As filed with the Securities and Exchange Commission on March 4, 1999
Registration No. 333-69577
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
Amendment No. 2
to
Form S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------
DENBURY RESOURCES INC.
(Exact name of Registrant as specified in its charter)
Canada 1311 Not Applicable
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification no.)
PHIL RYKHOEK, C.F.O.
Denbury Resources Inc.
17304 Preston Road, Suite 200 17304 Preston Road, Suite 200
Dallas, Texas 75252 Dallas, Texas 75252
(972) 673-2000 (972)673-2000; Facsimile:(972)673-2051
(Address and telephone number of (Name, address and telephone number of
Registrant's principal executive offices) Agent for Service)
Copies to:
DONALD W. BRODSKY
KAREN BRYANT
Jenkens & Gilchrist,
A Professional Corporation
1100 Louisiana, Suite 1800
Houston, TX 77002
(713)951-3300; Facsimile:(713)951-3314
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after (a) the effectiveness of this Registration Statement and (b)
the effective date of the continuance of Denbury Resources Inc., a Canadian
corporation, as a domestic corporation under Delaware law which, as continued
under Delaware law, is the "Registrant".
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(A), MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
Preliminary Proxy Statement/Prospectus Subject to Completion,
dated March 4, 1999
[GRAPHIC OMITTED]
DENBURY RESOURCES INC.
31,976,538 Common Shares
We are calling a special meeting of stockholders of Denbury Resources Inc.
to vote on:
o the move of our domicile from Canada to the United States as a
Delaware corporation;
o the sale of 18,552,876 of Denbury's common shares to an affiliate
of the Texas Pacific Group, referred to as "TPG," our largest
shareholder, for U.S. $100 million, or $5.39 per share; and
o the increase in the number of common shares available for
issuance under our employee stock purchase and stock option
plans.
Our common shares are listed on the New York Stock Exchange and The
Toronto Stock Exchange under the symbol "DNR."
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE __ OF THIS
DOCUMENT. You should read this entire document carefully. It explains the
proposals, particularly the move of our domicile from Canada to the United
States and the sale of common shares to TPG.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ALL OF THE
PROPOSALS. The special meeting will be held on April __, 1999 in Calgary,
Alberta. Whether or not you plan to attend the meeting, please vote and mail in
your proxy card by following the instructions on page __ under "The Meeting" and
on the proxy card.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED THESE SECURITIES OR DETERMINED IF THIS PROXY
STATEMENT/ PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
This Proxy Statement/Prospectus was first mailed to stockholders on
March __, 1999.
<PAGE>
DENBURY RESOURCES INC.
17304 PRESTON ROAD, SUITE 200
DALLAS, TEXAS 75252
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
to be held on April __, 1999
TO: THE SHAREHOLDERS OF DENBURY RESOURCES INC.
TAKE NOTICE that a Special Meeting of the shareholders of Denbury
Resources Inc., "Denbury", will be held in the Viking Room at The Calgary
Petroleum Club, 5th Avenue and 3rd Street S.W., Calgary, Alberta on ________,
the ____ day of April, 1999 at 10:00 o'clock in the morning (Calgary time) for
the following purposes:
1. To consider and vote upon a Special Resolution approving the move of
Denbury's corporate domicile from Canada to the United States as a
Delaware corporation;
2. To consider and vote upon an Ordinary Resolution granting to the board
of directors of Denbury the authority to postpone or abandon the move
of the corporate domicile from Canada to the United States, even if
approved by the shareholders, if the board of directors in its
discretion determines such move or the timing thereof not to be in
Denbury's best interests;
3. To consider and vote upon an Ordinary Resolution approving the sale of
18,552,876 common shares of Denbury to an affiliate of the Texas
Pacific Group, "TPG", Denbury's largest shareholder, for U.S.
$100,000,000 or U.S. $5.39 per share;
4. To consider and vote upon an Ordinary Resolution approving an increase
in the number of common shares reserved for issuance under Denbury's
Employee Stock Purchase Plan;
5. To consider and vote upon an Ordinary Resolution authorizing an
increase in the number of common shares reserved for issuance under
Denbury's Stock Option Plan, as amended; and
6. To transact such other businesses as may properly be brought before
the meeting or any adjournment thereof.
The text of the special and ordinary resolutions of Denbury to be
voted upon at the meeting are set forth as Exhibit "G" to the accompanying Proxy
Statement/Prospectus.
The Special Resolution approving the move of the corporate domicile of
Denbury requires the approval of at least two-thirds (2/3) of the votes cast by
Denbury's shareholders present in person or represented by proxy at the meeting.
The Ordinary Resolution approving the sale of common shares to TPG requires the
approval of a simple majority of the shareholders present in person or
represented by proxy and voting at the meeting, excluding any votes cast by TPG
or its affiliates. Each of the remaining Ordinary Resolutions to be voted upon
at the meeting require the approval of a simple majority of the shareholders
present in person or represented by proxy and voting at the meeting. THE BOARD
OF DIRECTORS OF DENBURY RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOUR OF EACH OF
THE RESOLUTIONS TO BE PUT BEFORE THE MEETING.
REGISTERED SHAREHOLDERS HAVE THE RIGHT TO DISSENT WITH RESPECT TO THE
SPECIAL RESOLUTION APPROVING THE MOVE OF DENBURY'S CORPORATE DOMICILE FROM
CANADA TO THE UNITED STATES AND, IF THE MOVE IS MADE EFFECTIVE, TO BE PAID THE
FAIR VALUE OF THEIR SHARES IN ACCORDANCE WITH THE PROVISIONS OF SECTION 190 OF
THE CANADA BUSINESS CORPORATIONS ACT. A DISSENTING SHAREHOLDER MUST SEND TO
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DENBURY A WRITTEN OBJECTION TO THE SPECIAL RESOLUTION AT OR BEFORE THE MEETING.
A SHAREHOLDER'S RIGHT TO DISSENT IS MORE PARTICULARLY DESCRIBED IN THE
ACCOMPANYING PROXY STATEMENT/PROSPECTUS AND THE TEXT OF SECTION 190 OF THE
CANADA BUSINESS CORPORATIONS ACT IS SET FORTH AS EXHIBIT "B" TO THE PROXY
STATEMENT/PROSPECTUS. FAILURE TO STRICTLY COMPLY WITH THE REQUIREMENTS SET FORTH
IN SECTION 190 OF THE CANADA BUSINESS CORPORATIONS ACT MAY RESULT IN A LOSS OF
ANY RIGHT OF DISSENT. PERSONS WHO ARE BENEFICIAL OWNERS OF COMMON SHARES
REGISTERED IN THE NAME OF A BROKER, CUSTODIAN, NOMINEE OR OTHER INTERMEDIARY WHO
WISH TO DISSENT SHOULD BE AWARE THAT ONLY THE REGISTERED HOLDERS OF SUCH SHARES
ARE ENTITLED TO DISSENT. ACCORDINGLY, A BENEFICIAL HOLDER OF COMMON SHARES OF
DENBURY DESIRING TO EXERCISE HIS OR HER RIGHT MUST MAKE ARRANGEMENTS FOR THE
COMMON SHARES BENEFICIALLY OWNED BY THEM TO BE REGISTERED IN THEIR NAME PRIOR TO
THE TIME THE WRITTEN OBJECTION IS REQUIRED TO BE SENT OR, ALTERNATIVELY, MAKE
ARRANGEMENTS FOR THE REGISTERED HOLDER OF SUCH COMMON SHARES TO DISSENT ON THEIR
BEHALF.
SHAREHOLDERS OF DENBURY WHO ARE UNABLE TO ATTEND THE MEETING IN PERSON
ARE REQUESTED TO DATE AND SIGN THE ENCLOSED INSTRUMENT OF PROXY AND TO MAIL IT
TO OR DEPOSIT IT WITH THE SECRETARY OF DENBURY, C/O CIBC MELLON TRUST COMPANY,
CORPORATE TRUST DEPARTMENT, 600 DOME TOWER, 333 - 7TH AVENUE S.W., CALGARY,
ALBERTA, T2P 2Z1. IN ORDER TO BE VALID AND ACTED UPON AT THE MEETING, FORMS OF
PROXY MUST BE RETURNED TO THE ABOVE ADDRESS NOT LESS THAN 48 HOURS, EXCLUDING
SATURDAYS, SUNDAYS AND HOLIDAYS, BEFORE THE TIME SET FOR THE HOLDING OF THE
MEETING OR ANY ADJOURNMENT THEREOF.
SHAREHOLDERS ARE CAUTIONED THAT THE USE OF THE MAIL TO TRANSMIT
PROXIES IS AT EACH SHAREHOLDER'S RISK.
The Board of Directors of Denbury has fixed the record date for the
meeting at the close of business on March __, 1999. Only shareholders of record
of Denbury as at that date are entitled to receive notice of the meeting.
Shareholders of record will be entitled to vote those shares included in the
list of shareholders entitled to vote at the meeting prepared as at the record
date, unless any such shareholder 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 April __, 1999, that the transferee's
name be included in the list of shareholders entitled to vote at the meeting, in
which case such transferee shall be entitled to vote such shares at the meeting.
DATED this ____ day of March, 1999.
BY ORDER OF THE BOARD OF
DIRECTORS
Phil Rykhoek
Chief Financial Officer and Secretary
IF YOU ARE UNABLE TO ATTEND THE MEETING IN PERSON, IT IS IMPORTANT
THAT THE ENCLOSED PROXY CARD BE SIGNED, DATED AND PROMPTLY RETURNED IN THE
ENCLOSED ENVELOPE. THIS PROXY CARD MUST BE RECEIVED AT LEAST TWO BUSINESS DAYS
BEFORE THE MEETING TO BE INCLUDED IN THE VOTE. YOU MAY VOTE BY RETURNING THE
PROXY CARD EVEN IF YOU PLAN TO ATTEND THE MEETING.
<PAGE>
TABLE OF CONTENTS
Page
QUESTIONS AND ANSWERS ABOUT
VOTING.....................................................................
SUMMARY.........................................................................
Moving the Corporate Domicile..............................................
The Move................................................................
Right to Dissent........................................................
Background to and Principal Reasons for
the Move of Corporate Domicile........................................
Differences in Shareholder Rights in Canada
and Delaware..........................................................
Income Tax Considerations of the
Move of Corporate Domicile............................................
Directors and Officers Afer the Move....................................
Stock Exchange Listings After the Move;
Recent Prices.........................................................
Granting the Board of Directors Authority to
Abandon or Postpone the Move of Domicile.................................
Sale of Shares to TPG......................................................
Increase of Authorized Shares Under Employee
Stock Purchase Plan......................................................
Increase of Authorized Shares Under Stock
Option Plan..............................................................
Intent of Management and TPG to Vote in
Favor of the Proposals...................................................
Summary Historical Condensed Consolidated
Financial Data...........................................................
RISK FACTORS....................................................................
Risks Arising Out of the Proposed Move of
Domicile.................................................................
Possibility of Taxes Being Incurred by you
or Denbury.............................................................
Effects of the Move of Domicile on
Shareholder Rights....................................................
Risks of Selling Common Shares to TPG......................................
TPG Will Become Denbury's Controlling
Shareholder............................................................
Your Ownership Will Be Diluted...........................................
Risks Inherent in an Investment in Denbury......................................
1998 Losses; Volatility of Oil and Natural Gas Prices....................
Questions About Ability to Repay Debt and Meet Debt
Covenants.............................................................
Future Acquistions May Not Be Profitable.................................
Could Be Hurt By Future TPG Sales Using
Registration Rights...................................................
THE COMPANY.....................................................................
Corporate Overview.........................................................
Recent Events..............................................................
Business Strategy..........................................................
Acquisitions of Oil and Natural Gas Properties.............................
Change to United States GAAP...............................................
THE MEETING.....................................................................
General....................................................................
Record Date................................................................
Vote Required to Approve the Proposals.....................................
Solicitation and Revocation of Proxies.....................................
Security Ownership of Certain Beneficial
Owners and Management....................................................
MOVING THE CORPORATE DOMICILE...................................................
The Move...................................................................
The Merger.................................................................
Effects of the Move of Corporate Domicile and
Merger...................................................................
Background to and Principal Reasons for the
Move of Corporate Domicile and Merger....................................
Material Canadian Federal Income Tax
Consequences of the Move of Corporate
Domicile and Merger......................................................
Material United States Federal Income Tax
Consequences to Shareholders of the Move of
Corporate Domicile and Merger............................................
Material United States Federal Income Tax
Consequences to the Company of the Move of
Corporate Domicile and Merger............................................
Comparison of Shareholders' Rights.........................................
Dissenting Shareholders' Rights..........................................
GRANTING THE BOARD OF DIRECTORS
AUTHORITY TO ABANDON OR POSTPONE
THE MOVE OF DOMICILE.......................................................
SALE OF SHARES TO TPG...........................................................
Opinion of Credit Suisse First Boston......................................
Use of Proceeds............................................................
Capitalization Adjusted For TPG Share Purchase.............................
INCREASE OF AUTHORIZED SHARES UNDER
EMPLOYEE STOCK PURCHASE PLAN...............................................
INCREASE OF AUTHORIZED SHARES UNDER
STOCK OPTION PLAN..........................................................
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MANAGEMENT......................................................................
Compensation of Directors and Officers.....................................
DESCRIPTION OF CAPITAL STOCK....................................................
Denbury Canada and Denbury Delaware Common
Stock....................................................................
Denbury Delaware Preferred Stock...........................................
NATURE OF THE TRADING MARKET....................................................
LEGAL MATTERS...................................................................
EXPERTS.........................................................................
WHERE YOU CAN FIND MORE
INFORMATION...............................................................
Available Information......................................................
Incorporation of Documents by
Reference................................................................
Forward-Looking Statements.................................................
INTERESTS OF CERTAIN PERSONS AND
COMPANIES AND MATTERS TO BE ACTED
UPON.......................................................................
OTHER MATTERS...................................................................
SERVICE AND ENFORCEMENT OF LEGAL
PROCESS....................................................................
APPROVAL AND CERTIFICATION......................................................
GLOSSARY........................................................................
EXHIBIT A - OPINION OF CREDIT SUISSE
FIRST BOSTON CORPORATION................................................A-1
EXHIBIT B - SECTION 190 OF THE CBCA..........................................B-1
EXHIBIT C - CERTIFICATE OF
DOMESTICATION...........................................................C-1
EXHIBIT D - CERTIFICATE OF
INCORPORATION...........................................................D-1
EXHIBIT E - BYLAWS...........................................................E-1
EXHIBIT F - LIQUIDITY OPINION................................................F-1
EXHIBIT G - FULL TEXT OF RESOLUTIONS.........................................G-1
FORM OF PROXY...................................................................
iv
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE VOTING
Q: Should I send in my stock certificates?
A: No, unless you are exercising your dissent rights. In that case, you should
carefully read pages __ through __ and follow those instructions.
Otherwise, you should keep your stock certificates as the move will not
require surrender of stock certificates at any time.
Q: Who is entitled to vote?
A: Shareholders as of the close of business on
the record date, March __, 1999.
Q: How do I vote? What do I need to do
now?
A: After carefully reading and considering the
information contained in this document,
please fill out and sign your proxy card.
Then mail your signed proxy card in the
enclosed prepaid return envelope as soon as
possible so that your shares will be
represented at the special meeting. Your
proxy card will instruct the persons named
on the card to vote your shares at the special
meeting as you direct on the card. If you do
not vote or you abstain on any proposal, the
effect will be a vote against that proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT
YOU VOTE IN FAVOR OF ALL OF THE PROPOSALS.
Q. May I change my vote after I have mailed my signed proxy card?
A. You may change your vote at any time before your proxy is voted at the
special meeting. You may do this in one of three ways:
o notifying the Corporate Secretary in
writing;
o voting in person at the meeting; or
o returning a later-dated proxy card.
If you choose either of the first two methods, you must submit your notice
of revocation or your new proxy card to the attention of the Corporate
Secretary at Denbury Resources Inc., 17304 Preston Road, Suite 200, Dallas,
Texas 75252.
Q: If my shares are held in "street name" by
my broker, will my broker vote my shares
for me?
A: Your broker will vote your shares only if
you provide instructions to them on how to
vote. However, brokers who hold shares as
nominees will have discretionary authority
to vote on the increase in common shares
authorized for issuance under our employee
stock purchase plan and stock option plan.
If you fail to provide instructions, your
shares will not be voted. Shares that are not
voted will not be counted in the vote totals.
Q: What vote is required for the proposals to
pass?
A: The vote required for approval varies for the
proposals:
o The proposal to move the corporate domicile must receive 2/3 of all votes
cast.
o The proposed sale of stock to TPG must be voted on by at least 50% of the
outstanding shares. TPG's shares will be included to determine whether
50% have voted, but a majority of the voting shareholders excluding TPG
must approve the proposed sale.
o The other proposals must be approved by a simple majority of the shares
voting.
Q: How will voting on any other business be
conducted?
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<PAGE>
A: If business other than the proposals described in this document is
presented at the meeting, your signed proxy card gives authority to Ronald
G. Greene, Chairman of the Board, or Phil Rykhoek, Chief Financial Officer
and Secretary, to vote on such matters at their discretion.
Q: Who can answer my questions?
A: If you have more questions about the
proposals, you should contact:
Denbury Resources Inc.
