of the Corporation
since 1995. Mr. Greene is the Founder and Chairman of the Board of Renaissance
Energy Ltd. and was CEO of Renaissance from its inception in 1974 until May
1990. He is also the sole shareholder, officer and director of Tortuga
Investment Corp., a private investment company. Mr. Greene also serves on the
board of directors of a private Western Canadian airline.
William S. Price, III has been a director of the Corporation since 1995. Mr.
Price is a co-founder and principal of the Texas Pacific Group, a private
investment firm that specializes in corporate acquisitions in a wide range of
industries. Prior to forming the Texas Pacific Group in 1992, Mr. Price was
vice-president of strategic planning and business development for G.E. Capital
and from 1985 to 1991, was employed by the management consulting firm of Bain &
Company, attaining officer status and acting as co-head of the Financial
Services Practice. Mr. Price also serves on the Board of Directors of
Continental Airlines, Inc., Continental Micronesia, Inc., Beringer Wine Estates
Company, and Vivra Heart Services.
David M. Stanton has been a director of the Corporation since 1995. Mr. Stanton
is a managing director of the Texas Pacific Group, a private investment firm
that specializes in corporate acquisitions in a wide range of industries. From
16
<PAGE>
1991 until he joined the Texas Pacific Group in 1994, Mr. Stanton was a venture
capitalist with Trinity Ventures where he specialized in information technology,
software and telecommunications investments.
Wieland F. Wettstein has been a director of the Corporation since 1990. Mr.
Wettstein is the Executive Vice-President and indirectly controls 50% of Finex
Financial Corporation Ltd., a merchant banking company in Calgary, Alberta, a
position he has held for more than five years. Mr. Wettstein serves on the board
of directors of a public oil and natural gas company, BXL Energy Ltd. and on the
board of a private technology firm.
David Bonderman became a director of the Corporation in May, 1996. Mr. Bonderman
is a co-founder and principal of the Texas Pacific Group, a private investment
firm that specializes in corporate acquisitions in a wide range of industries.
Prior to forming the Texas Pacific Group in 1992, Mr. Bonderman was the Chief
Operating Officer of the Robert M. Bass Group, Inc. (now doing business as
Keystone, Inc.), joining them in 1983. Keystone, Inc. is the personal investment
vehicle of Fort Worth, Texas-based investor, Robert M. Bass. Mr. Bonderman
serves on the boards of Continental Airlines, Inc., National Education
Corporation, Carr Realty Corporation, Bell & Howell Company, Ryanair, Limited,
Virgin Cinemas, Limited, Ducati Motors S.P.A., and Washington Mutual, Inc.
APPOINTMENT OF AUDITORS
Unless otherwise directed, it is management's intention to vote the proxies
in favour of an ordinary resolution to appoint the firm of Deloitte & Touche,
Chartered Accountants, Calgary, Alberta, to serve as auditors of Denbury until
the next annual meeting of the shareholders and to authorize the directors to
fix their remuneration as such. Deloitte & Touche have been Denbury's auditors
since January 1, 1991. A representative of Deloitte & Touche is expected to be
present at the Meeting and will be available to answer questions and will be
afforded an opportunity to make a statement if desired.
AMENDMENT TO STOCK OPTION PLAN
At a Special Meeting of Shareholders held on December 21, 1995, the
shareholders of the Corporation ratified, approved and confirmed a Stock Option
Plan made effective August 9, 1995 (the "Plan"), pursuant to which a maximum of
1,050,000 Common Shares were reserved for issuance. The Board of Directors of
the Corporation has amended the Plan to increase the number of options reserved
for future issuance under the Plan to 2,000,000, subject to shareholder and
regulatory approval. Since August 9, 1995, the following activity in the Plan
has taken place:
<TABLE>
<CAPTION>
Stock Options
Actual Stock Options Available for Reserved for
Outstanding Future Grants Issuance
--------------------- ------------------- --------------------
<S> <C> <C> <C>
Balance August 9, 1995 614,425 435,575 1,050,000
Granted 1,339,825 (1,339,825) -
Exercised (243,525) - (243,525)
Cancelled (16,750) 16,750 -
Authorized increases - 1,193,525 1,193,525
--------------------- ------------------- --------------------
Balance March 15, 1997 1,693,975 306,025 2,000,000
===================== =================== ====================
Percent of Common Shares
outstanding March 15, 1997 8.4% 1.5% 9.9%
===================== =================== ====================
</TABLE>
The Board of Directors authorized a 200,000 share increase on May 16,
1996, a 50,000 share increase on December 10, 1996 and a 943,525 share increase
on February 21, 1997, all of which are subject to shareholder and regulatory
approval, bringing the total board authorized increases to 1,193,525 since the
last Annual Meeting. If this increase is approved, the Stock Options available
for future grants under the Plan will be 306,025 Common Shares, and the maximum
number of Common Shares reserved for future issuance under the Plan will be
2,000,000 Common Shares, or approximately 1.5% and 10%, respectively, of the
issued and outstanding Common Shares as at March 15, 1997. The Board of
Directors approved this increase to ensure that there will be sufficient Stock
Options available for the previously granted options which are subject to
shareholder and regulatory approval, and for additional option
17
<PAGE>
grants which may be approved in fiscal 1997. Pursuant to the regulations of The
Toronto Stock Exchange, this increase in the Common Shares reserved for issuance
under the Plan must be approved by the Shareholders. Accordingly, at the Meeting
the following Ordinary Resolution to approve the amendment to the Denbury Stock
Option Plan will be presented:
BE IT RESOLVED, as an Ordinary Resolution of the shareholders of the
Corporation, that the Common Share Maximum under the Stock Option Plan
of the Corporation, as amended, be increased by 1,193,525 Common
Shares and that the same is hereby ratified, approved and authorized.