Attn: Investor Relations
17304 Preston Road., Suite 200
Dallas, Texas 75252
(972) 673-2000
2
<PAGE>
SUMMARY
This summary highlights selected information from this document and may not
contain all the information that is important to you. To better understand the
proposals, you should read this entire document carefully, as well as the
additional documents we refer you to. See "Where You Can Find More Information"
(pages __ through __). We have also included a glossary on page __ of oil and
gas related abbreviations and definitions that are used in this document. All of
the dollar amounts used in this document are expressed in U.S. dollars unless
otherwise noted.
MOVING THE CORPORATE DOMICILE
THE MOVE
We will move our corporate domicile from Canada to the United States
if shareholders approve this proposal. Specifically, Denbury will become a
Delaware corporation. To keep the Canadian and the Delaware corporations
separate in this document, we will refer to the proposed new Delaware
corporation as "Denbury Delaware" and to the existing Canadian corporation as
"Denbury Canada".
The move will happen on the same day shortly after the shareholder
meeting. Each common share of Denbury Canada will automatically become one share
of common stock of Denbury Delaware. The move itself will not change your
ownership percentage in Denbury, although there could be a slight change
resulting from shareholders who exercise their dissent rights. However, dilution
of your percentage interest of our stock will result if the sale of stock to TPG
is approved.
For example:
o If you currently own 100 common shares, then after the move you
will own 100 shares of common stock in Denbury Delaware.
o If you currently own 10% of Denbury Canada's common stock, then
after the move and sale of stock to TPG, you will own
approximately 5.9% of Denbury Delaware's common stock. Such
percentage may be slightly higher if shareholders exercise their
dissent rights and sell their shares to Denbury.
If you hold stock options or warrants to purchase our common shares,
the options will continue in existence on essentially the same terms and apply
to shares of Denbury Delaware. These changes in our legal structure will not
change our business or operations.
RIGHT TO DISSENT
Under Canadian law, you may dissent with respect to the proposal to
move the domicile of Denbury and be paid the fair value of your shares. TO
DISSENT AND BE PAID, YOU MUST FOLLOW THE PROPER PROCEDURES SET OUT ON PAGES __
THROUGH __. IF YOU DO NOT FOLLOW THE PROPER PROCEDURES, YOU WILL LOSE YOUR RIGHT
TO DISSENT. You can lose your right to dissent, for example, by:
o voting in favor of the resolution on moving Denbury's domicile;
or
3
<PAGE>
o failing to send in a dissent notice prior to the special
shareholder meeting; or
o failing to make a payment demand within a twenty-day period after
the special shareholder meeting.
To dissent, please refer to Exhibit "B" to this document and read the section
"Moving the Corporate Domicile--Comparison of Shareholders' Rights" for more
details. The board of directors may postpone or abandon the proposal to move our
corporate domicile if the holders of more than 5% of the outstanding common
shares exercise their dissent rights and request payment for the fair value of
their shares; although the board may also make such decision if it believes that
the amount anticipated to be paid as the fair value to dissenting shareholders
is likely to exceed $5 million.
BACKGROUND TO AND PRINCIPAL REASONS FOR THE MOVE OF CORPORATE DOMICILE
Our board of directors believes it is advantageous for us to move our
corporate domicile from Canada to the United States for the following reasons:
o There are Canadian withholding taxes that impose an extra cost on
some types of financial arrangements. For example, there is a
Canadian withholding tax on interest and dividend payments
transferred between the United States and Canada. This
withholding tax discourages Denbury's issuance of convertible
debt or convertible preferred stock.
o We believe that being a United States corporation will give us
more opportunities to make acquisitions. For example, United
States companies are more likely to accept common stock from us
in exchange for their oil and gas assets if we are a United
States corporation rather than a Canadian corporation. We also
anticipate that being an United States corporation will give us
better access to the United States capital markets.
o United States laws and regulations permit more flexibility on
corporate matters. For example, Canadian law requires that at
least 1/3 of our board members be Canadian residents. No similar
requirement exists in the United States. Additionally, we are
unable to take advantage of selected benefits of the North
American Free Trade Act because we are a Canadian corporation
that is more than 50% owned by United States residents. We expect
the move to save us administrative time and money in the future.
o Our financial results are prepared following Canadian accounting
rules. As a United States company, we would use United States
accounting rules. Although the United States and Canadian
accounting rules are similar, they are not quite the same. Since
we are normally compared to United States companies, it will
eliminate some confusion if we were to report our results based
on the United States accounting principles. We also believe that
the United States accounting rules are currently more favorable
in the case of mergers, which may be beneficial to us.
o All of our operations are now in the United States and almost 80%
of our shareholders are United States residents.
4
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DIFFERENCES IN SHAREHOLDER RIGHTS IN CANADA AND DELAWARE.
While many rights and privileges of stockholders of a Delaware
corporation are comparable to those of shareholders of a Canadian corporation,
there are material differences. These differences between the current charter
and bylaws of Denbury Canada and the proposed certificate of incorporation and
by-laws for Denbury Delaware, are discussed under "Moving the Corporate
Domicile-Comparison of Shareholders' Rights" and "Risk Factors--Effects of the
Move of Domicile on Shareholder Rights."
You should read this section carefully regarding these differences.
INCOME TAX CONSIDERATIONS OF THE MOVE OF CORPORATE DOMICILE
We expect the move to be tax-free to you and Denbury for both United
States and Canadian federal income tax purposes. To discuss this in greater
detail and other federal income tax considerations, we have prepared the
following summary. As summary information is by its nature less precise and
detailed, you are encouraged to carefully read the discussions under the tax
section "Moving the Corporate Domicile." In addition, although this summary and
the more detailed discussion under the tax section "Moving the Corporate
Domicile" does address the material tax considerations to shareholders and
Denbury in general, it does not address all aspects of taxation that may be
relevant to your individual circumstances. You are encouraged to consult with
your own tax advisor for information on how the move of the corporate domicile
and the merger will impact you individually based on your individual
circumstances.
This transaction may also have tax consequences to shareholders who are
neither Canadian nor United States taxpayers. If you are one of these
shareholders, you are urged to consult your own tax advisor.
TAX TREATMENT OF SHAREHOLDERS AS A RESULT OF THE MOVE OF CORPORATE
DOMICILE. We have structured the continuance and merger to be tax free for
shareholders in the United States and Canada who receive only shares of common
stock in Denbury Delaware in the deemed exchange for their common shares in
Denbury Canada. Under our proposed structure, the tax basis and holding period
of these shareholders in their new Delaware common stock will be the same as
their tax basis and holding period of their current Denbury Canada common
shares.
TAX TREATMENT OF THE COMPANY AS RESULT OF THE MOVE OF CORPORATE
DOMICILE. There are circumstances where the move of our legal domicile from
Canada to the United States could result in taxation of Denbury under either
Canadian or United States federal income tax laws. Taxation could result if
either the Canadian or United States taxing authorities determine that there is
a gain from the move. Each jurisdiction computes this differently, but based on
our valuation of the Company assets and our interpretation of the Canadian and
United States federal income tax laws, we do not believe that we will owe any
federal income tax as a result of this move in either country.
TAX TREATMENT OF THE MERGER. If the move of the corporate domicile is
approved, we plan to merge Denbury and its wholly owned subsidiary, Denbury
Management, Inc. Denbury should not recognize any gain or loss on the merger and
should have a tax basis and holding period in the assets of its subsidiary equal
to the subsidiary's tax basis and holding period in those assets before the
merger. You should not recognize any gain or loss for United States income tax
purposes on your Denbury Delaware common stock as a result of the merger.
5
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TAX TREATMENT OF DEFERRED INCOME PLANS AFTER THE MOVE OF CORPORATE
DOMICILE. After the move, our shares will still be a qualified investment for
trusts governed by registered savings plans, deferred profit sharing plans and
registered retirement income funds, as long as the shares remain listed on the
TSE, the NYSE or another prescribed stock exchange. However, following the move,
if you are a Canadian deferred income plan or similar tax-exempt entity, our
shares will be treated as foreign property. Therefore, if you hold our shares
you may be subject to certain penalty taxes. If you are a current holder of our
shares, you will have a two year grace period before these penalty taxes will
take effect.
DIRECTORS AND OFFICERS AFTER THE MOVE.
The directors and officers of Denbury Delaware will be identical to the
current directors of Denbury Canada. Additionally, after the move the
individuals who have been officers of Denbury's operating subsidiary will be
elected to a similar position with Denbury. See "Moving the Corporate Domicile -
Effects of the Move of Corporate Domicile and Merger" and "Management."
STOCK EXCHANGE LISTINGS AFTER THE MOVE; RECENT PRICES.
Our common shares are listed on the NYSE and the TSE and we plan to
maintain both listings following the move. The closing sales price of the our
common shares on March 3, 1999, was $3.8125 on the NYSE and Cdn. $6.10 on the
TSE. Please also see the section "Nature of the Trading Market."
THE BOARD RECOMMENDS THAT YOU VOTE IN FAVOR OF THE MOVE OF DOMICILE.
GRANTING THE BOARD OF DIRECTORS AUTHORITY TO
ABANDON OR POSTPONE THE MOVE OF DOMICILE
You are being asked to approve a separate proposal which grants
authority to the board of directors to postpone or abandon the move, even if
approved by the shareholders, if the board determines such a move or its timing
would not be in the best interests of you or us. The following are the two most
likely situations that could cause the board to decide to postpone or abandon
the move:
o if it appeared that there would be adverse tax consequences to our
shareholders or Denbury because of a significant increase in the
market value of Denbury between the date of this document and the
date of the move; or
o if the holders of more than 5% of the outstanding common shares
exercise their dissent rights and request payment for the fair
value of their shares; although the board may make such decision
if it believes that the amount anticipated to be paid as the fair
value to dissenting shareholders is likely to exceed $5 million.
THE BOARD RECOMMENDS THAT YOU VOTE IN FAVOR OF THIS PROPOSAL.
6
<PAGE>
SALE OF SHARES TO TPG
The third proposal asks you to approve the sale of 18,552,876 common
shares to TPG, our largest shareholder, for $100 million, or $5.39 per share. If
you approve this sale, it will take place whether or not the move does.
REQUIRED SHAREHOLDER APPROVAL. The NYSE and TSE require shareholders to
approve a substantial sale of shares to a significant shareholder. The NYSE
requires that holders of at least 50% of the outstanding shares vote on the
proposed sale. TPG's shares will be included to determine whether 50% have
voted, but a majority of the votes cast by shareholders other than TPG and its
affiliates must approve this proposal.
PURPOSE OF THE SALE OF SHARES TO TPG. The sale of shares to TPG will
raise funds for acquisitions. Because of the downturn in the United States oil
and gas industry during 1998 as a result of decreases in oil and gas prices, we
believe this is an excellent time to make attractive acquisitions. This
additional equity will give us greater flexibility to pursue such opportunities.
It is doubtful that we could make any meaningful acquisitions without this
additional equity, especially with our current debt levels.
Additionally, this stock sale improves our debt ratios.
We will initially use the estimated $98.5 million of net proceeds from
the sale to reduce our outstanding debt, although we ultimately plan to use
these funds primarily for acquisitions. Because of the low oil and gas prices
and the reduced cash flows we have scaled back our capital expenditures.
Accordingly, we do not plan to use any significant portion of these funds for
development or exploration activities.
CONFLICTS OF INTEREST AND CREATION OF THE SPECIAL TRANSACTIONS
COMMITTEE. The sale of shares to TPG is subject to a number of conflicts of
interest:
o TPG is our largest shareholder.
o Three of the officers and directors of TPG's controlling entity
are members of our board.
o TPG has historically had the right to maintain its pro rata
interest in our common shares by buying a portion of any shares
we issued on the same terms and conditions. However, this right
will terminate if this transaction is consummated.
Therefore, our board created a Special Transactions Committee, referred
to herein as the "Committee". None of the members of this Committee are members
of our management or affiliated in any way with TPG. Mr. Greene, the Chairman of
the Board and the Chairman of the Committee, and Messrs. Wettstein and Matthews,
are the members of this Committee.
NEGOTIATION OF TPG PURCHASE PRICE. The Committee negotiated the price
with TPG taking into account discussions with management and financial
information prepared by Credit Suisse First Boston Corporation, Denbury's
financial advisor. Negotiations were concluded on December 1, 1998.
FACTORS CONSIDERED BY THE SPECIAL TRANSACTIONS COMMITTEE. The factors
considered by the Committee in negotiating the sale of shares to TPG were:
o The $5.39 per share price was the midpoint of a November 24, 1998
preliminary financial analysis of our per share value prepared by
Credit Suisse First Boston.
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o The $100 million provides us with substantial funds to make
acquisitions at a time when attractive opportunities may be
available to us if we have sufficient capital. If we make
successful acquisitions, we can continue to grow. However, no
acquisitions by Denbury were proposed at the time of the purchase
agreement, and therefore, no consideration was given to any
proposed acquisitions by Denbury at the time when the sale price
of the shares was set.
o Credit Suisse First Boston has provided our board of directors
with its opinion regarding the fairness, from a financial point
of view, to Denbury of the consideration to be received for the
common shares to be sold to TPG. The full text of Credit Suisse
First Boston's opinion dated December 16, 1998 is attached to
this document as Exhibit A and should be reviewed carefully.
Credit Suisse First Boston's opinion does not constitute a
recommendation to any shareholder as to how to vote on the stock
purchase by TPG.
o The $5.39 per share price represented a 41% premium over the
closing market price for our common shares at the time of pricing
on December 1, 1998. However, there have been brief periods since
the pricing date that our common stock has traded above $5.39,
meaning the price to be paid by TPG could be a discount to market
price. Even if this were to be the case on the closing date of
the sale, the Committee still believes that the price to be paid
by TPG is fair to Denbury and is in the best interests of its
shareholders. As of March __, 1999, this price was _____% higher
than the closing market price for the common shares on the NYSE.
It should be noted that the premium was only one factor
considered by the board and was not determinative of the board's
fairness conclusions. Therefore, Denbury does not intend to
request an updated opinion from Credit Suisse First Boston, even
if our shares sell at a discount to TPG.
o The Committee considered other alternatives discussed below.
Because of TPG's current interest in Denbury, it is unlikely that
another entity would be willing to pay a premium over market
price substantially higher than the price TPG is willing to pay.
ALTERNATIVES CONSIDERED. During the course of negotiations with TPG, the
Committee considered several other alternatives:
o The first alternative would have been to sell non-voting common
stock to TPG. TPG responded that it would expect to purchase such
non-voting shares at a discount from the price paid for voting
shares. The Committee determined that it would not benefit us to
forego any premium in order to sell TPG non-voting stock since
TPG currently nominates three of seven board members and is our
largest shareholder.
o The Committee also considered seeking out other private investors
with the goal of obtaining a higher price. However, the Committee
was not confident that a better price could be obtained from
another party. TPG agreed to pay a 41% premium over the market
price at the time of pricing, December 1, 1998. The
attractiveness to another investor of making a substantial
purchase would have been substantially reduced because of TPG's
significant ownership interest in Denbury. The search for an
interested third party would have only only resulted in delays.
o The Committee also considered a rights offering to existing
shareholders. However, rights offerings are typically sold at a
discount to current market. If stock were to be offered at a
premium in a rights offering, few if any shareholders other than
TPG, would be likely to acquire additional shares. Thus, in a
rights offering, TPG would have been able to acquire control with
a smaller premium than the price you are being asked to approve.
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<PAGE>
BENEFITS TO TPG FROM THE SALE. The main benefit TPG gains from the
transaction is control of Denbury. The sale will increase TPG's ownership of our
issued and outstanding common shares from approximately 32% to approximately
60%. Currently, we do not expect this transaction to result in any changes to
our board of directors, management or operations. After the sale, TPG will be
able to control the election of directors, determine the corporate and
management policies of Denbury and effect the shareholder approval of a merger,
consolidation or sale of all or substantially all of the assets of Denbury.
FAIRNESS OF THE TRANSACTION. Given the large number of common shares
being purchased, the Committee believes that TPG is paying a fair price for the
shares, even if fluctuations in the market price ultimately could result in TPG
purchasing the shares at a discount. The transaction must also be approved by a
majority of disinterested shareholders. In addition, Credit Suisse First Boston
has issued an opinion to the board regarding the fairness, from a financial
point of view, to Denbury of the consideration to be received for the common
shares to be sold to TPG. You are urged to read this opinion, which is Exhibit
"A" to this document, in its entirety.
CONDITIONS OF THE SALE. Under the stock purchase agreement dated
December 16, 1998, the consummation of the sale is conditioned upon the
following items:
o the approval of the sale by a majority of the non-TPG
shareholders;
o the approval of the purchase price by The Toronto Stock Exchange,
which has been obtained as long as the closing is before April
23, 1999;
o the absence of a material adverse change, as that is defined,
prior to closing;
o an amendment to our existing bank agreement, which was completed
on February 19, 1999;
o the execution at closing of a registration rights agreement which
has already been negotiated and which covers all of TPG's shares;
and
o satisfaction of the other conditions.
See "Sale of Shares to TPG-Conditions of the Sale".
DISSENT RIGHTS. You will have no dissent rights in connection with the
proposed sale of shares to TPG. However, you will have dissent rights in
connection with the proposal to change our domicile from Canada to the United
States.
THE BOARD RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSED SALE OF
SHARES TO TPG. THIS SALE WILL PROVIDE NEEDED FUNDS AT A TIME WHEN OTHER CAPITAL
SOURCES ARE UNAVAILABLE. THIS WILL ENABLE US TO GROW IF IT CAN MAKE FAVORABLE
ACQUISITIONS.
INCREASE OF AUTHORIZED SHARES UNDER
EMPLOYEE STOCK PURCHASE PLAN
Approval of the fourth proposal will amend our employee stock purchase
plan by increasing the maximum number of common shares available for sale under
the plan from 250,000 shares to 750,000 shares. As of December 30, 1998, only
64,858 common shares were available for purchase under the plan. The shares to
be issued on December 31, 1998 exceeded the shares available on the plan by
22,524. As
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<PAGE>
such, the shares purchased by the employees as of December 31 will not be issued
until after shareholder approval.
THE BOARD BELIEVES THIS PLAN IS AN INTEGRAL PART OF OUR OVERALL
COMPENSATION STRATEGY AND RECOMMENDS THAT YOU VOTE FOR THE AMENDMENT.
INCREASE OF AUTHORIZED SHARES UNDER
STOCK OPTION PLAN
Approval of the fifth proposal will amend our stock option plan to
increase the maximum number of common shares reserved for issuance under the
option plan by 2,015,756 shares. On December 1, 1998, the board approved the
issuance of 1,623,912 additional stock options, subject to shareholder approval,
as of January 4, 1999, as part of their annual compensation review. As of
February 28, 1999, Denbury had approximately 3,538,718 options outstanding but
only 2,519,244 common shares approved by the shareholders and reserved for
issuance. In order to complete the issuance of stock options granted on January
4, 1999, you must ratify the board approved increase of 2,015,756 shares.
If you approve this increase and if you approve the proposed sale of
common shares to TPG, the maximum number of common shares reserved for future
issuance under the option plan will be 4,535,000 shares, or approximately 10% of
the then issued and outstanding common shares.
THE BOARD BELIEVES THE OPTION PLAN IS AN INTEGRAL PART OF OUR OVERALL
COMPENSATION STRATEGY AND RECOMMENDS THAT YOU VOTE FOR THE AMENDMENT.
INTENT OF MANAGEMENT AND TPG TO VOTE IN FAVOR OF THE PROPOSALS
As of February 28, 1999, directors and executive officers, excluding
those affiliated with TPG, controlled approximately 7% of our outstanding
shares. These directors and executive officers intend to vote in favor of all
proposals. The TPG affiliates own 33% of the outstanding common shares and have
agreed to vote in favor of the move and the proposed changes to the benefit
plans. The proposal to sell stock to TPG will require approval by a simple
majority of the shareholders voting, excluding any vote by TPG or its
affiliates.
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SUMMARY HISTORICAL CONDENSED CONSOLIDATED FINANCIAL DATA
We are providing the following financial information to aid you in your
analysis of the items to be voted upon. This information is only a summary and
you should read it in connection with our historical financial statements and
the related notes contained in the annual, quarterly and other reports and
information that we have filed with the Securities and Exchange Commission. See
"Where You Can Find More Information."
Between 1997 and 1998, the average net oil prices that we received
declined 40% and our average net natural gas prices declined 14%. As a result,
cash flow and revenues have been significantly reduced, our debt has increased,
and we had a non-cash full cost pool writedown of $280 million during 1998. We
have provided additional information about these recent events at Denbury,
including updated oil and natural gas reserve information, in the section "The
Company".
CHANGE TO U.S. GAAP. Our move of the corporate domicile to the United
States will require that we convert our financial statements to the United
States accounting rules. While the United States and Canadian rules are similar,
there are differences that have historically affected our financial statements.
During the periods shown, these differences related to the way that losses on
early extinguishment of debt, preferred dividends and computation of earnings or
losses per common share are presented. To further illustrate these changes, we
have prepared the following condensed information following both the Canadian
and United States accounting rules.
PRO FORMA EFFECT OF STOCK SALE TO TPG. We initially will use the
proceeds from the proposed sale of stock to TPG to pay down bank debt. If you
were to assume that this sale of stock had occurred as of January 1, 1998 and
the funds were used to reduce bank debt during all of 1998, our expenses and net
loss would have decreased by $7.1 million. The weighted average number of common
shares outstanding would have increased by 18,552,876 shares to an adjusted
total of 44,479,000 shares. This would have reduced the loss per share for the
year ended December 31, 1998 to $6.30 per share after taking into account the
savings on interest expense and the increased number of common shares
outstanding. This information is provided for illustrative purposes only and
does not show what the results of operations would have been had the funds
actually been received as of January 1, 1998.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1996 1997 1998
------------- ------------ -----------
Canadian GAAP: (in thousands, except per share amounts and ratios)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues.............................................. $ 53,649 $ 86,456 $ 83,506
Total expenses.............................................. 39,593 62,658 386,271
Net income (loss)........................................... 8,744 14,903 (287,145)
Net income (loss) per common share
Basic..................................................... $ 0.67 $ 0.74 $ (11.08)
Fully diluted............................................. 0.62 0.70 (11.08)
Weighted average common shares outstanding.................. 13,104 20,224 25,926
SELECTED RATIO:
Ratio of earnings to fixed charges (a)...................... 4.4 x 19.9 x (b) x
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<FN>
(a) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings from continuing operations before income
taxes, plus fixed charges. Fixed charges consist of interest expense,
amortization of debt expense, and imputed preferred stock dividends.
(b) As a result of pre-tax losses of $302,765,000 incurred for the year ended
December 31, 1998, we were unable to cover our fixed charges of
$17,758,000.
</FN>
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1996 1997 1998
----------- ----------- -----------
(in thousands, except per share amounts and ratios)
<S> <C> <C> <C>
United States GAAP:
INCOME STATEMENT DATA:
Total revenues.......................................... $ 53,649 $ 86,456 $ 83,506
Total expenses.......................................... 37,872 62,658 386,271
Extraordinary item...................................... 290 -
Net income (loss)....................................... 10,025 14,903 (287,145)
Net income (loss) attributable to
common shareholders................................. 8,744 14,903 (287,145)
Net income (loss) per common share
Basic:
Income (loss) before extraordinary item.......... $ 0.69 $ 0.74 $ (11.08)
Extraordinary item............................... (0.02) - -
----------- ----------- -----------
Net income (loss)................................ $ 0.67 $ 0.74 $ (11.08)
=========== =========== ===========
Diluted:
Income (loss) before extraordinary item $ 0.65 $ 0.70 $ (11.08)
Extraordinary item............................... (0.02) - -
----------- ----------- -----------
Net income (loss)................................ $ 0.63 $ 0.70 $ (11.08)
=========== =========== ===========
Weighted average common shares outstanding.............. 13,104 20,224 25,926
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
-------------------------------------------------
1996 1997 1998
------------- ----------- -----------
Canadian and U.S. GAAP (in thousands)
BALANCE SHEET DATA:
<S> <C> <C> <C>
Working capital......................................... $ 12,482 $ 2,692 $ 5,246
Total assets............................................ 166,505 447,548 212,859
Long-term debt, net of current maturities............... 125 240,000 225,000
Shareholders' equity (deficit).......................... 142,504 160,223 (32,265)
</TABLE>
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RISK FACTORS
You should carefully consider all information in this Proxy
Statement/Prospectus, especially the risk factors below in determining how to
vote on all the proposals.
RISKS ARISING OUT OF THE PROPOSED MOVE OF DOMICILE
The following risks address the first proposal of moving Denbury from
Canada to the United States and becoming a Delaware corporation.
POSSIBILITY OF TAXES BEING INCURRED BY YOU OR DENBURY
CANADIAN TAXES MAY BE INCURRED BY DENBURY. On the date of continuance,
Denbury will be treated as if we sold all our property and received the fair
market value for those properties. We will be taxed on any income or gain
realized on that "sale." We could be subject to an additional tax if the fair
market value of our assets, net of liabilities, exceeds the paid-up capital of
our issued and outstanding shares.
We reviewed our assets, liabilities and paid-up capital and obtained a
legal opinion from our tax advisors. We believe we will not owe any Canadian
federal income taxes as a result of the move. It is possible that the facts on
which we based our assumptions and conclusions could change before this
transaction is consummated. We have not applied to the federal tax authorities
for a ruling on this matter and do not intend to do so as it is highly unlikely
that the tax authorities would issue any ruling on this type of transaction. We
have also made certain favorable assumptions regarding the tax treatment of this
transaction. You should understand that federal tax authorities could reject our
valuations or positions and claim that we owe taxes as a result of this
transaction.
UNITED STATES TAXES MAY BE INCURRED BY YOU AND/OR DENBURY. We believe the
continuance and merger will qualify as a tax-free reorganization for us and our
shareholders. For United States residents and taxpayers, your tax basis and
holding period will not change as a result of the reorganization. We have not
asked, nor do we intend to ask, for a ruling from the IRS that the continuance
and merger will qualify as a tax-free reorganization. There is always the risk
that the IRS's interpretation of the reorganization could be unfavorable.
There is also a tax on United States shareholders if we were determined
to be a Passive Foreign Investment Corporation, known as a "PFIC". This would
cause certain United States shareholders to recognize ordinary income or loss on
the reorganization. We do not believe that this tax applies. We have not asked,
and do not intend to ask, for a ruling from the IRS addressing whether this tax
applies. In addition, we have not asked for a tax opinion as to whether each
individual shareholder would be subject to this tax. There is always the risk
that the IRS could determine that we have been a PFIC and that some shareholders
are subject to this tax. For a more detailed explanation of the tax consequences
to shareholders under the PFIC rules, read the discussion in the tax section
under "Moving the Corporate Domicile--Material United State Federal Income Tax
Consequences to Shareholders of the Move of Corporate Domicile and Merger -
Passive Foreign Investment Company Considerations."
We have not paid dividends on our common shares in the past and do not
expect to pay them in the foreseeable future. If we were to pay dividends to
non-United States shareholders, they would be subject to United States
withholding taxes. If a dividend was paid to a United States trade or business,
it would be subject to the regular United States federal income tax. You may
also be subject to "backup withholding" at rates of up to 31% on dividends or
the sale or exchange of our stock unless you are a corporation with
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certain exemptions or an individual who provides a taxpayer identification
number and certifies that you are not subject to backup withholding. If any
amount is withheld in this manner, it does serve as a credit against your United
States federal income tax liability.
IF YOU ARE A CANADIAN OR UNITED STATES SHAREHOLDER, YOU SHOULD CAREFULLY
READ THE MORE DETAILED DISCUSSIONS UNDER THE APPLICABLE TAX SECTIONS OF "MOVING
THE CORPORATE DOMICILE OF DENBURY" AND SHOULD ALSO CONSULT WITH YOUR OWN TAX
ADVISORS ABOUT THE EFFECT ON YOU INDIVIDUALLY.
EFFECTS OF THE MOVE OF DOMICILE ON SHAREHOLDER RIGHTS
After the move, you will become a shareholder of Denbury Delaware.
Currently we are incorporated in Canada and governed by Canadian law. After the
move we will be incorporated in the State of Delaware and governed by Delaware
law. We will have a new certificate of incorporation and by-laws. Your rights as
a Delaware shareholder will be different than your current rights as a
shareholder of a Canadian company. These differences are summarized below;
however, you should also read the section "Moving the Corporate Domicile of
Denbury-Comparison of Shareholders' Rights" for a more complete description of
these differences.
SMALLER MAJORITY REQUIRED TO AMEND GOVERNING DOCUMENTS OR TO APPROVE
IMPORTANT TRANSACTIONS IN DELAWARE. In Canada, amendments to the articles of
incorporation and some corporate transactions such as amalgamations,
continuances, sales, leases or exchanges of all or substantially all the assets
of a corporation, liquidations, and dissolutions usually require approval by 2/3
of the voting shareholders. Changes to the by-laws may be made by the board of
directors, subject to approval by a majority of voting shareholders.
In Delaware, amendments to the certificate of incorporation require a
vote of the board of directors followed by the affirmative vote of the holders
of a majority of the outstanding stock. If an amendment to the certificate of
incorporation alters the powers, preferences or special rights of a particular
class or series of stock and may affect them adversely, that class may also vote
on the amendment, regardless of any other normal voting rights of that class.
Important transactions require approval by shareholders who own a simple
majority of the outstanding stock. Changes to the by-laws may be made by the
shareholders or the board of directors. Minority stockholders will have less
power to prevent amendments to Denbury's governing documents or prevent
extraordinary transactions after the move of domicile.
EASIER FOR MAJORITY SHAREHOLDERS TO OBTAIN WRITTEN CONSENT IN LIEU OF A
MEETING IN DELAWARE. Under Canadian law, Denbury Canada may undertake actions
requiring shareholder approval without a meeting only if a written resolution
authorizing those actions is signed by all the shareholders entitled to vote.
Under Delaware law, Denbury Delaware may take actions requiring
shareholder approval without a meeting if a written consent is signed by holders
of shares equal to the minimum number of votes needed to approve the action. In
Delaware, it will be easier for Denbury Delaware to undertake actions requiring
shareholder approval without calling a shareholders meeting, especially if
shareholders approve the sale of common shares to TPG. In that case, TPG will
have sufficient votes to approve most actions without a meeting.
NO DISSENT RIGHTS WILL BE AVAILABLE TO SHAREHOLDERS IN DELAWARE. As a
stockholder of Denbury Canada, Canadian law allows you to exercise dissent
rights with regard to major changes and demand a cash payment for your common
shares equal to their fair value. The move of domicile is one such major
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change and your dissent rights arising from this proposed move are explained
below in the section entitled "Dissenting Shareholders' Right", pages ____.
Under Delaware law, you may exercise dissent rights in a merger or
consolidation and demand a cash payment for your stock equal to the fair value
as determined by the corporation or an independent appraiser. There are no
appraisal rights if the common shares are listed on a national securities
exchange, traded on the NASDAQ , or held of record by more than 2,000
stockholders. Also, these dissent rights do not apply if you own stock in the
surviving corporation and the merger did not require the vote of the
shareholders of the surviving corporation. You will no longer have dissent
rights following the move of domicile, because our common stock trades on a
national exchange, the New York Stock Exchange.
LESS FORMAL METHODS FOR RELIEF OF OPPRESSION BY MAJORITY SHAREHOLDERS IN
DELAWARE. As a shareholder of Denbury Canada, you may have explicit statutory
rights, called "oppression remedies" for any act or omission of the Company
which is oppressive or unfairly prejudicial to your interest. These oppression
remedies include your ability to bring suit against Denbury directly or through
the Director of the Canada Business Corporations Act.
Delaware does not provide for an explicit set of oppression remedies as
Canadian law does. However, there are a variety of legal and equitable remedies
to a corporation's stockholders for improper acts or omissions of a corporation,
its officers and directors.
Once Denbury becomes governed by Delaware law, you will no longer have
an explicit statutory method of seeking relief from oppression by majority
shareholders. Rather, you will have to rely on other legal methods for
protection from oppression by majority stockholders, such as Delaware case law,
your ability to bring derivative suits on behalf of Denbury, and the fiduciary
duty owed to you by our officers and directors.
BROADER DIRECTOR QUALIFICATIONS IN DELAWARE. Under the Canadian law, at
least one-third of our directors must be residents of Canada. There are other
restrictions on eligibility if the corporation is publicly traded or has a small
number of directors. These restrictions make individuals such as minors,
bankrupts, and the adjudged incompetent ineligible to serve as directors.
Delaware law has no such restrictions.
GREATER INDEMNIFICATION OF DIRECTORS AND OFFICERS ALLOWED IN DELAWARE. We
are allowed to indemnify directors and officers in both Canada and Delaware.
However, Delaware law allows for the advance payment of expenses before the
final disposition of an action. To do so, the person being indemnified must
agree to repay the amount advanced if it is later determined that he was not
entitled to indemnification. In Delaware, unlike Canada, Denbury will be able to
advance payments to officers and directors of Denbury Delaware who are involved
in litigation because of their service.
GREATER LIMITATIONS ON LIABILITY OF DIRECTORS FOR BREACH OF FIDUCIARY
DUTY IN DELAWARE. Under Delaware law a corporation's certificate of
incorporation may include a provision to limit or eliminate the liability of
directors for breach of fiduciary duty as a director under certain
circumstances. Directors cannot be protected from liability if their conduct is
not in good faith or is conduct which:
o involves intentional misconduct or a knowing violation of law;
o breaches the duty of loyalty;
o involves the payment of unlawful dividends;
o expends funds for unlawful stock purchases; or
o benefits a director personally.
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Denbury Delaware's certificate of incorporation will provide for this type of
limitation of liability. There are no similar provisions under Canadian law.
Delaware law and Denbury Delaware's certificate of incorporation will limit the
liability of the Directors of Denbury Delaware for actions they take in good
faith, even if such actions may involve a breach of their fiduciary duty to you
as a stockholder.
RISKS OF SELLING COMMON SHARES TO TPG
The following risks address the third proposal asking approval of the
sale of common shares to TPG for $100 million.
TPG WILL BECOME DENBURY'S CONTROLLING SHAREHOLDER. TPG currently owns 32%
of Denbury's outstanding common stock. If you approve this sale, TPG's holdings
will significantly increase to approximately 60% of Denbury. Accordingly, TPG
will be able to determine virtually all matters submitted for shareholder
approval. After the sale, TPG will be able to control the election of directors,
determine the corporate and management policies of Denbury and approve in its
role as shareholder a merger, consolidation or sale of all of Denbury's assets.