The foregoing resolution must be approved by a simple majority of votes
cast by Shareholders who vote in person or by proxy at the Meeting in respect of
the above resolution.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE APPROVAL OF THE
ORDINARY RESOLUTION AMENDING THE STOCK OPTION PLAN.
INTEREST OF CERTAIN PERSONS AND COMPANIES IN MATTERS
TO BE ACTED UPON
Management of the Corporation is not aware of any material interest of
any director, nominee for director, senior officer or anyone who has held office
as such since the beginning of the Corporation's last financial year or of any
associate or affiliate of any of the foregoing persons in any matter to be acted
on at the Meeting except as disclosed herein.
SHAREHOLDER PROPOSALS
Any proposals from shareholders to be presented for consideration for
inclusion in the proxy material in connection with the 1998 annual meeting of
shareholders of the Corporation must be submitted in accordance with the rules
of the SEC and received by the Secretary of the Corporation at the Corporation's
principal executive offices at 17304 Preston Rd, Suite 200, Dallas, Texas 75252,
no later than the close of business on February 1, 1998.
OTHER MATTERS
Management knows of no amendment, variation or other matters to come
before the Meeting other than the matters referred to in the Notice of Annual
and Special Meeting. However, if any other matter properly comes before the
Meeting, the accompanying proxy will be voted on such matter in accordance with
the best judgment of the person or persons voting the proxy.
All information contained in this Information Circular relating to the
occupations, affiliations and securities holdings of directors and officers of
the Corporation and their relationship and transactions with the Corporation is
based upon information received from the individual directors and officers. All
information relating to any beneficial owner of more than 5% of the Denbury
Common Shares is based upon information contained in reports filed by such owner
with the SEC.
THE CORPORATION HAS PROVIDED TO EACH PERSON WHOSE PROXY IS SOLICITED
HEREBY A COPY OF THE CORPORATION'S 1996 ANNUAL REPORT AND A COPY OF ITS ANNUAL
REPORT ON FORM 10-K (WITHOUT EXHIBITS) TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 1996.
18
<PAGE>
APPROVAL AND CERTIFICATION
The contents and sending of this Information Circular has been approved
by the directors of Denbury.
The foregoing contains no untrue statement of a material fact and does
not omit to state a material fact that is required to be stated or that is
necessary to make a statement not misleading in light of the circumstances in
which it was made.
DATED at Calgary, Alberta as of the 7th day of April, 1997.
DENBURY RESOURCES INC.
/s/ Gareth Roberts /s/ Phil Rykhoek
------------------- -----------------
Gareth Roberts Phil Rykhoek
President and Corporate Secretary and
Chief Executive Officer Chief Financial Officer
19
<PAGE>
DENBURY RESOURCES INC.
Suite 2550, 140 - 4th Avenue S.W.