YOUR OWNERSHIP WILL BE DILUTED. If the stock sale to TPG is approved,
your percentage ownership of Denbury will be diluted. For example, if you own
10% of our common shares before the sale, you will own approximately 5.9% of our
common shares immediately after the sale.
RECENT RISKS INHERENT IN AN INVESTMENT IN DENBURY
This last group of risks highlight recent risks inherent in investing in
Denbury and particularly in a company which is engaged in the oil and gas
business. Because you are already a shareholder, the risks of continuing an
investment in a company in the oil and gas business will not change because of
the proposals you are being asked to vote upon.
1998 LOSSES; VOLATILITY OF OIL AND NATURAL GAS PRICES.
Our business is highly dependent on the prices that we receive for oil
and natural gas. Between 1997 and 1998, the average net oil prices that we
received declined 40% and our average net gas prices declined 14%. Our cash flow
and results of operations have been significantly reduced and our debt has
increased. We had a non-cash full cost pool writedown of $280 million during
1998. This has reduced our shareholders' equity to a $32.2 million deficit and
at year-end our debts exceeded our assets, using year-end prices to evaluate
those assets. Our ability to meet our obligations in the future depends on our
future performance and prevailing economic conditions and other factors, some of
which are beyond our control.
QUESTIONS ABOUT ABILITY TO REPAY DEBT AND MEET DEBT COVENANTS.
Our debt is at one of the highest levels in our history. As of December
31, 1998, the $115 million net present value of our proved reserves, calculated
using the year-end oil and natural gas prices, is insufficient to repay the $100
million outstanding on our senior bank loan, the $125 million of outstanding 9%
Senior Subordinated Notes due 2008 and the related interest costs. As a result
of the full cost pool writedown during 1998 we have negative equity as of
December 31, 1998, giving us a debt to equity ratio greater than one. This casts
doubt upon our ability to continue operations in the foreseeable future and to
be able to realize assets and satisfy liabilities in the normal course of
business. Our ability to continue as a going concern is dependent upon the
completion of the sale of stock to TPG or an increase in oil and natural gas
prices. If this proposed sale of stock is not consummated before June 16, 1999
or oil and
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<PAGE>
natural gas prices do not increase to enable the repayment of the debt and
interest costs, we will be in default of our bank credit agreement and may not
be able to service our debt. If we were unable to continue as a going concern,
then significant adjustments would be necessary to our financial statements to
properly reflect a need to liquidate assets in order to repay debt, to reflect
all debt as current and other potential adjustments due to the changes in
operations.
FUTURE ACQUISITIONS MAY NOT BE PROFITABLE.
Much of our historical growth has been from acquisitions of producing
properties. If the sale of shares to TPG is approved, we will pursue
acquisitions with the proceeds from that sale. Our amended bank facility
requires us to use 75% of the aggregate borrowings for either acquisitions or
specific qualifying development expenditures. Successful acquisitions are
influenced by many factors, such as an assessment of the recoverable reserves,
exploration potential, future product prices, operating costs, potential
environment and other liabilities and other factors beyond our control. Although
we attempt to analyze and evaluate these factors, we cannot be sure that our
acquisitions will perform as anticipated and will be profitable for us.
MARKET PRICE COULD BE HURT BY FUTURE TPG SHALES USING REGISTRATION RIGHTS.
We have granted registration rights to TPG in the past and will modify
these rights if the sale of stock to TPG is approved and consummated. It is
possible that the public sale of a substantial number of common shares by TPG
could adversely affect the market price of our common shares and could impair
our ability to raise additional capital in the future.
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<PAGE>
THE COMPANY
CORPORATE OVERVIEW
We are an independent exploration, development and production company
headquartered in Dallas, Texas. We acquire oil and gas properties and develop
and explore for oil and natural gas on our own properties. Our activities have
been focused in the United States Gulf Coast region, primarily onshore in
Louisiana and Mississippi.
As of December 31, 1998, we had proved reserves of 28.3 million barrels
of oil and 48.8 billion cubic feet of natural gas or 36.4 million barrels of oil
equivalent. These oil and natural gas reserves had a discounted present value,
or PV 10 Value," using a 10% discount factor and constant oil and natural gas
prices, of $115.0 million. These quantities and values were computed using the
December 31, 1998 NYMEX prices of $12.00 per Bbl and $2.15 per MMBtu, with these
prices adjusted by field to arrive at an average net price for Denbury of $7.37
per Bbl and $2.23 per Mcf. These NYMEX year-end prices are approximately $6.32
per Bbl and $0.43 per MMBtu lower than the prices used at December 31, 1997. As
a result of these price declines, coupled with some downward revisions in our
year-end proven reserves, our reserve quantities and value have dropped
substantially from the December 31, 1997 levels of 64.9 million barrels of oil
equivalent and a PV10 Value of $361.3 million.
As of December 31, 1998, our eight largest fields constituted
approximately 88% of our estimated proved reserves on a quantity basis and 78%
of our total estimated PV10 Value. Within these eight fields, we had an average
working interest of 91% and operate 95% of the wells which comprise 65% of our
PV10 Value. These eight fields are located in three adjacent counties in
Mississippi and one parish in Louisiana.
RECENT EVENTS
LOW OIL PRICES. Between 1997 and 1998, our net oil product prices
decreased 40%, or $6.96 per Bbl and our natural gas product prices declined by
14%, or $0.37 per Mcf. This drop in oil and natural gas prices has caused our
cash flow and results of operations to drop substantially during 1998 and has
contributed to an increase in our debt levels during the year. Furthermore, at
these oil price levels, most of our oil development and exploration projects are
uneconomical. Thus starting in mid-1998, we significantly curtailed our
development expenditures and shifted our focus to potential acquisition
opportunities. However, if oil prices do recover to a more normalized level, we
have built a significant inventory of oil development projects that will then be
economic, subject to the availability of capital.
FULL COST POOL WRITEDOWNS. As a result of the low oil prices, on June 30,
1998 we had a $165 million non-cash writedown of our full cost pool. This
writedown was computed based on a NYMEX oil price of $14.00 per Bbl. As of
December 31, 1998, oil prices had deteriorated further to a NYMEX price of
approximately $12.00 per Bbl and an average net realized price of $7.37 per Bbl,
a drop of $7.06 in the average net realized price since December 31, 1997. As a
result of this decrease in product prices, along with some downward revisions in
our proven reserves, we incurred an additional writedown of $115 million at
December 31, 1998, or a total writedown for the year of $280 million.
BASIS OF PRESENTATION. As of December 31, 1998, the current net present
value (using the year-end oil and natural gas prices) of our reserves is
insufficient to repay our senior bank loan, the 9% Senior Subordinated Notes due
2008 and the related interest costs, which casts doubt upon our ability to
continue operations in the foreseeable future and to be able to realize assets
and satisfy liabilities in the normal course
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<PAGE>
of business. Our ability to continue as a going concern is dependent upon the
completion of the sale of stock to TPG or an increase in oil and natural gas
prices. If this proposed sale of stock does not close or oil and natural gas
prices do not increase to enable the repayment of the debt and interest costs,
we will be in default of our bank credit agreement and may not be able to
service our debt. If we were unable to continue as a going concern, then
significant adjustments would be necessary to our financial statements to
properly reflect a need to liquidate assets in order to repay debt, to reflect
all debt as current and other potential adjustments due to the changes in
operations.
AMENDMENT TO CREDIT FACILITY. On February 19, 1999, we completed an
amendment to our credit facility, thereby meeting one of the required conditions
for the proposed sale of stock to TPG. This amendment sets the borrowing base at
$110 million, of which $60 million was considered by the banks to be within
their normal credit guidelines. The amendment:
o provides relief on certain debt covenants;
o changes the facility to one that is fully secured;
o sets restrictions on the use of funds;
o increases the interest rate; and
o provides that a failure to close the TPG stock sale before
June 16, 1999 would be an event of default.
All of these recent events, plus other 1998 activities, are more fully
described in our Form 10-K for the year ended December 31, 1998.
BUSINESS STRATEGY
As part of our corporate strategy, we believe in the following
fundamental principles:
o remain focused in specific regions;
o acquire properties where we believe additional value can be
created through a combination of exploitation, development,
exploration and marketing;
o acquire properties that give us a majority working interest
and operational control or where we believe we can ultimately
obtain it;
o maximize the value of our properties by increasing production
and reserves while reducing costs; and
o maintain a highly competitive team of experienced and
incentivized personnel.
ACQUISITIONS OF OIL AND NATURAL GAS PROPERTIES
Acquisitions have historically been an integral part of our strategy
and are expected to become even more important during 1999 due to the low price
environment. We also intend to use the majority of the funds from the sale of
stock to TPG for acquisitions. As part of this strategy, we strive to acquire
properties where we believe significant additional value can be created. Such
properties are typically characterized by long production histories; complex
geological formations with multiple producing horizons and substantial
exploitation potential; a history of limited operational focus and capital
investment, often due to their relatively small size and limited strategic
importance to the previous owner; and the potential for us to gain control of
operations. Due to the low price
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<PAGE>
environment and its effect on debt levels, cash flow, and personnel levels, we
believe that this is an excellent time to pursue acquisitions. Although we are
primarily interested in acquiring good properties at good prices, if possible,
we try to maintain a well-balanced portfolio of oil and natural gas development,
exploitation and exploration projects in order to minimize the overall risk
profile of our investment opportunities while still providing significant upside
potential.
We attempt to improve our profitability by consolidating our ownership
in core properties over which we can exercise operational control and focus
technical expertise. Consequently, we may purchase small working interest
positions, primarily through negotiated transactions, and sell or trade our
non-core assets. The consolidation of ownership allows us to enhance the
effectiveness of our technical staff by concentrating on relatively few wells;
increase production while adding virtually no additional personnel; and increase
ownership in a property so that the potential benefits of value enhancement
activities justify the allocation of our resources.
Prior to the December 1997 acquisition of Heidelberg Field, our oil and
gas reserves were obtained almost equally from acquisitions and development
activities. Generally speaking, we have emphasized drilling when commodity
prices are relatively high and focused on acquisitions when commodity prices are
low. From 1993, when we focused our attention exclusively in the United States,
through December 31, 1995, we spent a total of $43.4 million on acquisitions.
Since then, we have made two key acquisitions, the first in May 1996. At that
time, we acquired properties in our core areas of Mississippi and Louisiana from
Amerada Hess Corporation for approximately $37.2 million. In December 1997, we
acquired oil properties in the Heidelberg Field from Chevron U.S.A., Inc. for
approximately $202 million.
1996 HESS ACQUISITION. During May and June, 1996, the first two months of
ownership, the properties acquired from Amerada Hess produced approximately
2,945 BOE per day and as of June 30, 1996, had proved reserves of approximately
5.9 MMBOE. After acquiring the properties, we did extensive development and
exploitation on these properties and as a result, increased the production 230%
to a peak of 9,731 BOE per day during the second quarter of 1998 and increased
the reserves 141% to 14.2 MMBOE as of December 31, 1997. This acquisition has
been profitable, even though production has peaked and oil prices have dropped
during 1998 to one of the lowest levels in recent history. Production for the
third and fourth quarters of 1998 averaged approximately 7,600 and 5,730 BOE per
day. These production declines primarily occurred because of production
decreases on the horizontal oil wells drilled late in 1997 and early 1998 and
the lack of drilling and other development activity on these properties during
the latter half of 1998 due to the low oil prices.
There are additional potential development projects on these properties,
plus some exploration potential, once oil prices recover to a more normalized
level. As of December 31, 1998, our proved reserves on an SEC basis had dropped
to 6.0 MMBOE, primarily due to the effect of low oil prices.
1997 CHEVRON ACQUISITION. The Heidelberg Field in Jasper County,
Mississippi, acquired in the Chevron acquisition is located approximately nine
miles from the Eucutta Field, our property with the highest PV10 Value of those
acquired in the Hess acquisition. The estimated proved reserves as of January 1,
1998 for the Chevron acquisition properties were approximately 27.6 MMBOE, with
average net daily production of approximately 2,900 BOE per day for the fourth
quarter of 1997. Due to the low oil price throughout 1998, we have not developed
this field as quickly as we originally planned. During
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<PAGE>
the year, we did drill 17 wells, of which 10 were horizontal wells,
significantly less than our original plan to drill 11 vertical wells and 32
horizontal wells. During the second half of the year, the development activity
virtually ceased, except for the continued development of facilities for the
waterfloods currently in process.
In spite of the scaled back development plan, production at this field
averaged approximately 4,200 and 4,250 BOE per day during the third and fourth
quarters of 1998, which is a 45% and 47% increase from the fourth quarter of
1997. As of December 31, 1998, the proved reserves on an SEC basis had dropped
to 19.9 MMBOE, primarily due to the effect of a $6.92 per barrel average field
price being received and used to price reserves in our year-end reserve report.
We believe the low price environment makes this a good time to pursue
acquisitions. Without additional capital our high debt levels make it difficult
for us to make any meaningful acquisitions. This is why we are seeking
additional funds and are asking you, as a shareholder, to approve the sale of
common shares to TPG for $100 million.
CHANGE TO UNITED STATES GAAP
As part of the move of our domicile to the United States, we will convert our
consolidated financial statements to United States generally accepted accounting
principles ("GAAP"). The primary differences between the Canadian and United
States GAAP relate to the loss on early extinguishment of debt, preferred
dividends, and computation of earnings or loss per share. For the years ended
December 31, 1996, the loss on early extinguishment of debt was reported as an
operating expense under Canadian GAAP, while it would have been reported as an
extraordinary item under United States GAAP. In addition, for the year ended
December 31, 1996, the imputed preferred dividend was also reported as an
operating expense under Canadian GAAP while under United States GAAP it would
have been a reduction to the net income attributable to common shareholders. The
only other reporting difference relates to how fully diluted earnings or loss
per common share are computed. This causes a slight difference in fully diluted
earnings per share for the year ended December 31, 1996.
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<PAGE>
THE MEETING
GENERAL
THIS PROXY STATEMENT/PROSPECTUS IS FURNISHED IN CONNECTION WITH THE
SOLICITATION BY OUR BOARD OF DIRECTORS AND MANAGEMENT for use at a special
meeting of shareholders to be held on _________, April __, 1999 at The Petroleum
Club, Viking Room, 319 Fifth Avenue S.W., Calgary, Alberta at 10:00 a.m.
(Calgary time), and any adjournments thereof.
THE BOARD HAS UNANIMOUSLY APPROVED:
O THE MOVE OF THE CORPORATE DOMICILE TO DELAWARE;
O A RESOLUTION GRANTING IT AUTHORITY TO POSTPONE OR ABANDON
THE MOVE IF IT IS NOT IN YOUR OR OUR BEST INTERESTS;
O THE SALE OF 18,552,876 COMMON SHARES TO OUR LARGEST
SHAREHOLDER, TPG, FOR $100 MILLION;
O THE INCREASE IN THE NUMBER OF COMMON SHARES THAT MAY BE
ISSUED UNDER OUR EMPLOYEE STOCK PURCHASE PLAN; AND
O THE INCREASE IN THE NUMBER OF COMMON SHARES RESERVED FOR
ISSUANCE UNDER OUR STOCK OPTION PLAN.
THE BOARD RECOMMENDS THAT YOU VOTE FOR ALL PROPOSALS. THE FULL TEXT OF
THESE RESOLUTIONS ARE ATTACHED TO THIS DOCUMENT AS EXHIBIT G.
RECORD DATE
The board has set the close of business on March __, 1999 as the record
date for the special meeting. Only holders of such common shares of record as of
March __, 1999 or transferees of such shares who produce, proper evidence of
ownership of such shares before April __, 1999, and request that their name be
included on the list of shareholders entitled to vote at the meeting will be
entitled to vote at the meeting.
VOTE REQUIRED TO APPROVE THE PROPOSALS
As of February 28, 1999, 26,801,680 common shares of Denbury were
issued and outstanding. Each share has the right to one vote on a ballot at the
special shareholder meeting. Any abstentions will be included in the vote totals
and thus will have the same effect as a negative vote. Any broker non- votes
will not be included in the vote totals and thus will not have any effect on the
voting. A quorum for the transaction of business at the meeting is at least two
persons that hold or represent not less than 5% of the common shares that are
entitled to vote at the meeting.
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<PAGE>
MOVE OF DOMICILE. The move of the corporate domicile must be approved
by at least 2/3 of the votes cast by shareholders present in person or
represented by proxy at the meeting. If the move is not approved, we will
continue to be a corporation governed by Canadian law. The board has not
considered any alternative action if the move is not approved.
SALE OF SHARES TO TPG. The proposal to sell common shares to TPG
requires the affirmative vote of more than 50% of the votes cast by shareholders
present in person or represented by proxy at the meeting. The total vote cast on
this proposal must represent over 50% of all common shares entitled to vote on
this proposal. TPG's shares may be included in order to reach a 50%
participation level, but a majority of the voting shareholders excluding TPG and
its affiliates must approve the proposed sale of stock.
INCREASE UNDER EMPLOYEE PLANS AND AUTHORITY TO ABANDON MOVE. The
proposals to authorize additional common shares for issuance under our Employee
Stock Purchase Plan, reserve additional shares for issuance under our Stock
Option Plan and give the board the authority to abandon the move require the
affirmative vote of 50% of the votes cast by common shareholders present in
person or represented by proxy at the meeting.
SOLICITATION AND REVOCATION OF PROXIES
You will find a form of proxy that accompanies the Notice of Special
Meeting and this Proxy Statement/Prospectus. In order for your proxy to be valid
and used at the meeting, it must be received by the Secretary of Denbury, c/o
CIBC Mellon Trust Company, Corporate Trust Department, 600 Dome Tower, 333 - 7th
Avenue S.W., Calgary, Alberta, T2P 2Z1, not less than 48 hours, before the time
set for the meeting or any adjournment thereof, excluding Saturdays, Sundays and
holidays.
Proxies will be solicited primarily by mail and may also be solicited
by our directors or officers. The cost of such solicitation will be borne by
Denbury.
All shares represented at the meeting by properly executed proxies will
be voted in accordance with the instructions specified on the proxy card. IF NO
SUCH SPECIFICATION IS MADE, AND IF THE PROXY CARD NAMES THE MANAGEMENT
DESIGNEES, THEY WILL VOTE IN FAVOR OF ALL PROPOSALS. The management designees
are our directors and officers and they have indicated their willingness to
represent you.
THE ENCLOSED PROXY CARD, WHEN PROPERLY SIGNED, CONFERS DISCRETIONARY
AUTHORITY TO THE PERSONS NAMED WITH RESPECT TO AMENDMENTS OR VARIATIONS OF
MATTERS IDENTIFIED IN THE NOTICE OF MEETING AND ANY OTHER MATTERS WHICH MAY
PROPERLY BE BROUGHT BEFORE THE MEETING. AS OF THE DATE HEREOF, WE ARE NOT AWARE
THAT ANY AMENDMENTS OR OTHER MATTERS ARE TO BE PRESENTED AT THE MEETING.
HOWEVER, IF ANY OTHER MATTERS WHICH ARE NOT CURRENTLY KNOWN TO MANAGEMENT SHOULD
PROPERLY COME BEFORE THE MEETING, THEN THE PROXIES NAMED ON THE PROXY CARD
INTEND TO VOTE IN ACCORDANCE WITH THE JUDGMENT OF MANAGEMENT.
Each shareholder may vote in person or by proxy. To be valid, a proxy
card must be signed by the shareholder or by the shareholder's attorney, duly
authorized in writing.
YOU HAVE THE RIGHT TO APPOINT A PERSON, WHO DOES NOT NEED TO BE A
SHAREHOLDER, ATTEND THE MEETING AND ACT ON YOUR BEHALF AT THE MEETING. YOU DO
NOT NEED TO APPOINT THE PERSONS DESIGNATED IN THE ENCLOSED FORM OF PROXY WHO ARE
OFFICERS OR DIRECTORS OF DENBURY. You may do so by striking out the names of the
persons designated on the enclosed proxy card and by inserting in the blank
space
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<PAGE>
provided for that purpose the name of the desired person or by completing
another proper form of proxy. The completed and executed proxy must be delivered
to Denbury on or before April __, 1999. A shareholder who has given a proxy may
revoke it at any time before its use by:
o personally attending the meeting and voting in person, or
o sending an instrument in writing signed by the shareholder or by
his duly authorized attorney to the Secretary of Denbury Resources
Inc., c/o CIBC Mellon Trust Company, Corporate Trust Department,
600 Dome Tower, 333 - 7th Avenue S.W., Calgary, Alberta T2P 2Z1,
prior to the last business day before the time set for the meeting
or any adjournment thereof, or
o giving an instrument in writing signed by the shareholder or his
duly authorized attorney to the Chairman of the meeting on the day
of the meeting or any adjournment thereof.
PROPERLY EXECUTED PROXIES WITHOUT INSTRUCTIONS ON HOW TO VOTE ON ANY OF
THE PROPOSALS WILL BE VOTED "FOR" THE APPROVAL OF ALL PROPOSALS.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table lists, as of February 28, 1999, the shareholders
that we are aware of that beneficially own more than 5% of our issued and
outstanding common shares and the common shares held by our executive officers
and directors, individually and as a group. Unless it is indicated differently,
each shareholder identified in the table has sole voting and investment power
with respect to their shares. You should note that some shares are listed as
being beneficially owned by more than one shareholder.
<TABLE>
<CAPTION>
Beneficial Ownership as of
February 28, 1999
---------------------------------------
Name and Address of
Beneficial Owner Shares Percent
- --------------------------------------------------------------- ---------------------- -------------
<S> <C> <C>
Ronald G. Greene............................................... 900,900 (1) 3.4% (1)
Suite 700, 407 - 2nd Street
Calgary, Alberta T2P 2Y3
David Bonderman................................................ 8,971,438 (2) 33.5% (2)
201 Main Street, Suite 2420
Ft. Worth, TX 76102
Wilmot L. Matthews............................................. 314,400 (3) 1.2% (3)
1 First Canadian Place, Suite 5101
Toronto, ON M5X 1E3
William S. Price, III.......................................... 8,724,438 (4) 32.6% (4)
345 California Street, Suite 3300
San Francisco, CA 94104
David M. Stanton............................................... 2,000 (5) *
Wieland F. Wettstein........................................... 20,600 (6) *
Gareth Roberts................................................. 488,512 (7) 1.8% (7)
Phil Rykhoek................................................... 34,590 (8) *
Mark A. Worthey................................................ 29,963 (8) *
Bobby J. Bishop................................................ 10,957 (8) *
All of the executive officers and directors as a group (10
persons)....................................................... 10,776,360 (9) 40.1% (9)
TPG Advisors, Inc.............................................. 8,721,438 32.5%
201 Main Street, Suite 2420
Ft. Worth, TX 76102
Charles M. Royce............................................... 2,988,672 (10) 11.2% (10)
1414 Avenue of the Americas
New York, NY 10019
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<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 554,703 common shares held by Tortuga Investment Corp., which is
solely owned by Mr. Greene.
(2) Includes 250,000 common shares in a family partnership 100% controlled by
Mr. Bonderman. 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 attributed to Mr.
Bonderman.
(3) Includes 200,000 common shares held by a subsidiary of Marjad Inc., which
is wholly owned by Mr. Matthews, 9,000 common shares held in various
trusts of which Mr. Matthews is a trustee and an income beneficiary and
5,400 common shares as to which Mr. Matthews holds a power of attorney but
no beneficial interest.
(4) Includes 1,000 common shares held by Mr. Price and 2,000 common shares
held by Mr. Price's spouse. 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 attributed to Mr. Price.
(5) 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
an officer of TPG Advisors, Inc., the general partner of TPG Partners L.P.
and TPG Parallel I, L.P. and is a principal of TPG Partners, L.P.
(6) Includes 13,700 common shares held by S.P. Hunt Holdings Ltd., which is
solely owned by a trust of which Mr. Wettstein is a trustee .
(7) Includes 138,330 common shares held by a corporation which is solely owned
by Mr. Roberts, 2,228 common shares held by his spouse and 25,000 common
shares which Mr. Roberts has the right to acquire pursuant to stock
options which are currently vested or which vest within 60 days from
February 28, 1999. Ownership excludes 38,000 common shares held in a
private charitable foundation which he and his spouse control.
(8) Includes 30,000, 10,625 and 7,000 common shares which Mr. Rykhoek, Mr.
Worthey and Mr. Bishop, respectively, have the right to acquire pursuant
to stock options which are currently vested or which vest within 60 days
from February 28, 1999.
(9) Includes 72,625 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 February 28, 1999. Beneficial
ownership also includes the shares held by affiliates of TPG, although Mr.
Price and Mr. Bonderman, who are directors of Denbury, 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 8,721,438 shares.
(10) Includes 2,960,672 common shares held by Royce & Associates, Inc. and
28,000 common shares held by Royce Management Company. Both Royce &
Associates, Inc. and Royce Management Company are controlled by Charles M.
Royce. Mr. Royce disclaims any beneficial ownership of these shares.
</FN>
</TABLE>
MOVING THE CORPORATE DOMICILE
THE MOVE
We intend to change our domicile from Canada to the United States by means
of a process called continuance in Canada and a domestication in the State of
Delaware. Domestication is available to non-United States corporations under
Section 388 of Delaware General Corporation Law. Simultaneously with the
domestication into Delaware, Denbury Canada will apply for a certificate of
discontinuance under Section 188(7) of the Canada Business Corporations Act, the
CBCA, which will end Denbury Canada's existence. After the special meeting, we
will file the appropriate documents with both Delaware and Canada and then
Denbury will become a Delaware corporation.
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<PAGE>
The first proposal to be voted on at the meeting relating to the change of
domicile authorizes us to:
o continue Denbury Canada as Denbury Delaware under the Delaware law
and simultaneously discontinue Denbury Canada under Canadian law;
o approve the certificate of incorporation, which will be filed with
the Secretary of State of Delaware along with a certificate of
domestication, which are attached as Exhibits D and C to this
document;
o authorize Denbury Canada to apply to the Director of the CBCA for a
letter of satisfaction and certificate of discontinuance; and
o approve the merger of Denbury Delaware and its wholly owned
subsidiary immediately following the continuance.
PROCEDURES UNDER DELAWARE LAW. For Denbury Canada to move its domicile
to Delaware, it must file in Delaware a certificate of incorporation that
complies with Delaware law and a certificate of domestication, and the Director
of the CBCA must issue a letter of satisfaction for submission to the Delaware
Secretary of State.
Once the Delaware filings have been made, the Director of the CBCA will
issue a Certificate of Discontinuance and Canadian law will cease to apply. Upon
filing these documents, we become subject to Delaware law, but retain our
original incorporation date in Canada as our incorporation date for purposes of
Delaware law. In addition, Delaware law provides explicitly that the change of
domicile does not affect any of our liabilities incurred prior to domestication.
PROCEDURES UNDER CANADIAN LAW. Simultaneously with the domestication in
Delaware, Denbury Canada must terminate its existence under Canadian law. Under
Canadian law, a corporation may apply to another jurisdiction requesting to be
continued as if it had been incorporated under the laws of that other
jurisdiction. An application for continuance requires approval by at least 2/3
of the votes cast by shareholders present in person or represented by proxy at
the meeting and satisfaction of the Director of the CBCA that the proposed
continuance will not adversely affect creditors or shareholders of the
corporation.
THE MERGER
Essentially at the same time as our move into Delaware, when Denbury
Canada becomes Denbury Delaware, its wholly owned subsidiary, Denbury Management
Inc., known as "DMI", will be merged into Denbury Delaware. Denbury Delaware
will be the surviving entity. Separate shareholder approval of the merger is not
required under Delaware law because DMI will be wholly owned subsidiary of
Denbury Delaware. The merger will not take place if the move is not consummated.
No additional stock issuance will take place as a result of the merger.
EFFECTS OF THE MOVE OF CORPORATE DOMICILE AND MERGER
ASSETS, LIABILITIES, OBLIGATIONS. Under Delaware law, as of the
effective date of the move, all of the assets and liabilities of Denbury Canada
immediately prior to the continuance will continue to be the assets and
liabilities of Denbury Delaware. Canadian law ceases to apply to Denbury Canada
on the date shown on the Certificate of Discontinuance to be issued by the
Director of the CBCA.
On the effective date of the move:
o the property of Denbury Canada will continue to be the property of
Denbury Delaware;
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<PAGE>
o Denbury Delaware will continue to be liable for the obligations
of Denbury Canada;
o an existing cause of action, claim or liability to prosecution
against Denbury Canada will be unaffected;
o a civil, criminal or administrative action or proceeding pending
by or against Denbury Canada may be continued to be prosecuted by
or against Denbury Delaware;
o a ruling, order or judgment in favor of or against Denbury Canada
may be enforced by or against Denbury Delaware.
As to the merger of DMI into Denbury Delaware, under Delaware law, as of the
effective date of the merger:
o all of the assets and liabilities of DMI immediately prior to the
merger will become the assets, and liabilities of Denbury
Delaware;
o Denbury Delaware will be liable for the obligations of DMI;
o Denbury Delaware will become directly liable for the DMI 9%
Senior Subordinated Notes due 2008 and will assume all the
obligations relating to these notes;
o an existing cause of action, claim or liability to prosecution
against Denbury Delaware will be unaffected;
o a civil, criminal or administrative action or proceeding pending
by or against DMI may be continued to be prosecuted by or against
Denbury Delaware;
o a conviction against DMI may be enforced against Denbury
Delaware; and
o a ruling, order or judgment in favor of or against DMI may be
enforced by or against Denbury Delaware.
CAPITAL STOCK. Once the move is completed, holders of Denbury Canada
common shares instead will own one share of Denbury Delaware common stock for
each common share held before the move. The existing certificates representing
Denbury's common shares will not be canceled. Holders of options to purchase
Denbury's common shares on the date of the move will continue to hold options to
purchase an identical number of shares of Denbury Delaware common stock.
Similarly, holders of warrants to purchase Denbury's common shares will continue
to hold warrants to purchase an identical number of shares of Denbury Delaware
common stock. The common stock of DMI will be canceled in the merger.
The principal attributes of Denbury Delaware common stock and Denbury
Canada common shares are comparable, but there are material differences in
shareholder rights. See "Moving the Corporate Domicile-Comparison of
Shareholders' Rights" and "Description of Capital Stock."
BUSINESS AND OPERATIONS. The move, if approved, will change our legal
domicile but not our business and operations. The merger will combine the
present holding company and its operating subsidiary, but will have no effect on
the business or operations of either entity.
DIRECTORS AND OFFICERS. The directors and officers of Denbury
immediately before the move will serve in the same capacities after the move.
See "Management." Once the move occurs, the election, duties, resignation and
removal of directors and officers shall be governed by Delaware law and the
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Certificate of Incorporation and By-laws of Denbury Delaware. As part of the
merger, we anticipate that officers of DMI that are not presently officers of
Denbury Canada will be elected as officers of Denbury Delaware in the same
capacity.
STOCK EXCHANGE LISTINGS. Denbury's common shares are currently listed
and traded on the NYSE and the TSE under the symbol "DNR." We anticipate that we
will maintain both listings as Denbury Delaware following the move and merger.
SECURITIES REGULATION. We also anticipate that we will continue to be
a "reporting issuer" in each Province of Canada immediately following the
continuance.
BACKGROUND TO AND PRINCIPAL REASONS FOR THE MOVE OF CORPORATE DOMICILE AND
MERGER
The board believes that it is advantageous for Denbury to move its
domicile to Delaware for the following reasons:
REDUCED TAX COSTS OF CERTAIN TRANSACTIONS. Currently, when we issue
securities such as convertible debt and preferred stock, there is an additional
cost because of a withholding tax on interest and dividend payments that pass
between the United States and Canada. Since all of our assets and operations are
conducted through our wholly owned U.S. subsidiary, any funding of dividend or
interest payments results in the regular transfer of funds between this U.S.
subsidiary and Denbury Canada. Similarly, even though we do not currently intend
to pay any dividends, there would be a withholding tax on any dividends declared
and paid on our common shares. These costs would be eliminated after the move to
Delaware.
IMPROVED MARKET ACCESS. We would like to be able to issue common stock
or other securities in exchange for oil and natural gas properties or for
ownership in another company. Since we are a Canadian company, some United
States companies are hesitant about accepting the securities of a Canadian
issuer due to tax complications. Furthermore, the United States has been our
primary source of capital in recent years. We believe that more opportunities
and capital may be available to us if we are a United States corporation.
LESS RESTRICTIVE GOVERNING LAW. Currently Canadian law requires that at
least 1/3 of our directors be Canadian residents. We have been able to attract
qualified Canadian residents to serve on our board, but this requirement reduces
our ability to choose directors. Delaware law does not impose any such
requirement, and the move to Delaware will provide us with greater flexibility.
Furthermore, over 50% of our stock is held by United States residents
and we are listed on the NYSE. Thus we must abide by most United States
securities and stock exchange requirements as though we were a United States
company. The high percentage of United States ownership also prevents us from
receiving the benefits of NAFTA, which reduces administrative burdens of
Canadian companies doing business in the United States. We must also abide by
the Canadian legal and stock exchange requirements as a Canadian corporation.
This can be unusually restrictive on our business. We also expect to realize
some minor savings in administrative time and expense by the move to Delaware.
BETTER COMPARISON WITH PEERS. Since all of our business is conducted in
the United States, the market generally compares us to similar-sized United
States companies. Although the United States and Canadian accounting rules are
similar, they are not the same. Occasionally, this results in different
accounting treatment for us, making it confusing for investors. This confusion
would be eliminated once we become a Delaware corporation, because then we would
report using United States GAAP. In addition, there are certain benefits under
United States GAAP with regard to accounting rules relating to mergers. These
rules may be beneficial in some cases.
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INCREASINGLY LIMITED CONTACT WITH CANADA. While our operations were
originally closely associated with Alberta, since 1993 when we focused entirely
upon the oil and gas business in the United States, our connections with Canada
have continually been reduced. Currently, we have no business operations in
Canada. All our employees are located in the United States, and, as of December
31, 1998, more than 75% of our outstanding common shares were held by
non-Canadian shareholders. Prior to 1995 our common shares were only traded on
the TSE. At the start of 1995 we were admitted to trading on the NASDAQ and
moved to the NYSE in May 1997. A majority of our recent equity and debt
offerings have been funded by non-Canadian entities or individuals.