Calgary, Alberta T2P 3N3
INSTRUMENT OF PROXY
ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
The undersigned shareholder of Denbury Resources Inc. ("Denbury" or the
"Corporation") hereby appoints Ronald G. Greene, Chairman of the Board of
Denbury, of the City of Calgary, in the Province of Alberta, or failing him,
Phil Rykhoek, Chief Financial Officer and Secretary of Denbury, of the City of
Dallas, in the State of Texas, or instead of either of the foregoing, _________
___________________, as proxyholder of the undersigned, with full power of
substitution, to attend, act and vote for and on behalf of the undersigned at
the Annual and Special Meeting of shareholders of Denbury (the "Meeting"), to be
held on Wednesday, May 21, 1997, at 10:00 a.m. (Calgary time) and at any
adjournment or adjournments thereof, and on every ballot that may take place in
consequence thereof, to the same extent and with the same powers as if the
undersigned were personally present at the Meeting with authority to vote at the
said proxyholder's discretion, except as otherwise specified below. All of the
matters to be acted upon at the Meeting were prepared by management of the
Corporation.
Without limiting the general powers hereby conferred, the undersigned
hereby directs the said proxyholder to vote the shares represented by this
Instrument of Proxy in the following manner:
1. FOR [ ] OR WITHHOLD FROM VOTING FOR [ ] the election of Ronald G.
Greene, David Bonderman, William S. Price, III, Gareth Roberts, David
M. Stanton and Wieland F. Wettstein as directors as specified in the
Information Circular - Proxy Statement of Denbury Dated April 1,
1997 (the "Information Circular"). If you desire to withhold authority
to vote for any individual nominee, please write that nominee's name
on the space provided below:
-----------------------------------------------------------------------
2. FOR [ ] OR WITHHOLD FROM VOTING FOR [ ] the appointment of Deloitte &
Touche, Chartered Accountants, as auditors of Denbury for the ensuing
year and the authorization of the directors to fix their remuneration
as such;
3. FOR [ ] OR AGAINST [ ] the Ordinary Resolution, in the form of the
ordinary resolution set out in the accompanying Information Circular,
to approve an increase in the number of Common Shares reserved for
issuance under the Corporation's Stock Option Plan, as amended; and
4. At the discretion of the said proxyholder, upon any amendment or
variation of the above matters or any other matter that may be properly
brought before the Meeting or any adjournment thereof in such manner as
such proxy, in such proxy's sole judgement, may determine.
THIS INSTRUMENT OF PROXY IS SOLICITED ON BEHALF OF THE MANAGEMENT OF
DENBURY. THE SHARES REPRESENTED BY THIS INSTRUMENT OF PROXY WILL, WHERE THE
SHAREHOLDER HAS SPECIFIED A CHOICE WITH RESPECT TO THE ABOVE MATTERS, BE VOTED
AS DIRECTED ABOVE, OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED FOR THE ELECTION
OF THE SIX DIRECTOR NOMINEES AND IN FAVOUR OF THE OTHER ABOVE MATTERS.
EACH SHAREHOLDER HAS THE RIGHT TO APPOINT A PROXYHOLDER, OTHER THAN THE
PERSONS DESIGNATED ABOVE, WHO NEED NOT BE A SHAREHOLDER, TO ATTEND AND TO ACT
FOR HIM AND ON HIS BEHALF AT THE MEETING. TO EXERCISE SUCH RIGHT, THE NAMES OF
THE NOMINEES OF MANAGEMENT SHOULD BE CROSSED OUT AND THE NAME OF THE
SHAREHOLDER'S APPOINTEE SHOULD BE LEGIBLY PRINTED IN THE BLANK SPACE PROVIDED.
The undersigned hereby revokes any proxies heretofore given with
respect to the undersigned's Denbury Common Shares with respect to the said
Meeting.
Dated this _____day of__________________, 1997.
-------------------------------
Shareholder's Signature
----------------------------------
Name of Shareholder (Please Print)
(See over for notes)
20
<PAGE>
NOTES:
1. If the shareholder is a corporation, its corporate seal must be affixed
or it must be signed by an officer or attorney thereof duly authorized.
2. This Instrument of Proxy must be dated and the signature hereon should
be exactly the same as the name in which the shares are registered. If
the Instrument of Proxy is undated, it shall be deemed to bear the date
on which it is mailed by the person making the solicitation.
3. Persons signing as executors, administrators, trustees, etc. should so
indicate and give their full title as such.
4. This Instrument of Proxy will not be valid and not be acted upon or
voted unless it is completed as outlined herein and delivered to the
attention of Denbury's Secretary, c/o The R-M Trust Company, Corporate
Trust Department, 600 Dome Tower, 333 - 7th Avenue S.W., Calgary,
Alberta, T2P 2Z1, Attention: Norma Blasetti or faxed to the attention
of Norma Blasetti at (403)264-2100, not less than 48 hours (excluding
Saturdays, Sundays and holidays) before the time set for the holding of
the Meeting or any adjournment thereof. A proxy is valid only at the
meeting in respect of which it is given or any adjournment(s) of that
meeting.