SELECTION OF STATE OF DELAWARE. For many years, Delaware has followed a
policy of encouraging incorporation in that state and has adopted comprehensive,
modern and flexible corporate laws which are updated and revised to meet
changing business needs. As a result of this deliberate policy to provide a
hospitable climate for corporate development, many major corporations have
chosen Delaware for their domicile. In addition, the Delaware courts have
developed considerable expertise in dealing with corporate issues, and a
substantial body of case law has developed construing Delaware corporations law
and establishing specific legal principles and policies regarding Delaware
corporations. This has served to provide greater legal predictability with
respect to the corporate legal affairs of Delaware corporations. It is
anticipated that Delaware corporate law will continue its leadership position in
the development of corporate law in the United States, and that the Delaware
legislature will continue to ensure that Delaware corporate law itself remains
as up to date and as flexible as possible.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE CONTINUANCE OUT OF
CANADA AND DOMESTICATION OF THE COMPANY UNDER THE PROVISIONS OF DELAWARE LAWS,
AND RECOMMEND THAT YOU VOTE FOR THIS PROPOSAL.
MATERIAL CANADIAN FEDERAL INCOME TAX CONSEQUENCES OF THE MOVE OF CORPORATE
DOMICILE AND MERGER
In the opinion of Burnet, Duckworth & Palmer, Canadian counsel to
Denbury, the following is a summary of the material Canadian federal income tax
considerations under the Income Tax Act (Canada), the "Canadian Tax Act", with
respect to the move generally applicable to Denbury and to you if, for purposes
of the Canadian Tax Act, hold your shares of Denbury Canada's common shares and
will hold your Denbury Delaware common stock as capital property and who deal at
arm's length with Denbury. This opinion does not apply to you if you are or will
be a foreign affiliate of any person resident in Canada, or to whom Denbury will
be a foreign affiliate following continuation within the meaning of the Canadian
Tax Act. This opinion is also not applicable to a corporation which is a
"specified financial institution" or to whom the mark-to-market provisions of
the Canadian Tax Act otherwise apply.
Shares will generally be considered to be capital property to you
unless such shares are held in the course of carrying on a business or are
acquired in a transaction considered to be an adventure in the nature of trade.
You should consult your own tax advisors regarding whether you hold your shares
of Denbury Canada's common shares as capital property and will hold your Denbury
Delaware common stock as capital property for the purposes of the Canadian Tax
Act. If you are resident in Canada and your shares might not otherwise qualify
as capital property, you may be entitled to obtain this qualification by making
an irrevocable election under Subsection 39(4) of the Canadian Tax Act prior to
the continuance. If you do not hold your shares as capital property, you should
consult your own tax advisors regarding their particular circumstances.
This opinion is based on the current provisions of the Canadian Tax
Act, the regulations thereunder, the Canada-United States Income Tax Convention,
1980, as amended, the "Tax Treaty", and
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counsel's understanding of the current administrative practices published by
Revenue Canada, Customs, Excise and Taxation: "Revenue Canada". This opinion
takes into account specific proposals to amend the Canadian Tax Act and
regulations publicly announced by the Minister of Finance prior to the date of
the Proxy Statement/Prospectus, collectively the "Tax Proposals", and assumes
that all Tax Proposals will be enacted in their present form. However, no
assurances can be given that the Tax Proposals will be enacted in their present
form. This opinion does not take into account or anticipate any other changes in
the law, nor does it take into account provincial, territorial or foreign income
tax legislation or considerations, which may differ from the Canadian federal
income tax considerations described herein. No ruling has been obtained from
Revenue Canada to confirm the tax consequences of any of these transactions.
These opinions are based on the assumptions that shares of Denbury
continue to be listed on a stock exchange which is prescribed for the purposes
of the Tax Act, and Denbury Canada common shares and the Denbury Delaware common
stock may not reasonably be considered to derive their value, directly or
indirectly, primarily from portfolio investment in shares, debt, commodities or
any other similar properties.
This summary does not discuss all aspects of Canadian federal income
taxation that may be relevant to you. You should consult your own tax advisors
with respect to the tax consequences of these transactions in your particular
circumstances.
TAXATION OF THE COMPANY. Upon the continuance, Denbury will be deemed
to have disposed of all of its property for fair market value immediately prior
to the continuance. Denbury will be subject to tax under the Canadian Tax Act on
any income and net taxable capital gains that result. Denbury will also be
subject to an additional tax at the rate of five percent on the amount by which
the fair market value of Denbury's assets, net of liabilities, exceeds the
paid-up capital of the Denbury's issued and outstanding shares. However, if one
of the main reasons for Denbury changing its residence to the United States was
to reduce the amount of such additional tax or Canadian withholding tax, the
rate of such tax would be 25 percent. Denbury will not be resident in Canada
after the continuance for the purposes of the Canadian Tax Act. The management
of Denbury, in consultation with some of its advisors, has reviewed Denbury's
assets, liabilities and paid-up capital and has advised counsel that no Canadian
federal taxes should be due and payable by Denbury under the Canadian Tax Act as
a result of the continuance. Based upon key representations made by Denbury,
counsel is of the opinion that no Canadian tax liability will result from the
continuance. The representations of Denbury which this opinion is based are that
the fair market value of Denbury's assets is less than the aggregate value of
the paid-up capital of all of Denbury's issued and outstanding shares and all of
the liabilities of Denbury, and the deemed disposition of all of Denbury's
assets at fair market value upon the continuance will not create income in
excess of the Canadian tax deductions available to Denbury.
Denbury's representations are based on the trading value of Denbury's
securities and the price at which securities are to be issued to TPG, and
counsel can express no opinion on matters of factual determination. The facts
underlying Denbury's assumptions and conclusions may also change prior to the
effective date of the continuance. Denbury has not applied to Canadian federal
tax authorities for a ruling as to the amount of federal taxes payable by
Denbury under the Canadian Tax Act as a result of the continuance and does not
intend to apply for such a ruling given the factual nature of the determinations
involved. It is possible that the Canadian federal tax authorities will not
accept the valuations or the positions that Denbury has adopted. Accordingly, it
is possible that the Canadian federal tax authorities will conclude after the
effective date of the continuance that Canadian federal taxes are due under the
Canadian Tax Act as a result of the continuance.
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TAXATION OF SHAREHOLDERS RESIDENT IN CANADA. The following portion of
the opinion applies to you if you are resident in Canada for the purposes of the
Canadian Tax Act.
You will not be considered to have disposed of your Denbury Canada
common shares or to have realized a taxable capital gain or loss solely due to
the continuance. The continuance will also have no effect on the adjusted cost
base to you of your Denbury Canada common shares.
Following the continuance, dividends received by you on shares of
Denbury Delaware common stock will be included in computing income and will
generally not be deductible if you are a corporation, and, if you are an
individual, such dividends will not receive the gross-up and dividend tax credit
treatment generally applicable to dividends on shares of taxable Canadian
corporations.
Also, following the continuance, shares of Denbury Delaware common
stock will be a qualified investment for trusts governed by deferred profit
sharing plans, registered retirement saving plans and registered income funds,
collectively "Deferred Income Plans", provided such shares remain listed on a
prescribed stock exchange. SUCH SHARES WILL BE FOREIGN PROPERTY AFTER THE
EFFECTIVE DATE OF THE CONTINUANCE, AND ACCORDINGLY, THE HOLDING OF SUCH SHARES
BY DEFERRED INCOME PLANS OR BY OTHER TAX-EXEMPT ENTITIES INCLUDING REGISTERED
INVESTMENTS AND REGISTERED PENSION PLANS MAY SUBJECT SUCH HOLDERS TO PENALTY
TAXES UNDER THE CANADIAN TAX ACT. HOWEVER, THESE HOLDERS OF DENBURY SHARES AT
THE TIME OF THE CONTINUANCE MAY BE ENTITLED TO AVAIL THEMSELVES OF A PROVISION
OF THE CANADIAN TAX ACT TO ELIMINATE SUCH PENALTY TAX FOR UP TO 24 MONTHS
FOLLOWING THE CONTINUANCE. THIS PERMITS DEFERRED INCOME PLANS AND OTHER TAX
EXEMPT PERSONS TO EITHER DISPOSE OF THEIR SHARES ON A ORDERLY BASIS, OR TO
RE-BALANCE THEIR PORTFOLIOS TO FALL WITHIN THE LIMITS PLACED IN OWNERSHIP OF
"FOREIGN PROPERTY". SUCH HOLDERS ARE URGED TO CONTACT THEIR OWN TAX ADVISORS TO
DETERMINE THE POTENTIAL APPLICABILITY OF SUCH PENALTY TAXES TO THEM.
TAXATION OF DISSENTING SHAREHOLDERS. Pursuant to the administrative
practices of Revenue Canada, the amount paid to you if you dissent should be
treated as proceeds of your common shares. Accordingly, you would recognize a
capital gain, or a capital loss, to the extent that the amount received, net of
any reasonable costs of disposition, exceeds, or is less than, the adjusted cost
base of such holder's common shares. If you are a corporation, any capital loss
arising on the disposition of common shares may in certain circumstances be
reduced by the amount of any dividends which have been received on such share,
and analogous rules apply to a partnership or trust of which a corporation is a
member or beneficiary. You will be required to include three-quarters of any
capital gain in computing your income for purposes of the Canadian Tax Act and
will be entitled to deduct three-quarters of any capital loss only against
taxable capital gains in accordance with the Canadian Tax Act.
TAXATION OF SHAREHOLDERS NOT RESIDENT IN CANADA. The following portion
of this summary applies to you if for purposes of the Canadian Tax Act you:
o are not resident or deemed to be resident in Canada at any time
when they held or hold Denbury Canada common shares;
o do not use or hold and are not deemed to use or hold their
Denbury Canada common shares in the course of carrying on a
business in Canada; or
o carry on an insurance business in Canada and elsewhere, and
establish that Denbury Canada common shares are "designated
insurance property".
You will not be considered to have disposed of your Denbury Canada
common shares or to have realized a taxable capital gain or loss solely due to
the continuance. The continuance will also have no
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effect on the adjusted cost base of your Denbury Canada common shares. After the
effective date of the continuance, dividends received by a shareholder on
Denbury Delaware Common stock will not be subject to Canadian withholding tax.
Provided that a Denbury Canada common share is not "taxable Canadian
property" to you at the time of disposition of such share, you will not be
subject to Canadian tax on any capital gain arising by reason of the disposition
of such Denbury Canada common share. After the effective date of the
continuance, based on the present activities of Denbury Delaware, Denbury
Delaware Common stock will not generally be "taxable Canadian property" to a
shareholder at any particular time.
Pursuant to the administrative practices of Revenue Canada, the amount
paid to you if you dissent should be treated as proceeds of disposition of his
or her Denbury Canada common shares. Provided that such shares are not taxable
Canadian property for the purposes of the Canadian Tax Act, such proceeds of
disposition will not be subject to Canadian tax. You should consult your own tax
advisors in this regard.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO SHAREHOLDERS OF THE
MOVE OF CORPORATE DOMICILE AND MERGER
In the opinion of Jenkens & Gilchrist, a Professional Corporation,
"U.S. Special Tax Counsel" to Denbury, the following are the material United
States federal income tax considerations arising from and relating to the
continuance that are generally applicable to you if you are a "U.S. Shareholder"
and in some cases if you are a "non-U.S. Shareholder. You are a U.S. Shareholder
if you are a United States citizen or resident, domestic corporation, domestic
partnership, estate subject to United States federal income tax on their income
regardless of source, or a trust but only if a court within the United States is
able to exercise primary supervision over the administration of such trust and
one or more United States fiduciaries have the authority to control all the
substantial decisions of the trust. You are a non U.S. Shareholder if you are
not a U.S. Shareholder. This discussion does not address all aspects of United
States federal income taxation that may be relevant to you. Particularly if you
directly or constructively own ten percent or more, by vote or value, of the
stock of the Company, or if you are subject to special treatment under the
United States federal income tax laws. This discussion does not address all
aspects of United States federal income taxation that may be relevant to your
individual tax circumstances including, without limitation:
o the tax consequences to U.S. Shareholders who directly or
indirectly own ten percent of more, by vote or value, of the
stock of Denbury Canada or Denbury Delaware;
o the potential application of the alternative minimum tax;
o the tax consequences of certain types of investors subject to
special treatment under the United States federal income tax
laws, for example:
o banks, life insurance companies, tax-exempt
organizations, broker-dealers or
o holders of Denbury Canada or Denbury Delaware stock who
received such stock as compensation.
In addition, this discussion does not address any aspect of state, local or
foreign laws.
This discussion is based on the United States Internal Revenue Code of
1986, as amended (the "Code"), existing and proposed regulations, IRS rulings
and pronouncements, reports of congressional committees, judicial decisions and
current administrative rulings and practice, all as of March __, 1999, and which
are subject to change. Any such change could be retroactive and change the tax
consequences discussed below. No advance ruling from the IRS with respect to
these matters has been requested.
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Accordingly, it is possible that the United States federal income tax
consequences of the continuance may differ from those described below.
THE FOLLOWING DOES NOT ADDRESS ALL ASPECTS OF FEDERAL INCOME TAXATION
THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR INDIVIDUAL CIRCUMSTANCES AND TAX
SITUATION. YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISORS AS TO THE PARTICULAR
TAX CONSEQUENCES TO YOU OF THESE TRANSACTIONS INCLUDING THE APPLICATION OF
STATE, LOCAL AND FOREIGN TAX LAWS; POSSIBLE FUTURE CHANGES IN FEDERAL TAX LAWS;
AND ANY PENDING OR PROPOSED LEGISLATION.
TAXATION OF U.S. SHAREHOLDERS. The following discussion applies to you
if you are a U.S. Shareholder and:
o you hold Denbury Canada common shares and/or will hold Denbury
Delaware common stock as "capital assets", defined below, within
the meaning of Section 1221 of the Code;
o your ownership, receipt or disposition of Denbury Canada common
shares and/or Denbury Delaware common stock is not attributable to
a permanent establishment in a country other than the United
States for purposes of an income tax treaty to which the United
States is a party; and
o you are not a resident of a country other than the United States
for purposes of an income tax treaty to which the United States is
a party.
If you are a U.S. Shareholder and do not meet one or more of the
foregoing criteria you should consult your tax advisors regarding your
particular United States federal income tax consequences.
The Continuance. For United States federal income tax purposes, the
continuance should result in a constructive exchange by you of your Denbury
Canada common shares for stock in a new United States corporation, Denbury
Delaware common stock, and should qualify as a reorganization within the meaning
of Section 368(a) of the Code. This conclusion is based on certain factual
assumptions and reliance on representations from the Company.
Unless you are a Section 1248 Shareholder, as defined below, based on
the conclusion that the continuance should qualify as a reorganization, the
following will be the material United States federal income tax consequences of
the continuance:
o You will not recognize gain or loss on the constructive exchange
of Denbury Canada common shares solely for Denbury Delaware common
stock;
o The tax basis of Denbury Delaware common stock constructively
received will be the same as the basis of Denbury Canada common
shares constructively surrendered in exchange therefore;
o The holding period for the shares of Denbury Delaware common stock
will include the holding period of Denbury Canada common shares
constructively surrendered in exchange therefor; and
o If you exercise your rights under Canadian law to dissent from the
continuance you should be treated as if your Denbury Canada common
shares were redeemed for cash and in general you should recognize
capital gain or loss in an amount equal to the difference between
the amount of cash received and your basis in Denbury Canada
common shares surrendered therefor. Section 318 of the Code may
apply to dissenting shareholders of the Company that actually or
constructively own shares of the Company as to which dissent
rights are not being exercised.
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You are a 1248 Shareholder if you actually or constructively own or
have owned 10 percent or more of the voting stock of the Denbury Canada at any
time in the five year period immediately preceding the continuance.
Notice Requirement. If you receive Denbury Delaware common stock in
exchange for Denbury Canada common shares and take the position that such
exchange is eligible for nonrecognition treatment you are required to file a
notice with the IRS on or before the last day for filing a United States federal
income tax return (taking into account any extensions of time therefor) for your
taxable year in which the continuance occurs. The notice must contain the
information specifically enumerated in Section 7.367(b)-1 of the United States
Treasury Regulations, and you are advised to consult your tax advisors for
assistance in preparing such notice. If you are required to give notice as
described and do not, and if you fail to establish reasonable cause for the
failure, then the IRS will be required to determine, based on all the facts and
circumstances, whether the conversion of Denbury Canada common shares into
Denbury Delaware common stock is eligible for nonrecognition treatment. In
making the determination, the IRS may conclude:
o that the conversion is eligible for nonrecognition treatment,
despite such noncompliance;
o that the conversion is eligible for nonrecognition treatment,
provided that certain other conditions imposed by the United
States treasury regulations are satisfied; or
o that the conversion is not eligible for nonrecognition treatment
and that any gain recognized will be taken into account for
purposes of increasing the tax basis of Denbury Delaware common
stock received pursuant to the continuance.
Nevertheless, the failure of another U.S. Shareholder to satisfy the
foregoing notice requirements should not bar you from receiving nonrecognition
treatment with respect to the conversion of your Denbury Canada common shares
into Denbury Delaware common stock pursuant to the continuance provided that you
satisfy the requirements listed above.
Passive Foreign Investment Company Considerations. For United States
federal income tax purposes, Denbury generally will be classified as a PFIC for
any taxable year during which either:
o 75 percent or more of its gross income is passive income, as
defined for United States federal income tax purposes; or
o on average for such taxable year, 50 percent or more of its
assets by value produce or are held for the production of passive
income.
For purposes of applying the foregoing tests, all or some of the assets
and gross income of Denbury's subsidiaries will be attributed to it. While there
can be no assurance with respect to the classification of Denbury as a PFIC, it
believes that it did not constitute a PFIC during any taxable year ending at or
prior to consummation of the continuance. In connection with the transactions
contemplated herein, U.S. Special Tax Counsel will not be rendering an opinion
with regard to the Company's status as a PFIC. In addition, we have not asked,
nor do we intend to ask, for a ruling from the IRS addressing whether Denbury
has been a PFIC during any taxable year ending at or prior to the consummation
of the continuance. There is always the risk that the IRS could determine that
Denbury has been a PFIC and that you may be subject to the PFIC rules set forth
below.
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Although the matter is not free from doubt, if Denbury is a PFIC prior
to the consummation of the continuance and you do not make a qualified electing
fund election, a "QEF Election", then:
o you would be required to allocate gain recognized upon the
exchange of Denbury Canada common shares for Denbury Delaware
common stock ratably over your holding period for such Denbury
Canada common shares;
o the amount allocated to each year, other than the year of the
disposition of Denbury Canada common shares or any year prior to
the beginning of the first taxable year of Denbury for which it
was a PFIC, would be subject to tax at the highest rate applicable
to individuals or corporations, as the case may be, for the
taxable year to which such income is allocated, and an interest
charge would be imposed upon the resulting tax attributable to
each such year, would accrue from the due date of the return for
the taxable year to which such tax was allocated; and
o gain recognized upon the disposition of Denbury Canada common
shares, including upon the exchange of Denbury Canada common
shares for Denbury Delaware common stock in the continuance, would
be taxable as ordinary income.
If you make a QEF Election, then you are generally taxed at ordinary
rates on your pro rata share of Denbury's ordinary earnings and net capital
gains for each taxable year Denbury is classified as a PFIC, even if no dividend
distributions are received by you unless you make an election to defer such
taxes.
This summary of the possible application of the PFIC rules to you is
only a summary of some material aspects of those rules. Because the United
States federal income tax consequences to you under the PFIC provisions may be
significant, you are urged to discuss those consequences with your tax advisors.
TAXATION OF NON-U.S. SHAREHOLDERS. The following discussion applies to
you if you are a non-U.S. Shareholder:
o who holds Denbury Canada common shares or will hold Denbury
Delaware common stock as capital assets within the meaning of
Section 1221 of the Code;
o who does not actually or constructively own, nor at any time in
the preceding five-year period actually or constructively owned,
five percent or more of the stock of Denbury,
o whose ownership, receipt or disposition of Denbury Canada common
shares and/or Denbury Delaware common stock is not attributable
either to the conduct of a trade or business in the United States
or to a permanent establishment in the United States; and
o who are not residents of the United States for purposes of United
States federal income tax law or an income tax treaty to which the
United States is a party.
If you are a non-U.S. Shareholder who does not meet one or more of the
foregoing criteria, you are urged to consult your own tax advisors regarding
your particular United States federal income tax consequences.
The Continuance. If, as expected, the continuance qualifies as a
reorganization, then you should have the same United States federal income tax
consequences as those described above for a U.S. Shareholder regarding
nonrecognition of gain or loss, tax basis and holding period. Except as follows,
you will generally not be required to file a notice with the IRS with respect to
the continuance.
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Generally, you will not be subject to United States federal income tax
on gain recognized, if any, upon the exchange of the shares of Denbury Canada
common shares for the shares of Denbury Delaware common stock unless:
o the gain is effectively connected with the conduct of a trade or
business within the United States by you;
o the gain is attributable to a permanent establishment in the
United States,
o if you are a nonresident alien and hold Denbury Canada common
shares as a capital asset, you are present in the United States
for 183 or more days in the taxable year and certain other
circumstances are present; or
o you are subject to tax pursuant to the provisions of the Code
applicable to some United States expatriates. If you would be
subject to United States federal income tax on such gains and
take the position that the exchange of Denbury Canada common
shares for Denbury Delaware common stock is eligible for
nonrecognition treatment will be required to file a notice with
the IRS. See "--Taxation of U.S. Shareholders--The Continuance,"
above.
Dividends on Denbury Delaware Common Stock. Generally, dividends
received by you with respect to Denbury Delaware common stock will be subject to
United States withholding tax at a rate of 30 percent, which rate may be subject
to reduction by an applicable income tax treaty. For example, 15 percent on
dividends paid to residents of Canada who qualify for the benefits of the income
tax treaty between the United States and Canada. If the dividends you receive
are effectively connected with the conduct of a United States trade or business
or are attributable to a permanent establishment in the United States of yours,
they will be taxed at the graduated rates that are applicable to United States
citizens, resident aliens and domestic corporations and will not be subject to
United States withholding tax if you give an appropriate statement to the
withholding agent in advance of the dividend payment. A non-U.S. Shareholder
that is a corporation may be subject to an additional branch profits tax on
effectively connected dividends.
Sale of Denbury Delaware Common Stock. You will generally not be
subject to United States federal income tax on gain recognized, if any, upon the
sale of shares of Denbury Delaware Common stock unless:
o the gain is effectively connected with conduct of a trade or
business within the United States;
o you are a nonresident alien individual and hold the Denbury
Delaware Common stock as a capital asset, you are present in the
United States for 183 or more days in the taxable year and other
specific circumstances are present;
o you are subject to tax pursuant to the provisions of the Code
applicable to United States expatriates; or
o Denbury is or has been a "United States real property holding
corporation," a "USRPHC," for federal income tax purposes, as
such term is defined by Section 897(c) of the Code, and you owned
directly or pursuant to attribution rules at any time during the
five year period ending on the date of disposition more than 5%
of Denbury common stock. This assumes that Denbury common stock
is regularly traded on an established securities market, within
the meaning of Section 897(c)(3) of the Code.
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Denbury believes that the as of the date of the continuance, Denbury Delaware
will be a USRPHC and that Denbury Delaware common stock will be treated as being
traded on an established exchange.
Estate Tax. Denbury Delaware common stock owned, or treated as such, by
an individual may be includible in his or her gross estate for United States
federal estate tax purposes and thus if you are an individual you may be subject
to United States federal estate tax, unless an applicable estate tax treaty
provides otherwise.
TAXATION OF THE MERGER. The merger of DMI into Denbury Delaware should
qualify as a tax-free liquidation of a wholly owned subsidiary into its parent
corporation. Therefore, you will recognize no gain or loss on the merger for
United States federal income tax purposes.
INFORMATION REPORTING AND BACKUP WITHHOLDING. Denbury must report
annually to the IRS and to you and all other shareholders the amount of
dividends paid that year, and the tax withheld with respect to such dividends,
if any. These information reporting requirements apply regardless of whether
withholding tax was reduced by an applicable income tax treaty. Copies of these
information returns reporting such dividends and withholding are made available
to the tax authorities in the country in which a non-U.S. Shareholder resides
under the provisions of an applicable income tax treaty or other agreement with
the tax authorities in that country.
In general, information reporting requirements may apply to dividend
distributions on Denbury Delaware common stock, or the proceeds of a sale,
exchange, retraction or redemption of Denbury Delaware common stock. A 31%
backup withholding tax may apply to these payments unless you are a corporation,
non-U.S. Shareholder or come within specific exempt categories and, when
required, demonstrate your exemption or provides a correct taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. If you are required to provide your correct taxpayer
identification number and fail to do so, you may be subject to penalties imposed
by the IRS.
United States backup withholding tax generally will not apply to
dividends paid on Denbury Delaware common stock that are subject to the 30% or
reduced treaty rate of withholding previously discussed if the beneficial owner
certifies its non-U.S. status under penalties of perjury, otherwise establishes
an exemption or, with respect to payments made after December 31, 1999,
satisfies certain documentary evidence requirements for establishing that it is
a non-U.S. holder. Under current law, dividends paid on Denbury Delaware common
stock to you at an address outside the United States are generally exempt from
backup withholding tax, but not from 30% withholding tax, as discussed above.
On October 14, 1997 the IRS issued final regulations which affect your
United States taxation. Under the these regulations, for dividends paid after
December 31, 1999, a non-United States person must generally provide proper
documentation indicating their status to a withholding agent in order to avoid
backup withholding tax. However, dividends paid to exempt recipients, not
including individuals will not be subject to backup withholding even if such
documentation is not provided if the withholding agent is allowed to rely on
certain presumptions concerning the recipient's non-United States status (i.e.
payment to an address outside the United States).
If you are a non-U.S. Shareholder, payments of proceeds from the sale
of Denbury Canada common shares by you made to or through a non-United States
office of a broker generally will not be subject to information reporting or
backup withholding. However, payments made to or through a nonUnited States
office of a United States broker or a non-United States office of a non-United
States broker that has certain specified connections with the United States, are
generally subject to information reporting, but not backup withholding unless
you certify your non-United States status under penalties of perjury or
otherwise establish your entitlement to an exemption. Payments of proceeds from
the sale of Denbury
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Delaware common stock by you made to or through a United States office of a
broker are generally subject to both information reporting and backup
withholding at a rate of 31% unless you certify your non-United States status
under penalties of perjury or otherwise establish your entitlement to an
exemption.
Any amounts withheld under the backup withholding rules from a payment
to you will be allowed as a credit against your United States federal income
tax, provided that the required information is furnished to the IRS.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO DENBURY OF THE MOVE OF
CORPORATE DOMICILE AND MERGER
In the opinion of U.S. Special Tax Counsel, the following are the
material United States federal income tax considerations arising from and
relating to the continuance and the merger that are applicable to Denbury. As
described in more detail in the preceding section, the continuance should
qualify as a "reorganization" within the meaning of Section 368(a) of the Code.
This conclusion is based on factual assumptions and reliance on representations
from Denbury and principal shareholders of Denbury.
This discussion is based upon United States laws, regulations, rulings
and decisions currently in effect, all of which are subject to change, possibly
with retroactive effect. No advance income tax ruling has been sought or
obtained from the IRS regarding the tax consequences of any of the transactions.
Accordingly, the United States federal income tax consequences to Denbury of the
continuance may differ from those described below.
CONTINUANCE. A domestication transaction, such as the continuance, is
generally treated for federal income tax purposes as a transfer by Denbury
Canada of all of its assets and liabilities to a new domestic corporation,
Denbury Delaware, in exchange for all of the stock of Denbury Delaware followed
by a liquidating distribution by Denbury Canada to its shareholders of Denbury
Delaware common stock received in exchange for Denbury Canada's assets and
liabilities. Generally, the Code provides non-recognition treatment to the
acquired corporation in such a transaction if it otherwise meets the
requirements of a reorganization. In certain circumstances occurring in an
international reorganization, however, the operation of certain rules overrides
the non-recognition treatment normally obtained in a reorganization. Such rules
may cause Denbury to recognize gain on the deemed transfer and/or distribution,
as described below.
The deemed transfer by Denbury Canada of all of its assets and
liabilities to Denbury Delaware should be treated as a nontaxable event if
Denbury Delaware common stock received by the Company is a United States real
property interest: "USRPI". If Denbury Delaware common stock is not a USRPI,
then the Company may be subject to United States federal income tax on the gain
or loss resulting from the disposition of its assets that are USRPIs. Denbury
Delaware common stock will be a USRPI, however, if Denbury Delaware is a USRPHC.
As discussed above, under "Material United States Federal Income Tax
Consequences to Shareholders--Taxation of Non-U.S. Shareholders," Denbury has
represented that it believes that Denbury Delaware will be a USRPHC. Based on
this representation, U.S. Special Tax Counsel has concluded that Denbury
Delaware common stock will be a USRPI and, therefore, the deemed transfer should
not result in United States federal income taxation.
Even though Denbury's deemed transfer to Denbury Delaware should be a
non-recognition event for United States federal income tax purposes, the deemed
liquidating distribution by Denbury of Denbury Delaware common stock to its
shareholders may be a taxable event if Denbury Delaware common stock is a USRPI.
As discussed above, U.S. Special Tax Counsel has concluded that Denbury Delaware
common stock will be a USRPI.
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In general, notwithstanding any non-recognition provision of the Code,
Denbury Canada will recognize gain on the distribution including a deemed
distribution of a USRPI, such as Denbury Delaware common stock, in an amount
equal to the excess of the fair market value of such USRPI at the time of the
distribution over Denbury's adjusted basis in the USRPI. The Code requires such
corporations to deduct and withhold a tax equal to 35 percent of the gain
recognized on such distribution. Denbury believes that the adjusted basis of
Denbury Delaware common stock will be substantially in excess of its fair market
value at the time of the continuance. Therefore, no gain will be recognized on
Denbury's distribution of Denbury Delaware common stock to its shareholders.
Denbury will apply for a withholding certificate from the IRS to confirm that
the Company has no withholding tax payment obligation. There can be no
assurance, however, that the IRS will agree with Denbury's calculation of its
tax basis in Denbury Delaware common stock or with Denbury's calculation of the
fair market value of such stock. Any disagreement or change could result in
Denbury owing United States federal income tax.
MERGER. The merger should qualify as tax-free to Denbury Delaware and
DMI with the following United States federal income tax consequences:
o Denbury Delaware will recognize no gain or loss on the receipt of
DMI's assets;
o DMI will recognize no gain or loss on the distribution of its
assets to Denbury Delaware;
o Denbury Delaware will take a tax basis in the assets of DMI equal
to DMI's tax basis immediately prior to the merger; and
o Denbury Delaware's holding period in the DMI assets received will
include DMI's holding period in such assets.
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COMPARISON OF SHAREHOLDERS' RIGHTS
All shareholders of Denbury Canada will become stockholders of Denbury
Delaware after the move. Denbury Canada is a corporation organized under
Canadian law. Denbury Delaware will be a corporation organized under and
governed by Delaware law. The principal attributes of Denbury Delaware common
stock and Denbury Canada common shares are comparable, but there are material
differences in shareholder rights. The following is a summary of these material
differences which arise from differences between United States and Canadian
securities laws, between the Canada Business Corporations Act, the "CBCA", the
Delaware General Corporation Law, the "DGCL", and between Denbury Canada's
present charter and by-laws and the proposed certificate of incorporation and
by-laws of Denbury Delaware. The proposed Delaware governing documents are
attached to this document as Exhibits D and E.
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE TERMS OF THE ARTICLES
OF INCORPORATION AND BY-LAWS OF DENBURY CANADA AND THE CERTIFICATE OF
INCORPORATION AND BY-LAWS OF DENBURY DELAWARE ATTACHED TO THIS DOCUMENT.
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CANADA DELAWARE
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VOTE REQUIRED FOR EXTRAORDINARY TRANSACTIONS
Under the CBCA, shareholders holding The DGCL requires the affirmative
not less than 2/3 of the votes cast by vote of a majority of the outstanding
the shareholders entitled to vote on stock entitled to vote thereon to
specific extraordinary corporate actions authorize any merger, consolidation,
must approve those special actions. dissolution or sale of substantially
These include certain amalgamations, all of the assets of a corporation.
continuances, liquidations, dissolutions However, an authorizing stockholder
and sales, leases or exchanges of all or vote is not required of a corporation
substantially all the assets of a surviving a merger if:
corporation, other than in the ordinary
course of business. In certain cases, a o such corporation's certificate of
special resolution to approve an incorporation is not amended in
extraordinary corporate action is also any respect by the merger;
required to be approved separately by the
holders of a class or series of shares. o each share of stock outstanding
immediately prior to the merger
will be an identical share of the
corporation after the merger; and
o no shares of common stock or
those convertible into common
stock will be issued in the
merger, or the common stock to be
issued in the merger does not
exceed 20% of such corporation's
outstanding common stock
immediately prior to the merger.
No stockholder approval is
required under the DGCL for mergers
of a parent and a subsidiary, of
which it owns 90% or more.
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CANADA DELAWARE
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Denbury Canada currently does not
have a shareholders' rights plan.
Shareholders' rights plans are common
to many corporations incorporated
in the United States. They give a
corporation's board of directors the
opportunity to withstand an
unsolicited takeover attempt while
taking sufficient time to evaluate
an offer and to consider alternative
measures or transactions that may be
appropriate in responding to the
offer. The DGCL permits shareholders'
rights plans in general and permits
the adoption of shareholders' rights
plans by a board of directors without
shareholder approval.
AMENDMENT TO GOVERNING DOCUMENTS
Under the CBCA, amendments to the The DGCL requires that any
articles of incorporation generally amendment to the corporation's
require approval by holders of not less certificate of incorporation must
than 2/3 of the votes cast by be approved by the holders of a
shareholders entitled to vote. The majority of the outstanding stock of
directors may amend or repeal any by-law each class entitled to vote. The
unless the articles of incorporation or certificate of incorporation can
by-laws otherwise provide. When the require a greater level of approval.
directors amend or repeal a by-law, they The proposed certificate of
are required under the CBCA to submit the incorporation for Denbury Delaware
change to the shareholders at the next will not require a greater level of
meeting of shareholders. Shareholders may approval.
confirm, reject, amend or repeal the
by-law amendment by the vote of holders If an amendment adversely alters
of a majority of the votes cast by the rights or preferences of a
shareholders present and entitled to particular class or series of stock,
vote. that class or series must approve the
amendment as a class even if the
certificate of incorporation does not
provide this right. The DGCL also
reserves the power to amend or repeal
the by-laws to stockholders unless
the certificate of incorporation
confers such power on the board of
directors in addition to the
stockholders. The proposed
certificate of incorporation of
Denbury Delaware expressly authorizes
the board of directors to adopt,
amend or repeal Denbury Delaware's
by-laws.
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CANADA DELAWARE
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DISSENT RIGHTS
The CBCA provides that shareholders Under the DGCL, shareholders have
entitled to vote on certain matters may have the right to dissent from a
exercise dissent rights and demand merger or consolidation by demanding
payment for the fair value of their payment in cash for their shares
shares. For this purpose the CBCA does equal to the fair value of such
not distinguish between listed and shares. Fair value is to be
unlisted shares. Dissent rights exist determined by agreement with the
when there is a vote upon matters such corporation or by an independent
as: appraiser appointed by a court in an
o any amalgamation with another action timely brought by the
corporation, other than with corporation or the dissenters and
specified affiliated excludes any appreciation or
corporations; depreciation as a consequence, or in
o an amendment to the corporation's expectation, of the transaction. The
articles of incorporation; DGCL grants dissenters' appraisal
o adding, changing or removing any rights only in the case of mergers or
consolidations and not in the case of
provisions which restrict the a sale or transfer of assets or a
issue, transfer or ownership of purchase of assets for stock,
shares; regardless of the number of shares
o a continuance under the laws of being issued. No appraisal rights are
another jurisdiction; and available for shares listed on a
o a sale, lease or exchange of all national securities exchange or
or substantially all the property designated for trading on the NASDAQ
of the corporation other than in or held of record by more than 2,000
the ordinary course of business. stockholders. However, dissent rights
are available if the agreement of
However, a shareholder is not merger or consolidation does not
entitled to dissent if an amendment to convert such shares into:
the articles of incorporation is effected
by a court order approving a o stock of the surviving
reorganization or by a court order made corporation;
in connection with an action for an o stock of another corporation
oppression remedy. Under the CBCA, a which is listed on a national
shareholder may seek an oppression remedy securities exchange or designated
for any corporate act or omission which for trading on the NASDAQ or held
is oppressive or unfairly prejudicial to of record by more than 2,000
or that unfairly disregards a stockholders; and
shareholder's interest. o cash in lieu of fractional shares
or some combination of the three.
In addition, dissent rights are
unavailable if the stockholders of
the surviving corporation are not
required to vote upon the merger.
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CANADA DELAWARE
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OPPRESSION REMEDY
Section 241 of the CBCA provides an The DGCL does not provide for a
oppression remedy. A court may make any similar remedy. However, the DGCL
order, both interim and final, to rectify provides a variety of legal and
the matters complained of, if satisfied equitable remedies to a corporation's
that: stockholders for improper acts or
omissions of a corporation, its
o any act or omission of the corporation officers and directors. Under the
or any of its affiliates; DGCL, only stockholders can bring an
o the conduct of its business or the action alleging a breach of fiduciary
acts of its directors or affiliates duty by the directors of a
have been oppressive or unfairly corporation. In order to be
prejudicial to, or that unfairly successful, the stockholder must show
disregards the interests of, any that the act or omission is not
security holder, creditor, director or protected by the "business judgment
officer of the corporation. rule." This rule presumes that
disinterested directors' decisions
A complainant includes a present or are made in good faith and in the
former shareholder, officer or director best interests of the corporation,
of the corporation or any of its absent a showing of intentional
affiliates, or the Director of the CBCA. director misconduct, gross negligence
or a conlict of interest.
Because of the breadth of the
conduct covered by the oppression remedy
and the wide scope of the court's
remedial powers, the oppression remedy is
very flexible. It is frequently relied
upon to safeguard the interest of
shareholders and others with a
substantial interest in the corporation.
Under the CBCA, it is not necessary to
prove that the directors of a corporation
acted in bad faith in order to seek an
oppression remedy. It is sufficient to
prove that their actions were oppressive,
unfairly prejudiced to, or unfairly
disregarded the interests of, any
security holder, director, officer or
creditor. Although the court may order
the corporation to pay the interim
expenses such as legal fees of a
complainant, ultimately the complainant
may be held accountable for such interim
costs.
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CANADA DELAWARE
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DERIVATIVE ACTION
Under the CBCA, a complainant may A derivative action may be
apply to the court for leave to bring an brought in Delaware by a stockholder
action in the name of and on behalf of a of, and for the benefit of, the
corporation or any of its subsidiaries, corporation. The DGCL provides that
or to intervene in an existing action to the person must allege that he was a
which they are a party. Under the CBCA, stockholder at the time when the
in order to bring an action, a transaction took place. A stockholder
complainant must first give reasonable may not sue derivatively without
notice to the directors of the first demanding that the corporation
corporation of the intention to apply to bring suit, which demand has been
the court. The court must be satisfied refused, unless it is shown that such
that: demand would have been futile.
o the directors of the corporation
will not bring, diligently
prosecute or defend the action;
o the complainant is acting in
good faith; and
o it appears that the action is in
the interest of the corporation.
Under the CBCA, the court in a
derivative action may make any order it
thinks fit, including orders pertaining
to conduct of the lawsuit or the making
of payments to former and present
shareholders and payment of reasonable
legal fees incurred by the complainant.
SHAREHOLDER CONSENT IN LIEU OF MEETING
Under the CBCA, shareholders can Under the DGCL and under Denbury
take an action by written resolution and Delaware's certificate of
without a meeting only if all incorporation, any action to taken at
shareholders sign the written resolution. a meeting of stockholders may be
taken without a meeting if a consent
in writing is signed by the required
number of shareholders. The vote
required is the same vote required at
a stockholders' meeting. The
corporation is required to give
prompt notice of the taking of
corporate action to stockholders who
have not consented in writing.
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CANADA DELAWARE
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SHAREHOLDER QUORUM
Under the CBCA and Denbury Canada's Under the DGCL and under Denbury
charter, a quorum is present at a meeting Delaware's proposed by-laws, a quorum
if two shareholders are represented in for any meeting of the shareholders
person or by proxy and hold at least 5% consists of 1/3 of the shares
of Debury Canada's outstanding shares. entitled to vote at a meeting, in
person or by proxy.
DIRECTOR QUALIFICATIONS
Under the CBCA, 1/3 of the Delaware does not have comparable
directors must be Canadian residents. In requirements.
addition, because the securities of
Denbury Canada are publicly traded, it
must have at least three directors. At
least two of the directors must not be
officers or employees of Denbury Canada
or its affiliates.
FIDUCIARY DUTIES OF DIRECTORS
Directors of corporations incorporated or organized under the CBCA and the
DGCL have fiduciary obligations to the corporation and its shareholders. Under
these fiduciary obligations, the directors must act in accordance with the legal
principle of "duty of care."
Section 122 of the CBCA requires Under the DGCL, the duty of care
directors of a Canadian corporation to requires that directors act in an
act honestly and in good faith with a informed and deliberative manner and
view to the best interests of the prior to making a business decision,
corporation. The duty of care requires inform themselves of all material
that the directors exercise the care, information reasonably available to
diligence and skill that a reasonably them. The duty of loyalty requires
prudent person would exercise in directors to act in good faith, not
comparable circumstances. out of self-interest, and in a manner
which the directors reasonably
believe to be in the best interest of
the stockholders pursuant to the
"business judgment rule."
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CANADA DELAWARE
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INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under the CBCA and pursuant to The DGCL permits a corporation to
Denbury Canada's by-laws, it may indemnify its present or former
indemnify present or former directors or directors or officers made a party to
officers against all expenses and any third party proceeding because of
settlement amounts or judgments arising their service as director or officer
out of actions against such individuals of the corporation. Indemnification
because of their service as directors or can cover expenses, judgments, fines
officers. In order to qualify for and settlement amounts. In order to
indemnification such director or officer qualify for indemnification such
must: director or officer must:
o have acted honestly and in good o have acted in good faith and
faith with a view to the best in a manner such person
interest of the company; and reasonably believed to be in
o in the case of a criminal or or not opposed to the best
administrative action enforced interests of the corporation;
by a monetary penalty, have had and
reasonable grounds for believing o with respect to any criminal
that his or her conduct was action or proceeding, had no
lawful. reason to believe that such
conduct was unlawful.
Indemnification will be provided to
an eligible director or officer who meets In a derivative action, or an
both these tests or was entitled to such action in the right of the
indemnity or was substantially successful corporation, the corporation is
on the merits in the action. permitted to indemnify directors and
officers against expenses if they
A corporation may, if the person acted in good faith and in a manner
meets the conditions above and it is that they reasonably believed to be
approved by a court, also indemnify an in or not opposed to the best
eligible director or officer in an action interests of the corporation.
by or on behalf of the corporation. However, in such a case, no
indemnification shall be made if such
The officers and directors of person is adjudged liable to the
Denbury Canada currently have corporation. Even if an adjudication
indemnification contracts which survive of liability occurs, such person may
the termination of their service as be indemnified for expenses to the
officers or directors. These contracts extent that the court in the action
will continue after the move of domicile determines that such directors or
to Delaware. officers are fairly and reasonably
entitled to indemnity.
The DGCL allows the corporation
to advance expenses before the
resolution of an action if such
person agrees to repay advances if
they are not entitled to
indemnification. The CBCA does not
expressly provide for such advance
payment.
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CANADA DELAWARE
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DIRECTOR LIABILITY
The CBCA limits or eliminates the The DGCL provides that a
liability of directors to the corporation corporation's certificate of
or its stockholders for malfeasance or incorporation may limit or eliminate
nonfeasance by them. In some the liability of directors to the
circumstances, if a director proves that corporation or its stockholders for
he did not know and could not have known monetary damages for breach of
of the unlawful act, he will not be fiduciary duty as a director. Such
liable. Also, most actions to enforce a liability cannot arise from
liability imposed by the CBCA must be proscribed conduct, including:
brought within two years of the date of
the act. Further, a director will not be o acts or omissions not in
liable under portions of the CBCA if he good faith;
relied in good faith on: o acts involving intentional
misconduct;
o financial statements fairly o acts which violate the law;
represented to him by an officer o breach of the duty of
or in a written report of the loyalty;
auditor to reflect the o payment of unlawful
corporation's financial dividends;
condition; or o expenditure of funds for
o a report of a lawyer, unlawful stock purchases; or
accountant, engineer, appraiser o redemptions or transactions
or other person whose profession from which such director
lends credibility to a statement derived an improper personal
made by him. benefit.
The proposed certificate of
incorporation of Denbury Delaware
limits director liability to the
corporation or its stockholders,
except, for liability for:
o any breach of the director's
duty of loyalty to the
corporation or its
stockholders;
o acts or omissions not in
good faith or which involve
intentional misconduct or a
knowing violation of law;
o certain unlawful
distributions by the
corporation; or
o any transaction from which
the director derived an
improper personal benefit.
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CANADA DELAWARE
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ANTI-TAKEOVER PROVISIONS AND INTERESTED STOCKHOLDER TRANSACTIONS
Policies of certain Canadian Section 203 of the DGCL prohibits
securities regulatory authorities, a "business combination" between the
including Policy 9.1 of the Ontario corporation and an "interested
Securities Commission, contain stockholder" within three years of
requirements for related party the stockholder becoming an
transactions. A related party transaction "interested stockholder" unless
is any transaction in which a corporation certain conditions are met. Denbury
acquires or transfers an asset or Delaware will expressly opt out of
securities or liability from or to this provision. An "interested
directors, senior officers and holders of stockholder" is a person who controls
at least 10% of the voting securities of 15% or more of the outstanding voting
the corporation. stock at any time within the prior
Policy 9.1 requires: three-year period. A "business
combination" includes a merger or
o more detailed disclosures in the consolidation, a sale of 10% or more
proxy material pertaining to a of the corporation's assets or
related party transaction; aggregate market value and some
o preparation of a formal transactions that would increase the
valuation of the transaction; interested stockholder's
and proportionate ownership in the
o a summary of the valuation in corporation.
the proxy material.
Policy 9.1 also requires minority This provision does not apply where:
shareholders to approve the transaction,
by either a simple majority or two-thirds o either the business
of the votes cast, depending upon the combination or the
circumstances. transaction making the
person an interested
stockholder is approved by
the corporation's previous
board of directors;
o after the transaction making
the person an interested
stockholder, that person
owned at least 85% of the
outstanding voting stock of
the corporation;
o the business combination is
approved by a majority of
the board of directors and
the disinterested
shareholders owning
two-thirds of the
outstanding shares entitled
to be cast;
o the corporation is not a
public company because of
stock exchange listings or
inter-dealer quotations and
has less than 2,000
stockholders
o the corporation has opted
out of Section 203.
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CANADA DELAWARE
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ACCESS TO CORPORATE RECORDS
Under the CBCA, you, other Under the DGCL, any shareholder
shareholders and the creditors of a of a corporation, their agents or
corporation, their agents or legal legal representatives may make a
representatives as well as the Director written demand to examine the records
under the CBCA may examine: of that corporation. Such a demand to
examine the corporation's records
o the articles of incorporation, must have a proper purpose, be sworn
by-laws, unanimous shareholder under oath, and directed to that
agreements of Denbury Canada; corporation at its principal place of
o the minutes and resolutions of business or its registered office in
shareholders; Delaware. A proper purpose is one
o all notices pertaining to the that is reasonably related to that
term of office, election of, or shareholder's interest in the
change of directors of Denbury corporation as a shareholder. The
Canada; and certificate of incorporation of a
o the securities register of Delaware corporation may also provide
Denbury Canada free of charge these examination powers to holders
during normal business hours. of the corporation's debt securities.
The proposed certificate of
Since Denbury Canada is public, any incorporation of Denbury Delaware
person may examine the aforementioned will contain such a provision.
records for a reasonable fee. All
shareholders of Denbury Canada may
request a copy of the articles of
incorporation, by-laws, unanimous
shareholder agreements of that
corporation free of charge.
DISSENTING SHAREHOLDERS' RIGHTS
Section 190 of the CBCA is reprinted in its entirety as Exhibit B to this
document. Shareholders may dissent from the proposal to move our corporate
domicile. THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE PROVISIONS
OF SECTION 190 OF THE CBCA.
If you wish to dissent and do so in compliance with Section 190, you will
be entitled to be paid the fair value of the shares you hold. Fair value is
determined as of the day before the move is approved by shareholders and
excludes the investment of $100 million by TPG, even if that sale is approved by
shareholders.
If you wish to dissent, you must send written objection to the move to us
before the special meeting. If you vote in favor of the move, you lose your
rights to dissent. If you abstain or vote against the move, you preserve your
dissent rights. It is not sufficient to vote against the move or abstain. You
must also provide a separate dissent notice. If you grant a proxy and intend to
dissent, the proxy must instruct the proxy holder to vote against the move in
order to prevent the proxy holder from voting such shares in favor of the move
and thereby voiding your right to dissent. Under the CBCA, you have no right of
partial dissent. Accordingly, you may only dissent as to all your shares.
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We are required to notify each shareholder who has filed a dissent notice
when and if the move has been approved. This must be sent within 10 days after
shareholders approve the move. We will not send a notice to any shareholder who
voted to approve the move or who has withdrawn their dissent notice.
Within 20 days after receiving the above notice from us, or if you do not
receive such notice within 20 days after learning that the move has been
approved, you must send us a payment demand containing:
o your name and address;
o the number of shares you own; and
o a demand for payment of the fair value of your shares.
Within 30 days after sending a payment demand, you must send via our
transfer agent, to the Secretary of Denbury Resources Inc., c/o CIBC Mellon
Trust Company, Corporate Trust Department, 600 Dome Tower, 333 7th Avenue S.W.,
Calgary, Alberta T2P 2Z1, the certificates representing your shares. If you fail
to send us a dissent notice, a payment demand or your share certificates within
the appropriate time frame, you forfeit your right to dissent and your right to
be paid the fair value of your shares. Our transfer agent will endorse on your
share certificates a notice that you are a dissenting shareholder and will
return the share certificates to you.
Once you send a payment demand to us, you cease to have any rights as a
shareholder. Your only remaining right is the right to be paid the fair value of
your shares. Your rights as a shareholder will be reinstated if:
o you withdraw your payment demand;
o we fail to make you an offer of payment; or
o if the move of domicile does not happen.
Within seven days of the closing of the move or the date we receive your
payment demand, we must send you a written offer to pay for your shares. This
offer must include a written offer to pay you an amount considered by the board
of directors to be the fair value of your shares. The offer must include a
statement showing the manner used to calculate the fair value. Every offer to
pay any shareholder must be on the same terms. We must pay you for your shares
within 10 days after you accept our offer. Any such offer lapses if we do not
receive your acceptance within 30 days after the offer to pay has been made to
you.
If we fail to make an offer to pay for your shares, or if you fail to
accept the offer within 50 days after the date of the move, we may apply to a
court to fix a fair value for your shares. If we fail to apply to a court, you
may apply to a court for the same purpose within a further period of 20 days.
You are not required to give security for costs in such a case.
All dissenting shareholders whose shares have not been purchased will be
joined as parties and bound by the decision of the court. We are required to
notify each affected dissenting shareholder of the date, place and consequences
of the application and of their right to appear and be heard in person or by
counsel. The court may determine whether any person who is a dissenting
shareholder should be joined as a party. The court will then fix a fair value
for the shares of all dissenting shareholders who have not accepted a payment
offer from us. The final order of a court will be rendered against us for the
amount of the fair value of the shares of all dissenting shareholders. The court
may, in its discretion, allow a reasonable rate of interest on the amount
payable to each dissenting shareholder.
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THIS IS ONLY A SUMMARY OF THE DISSENTING SHAREHOLDER PROVISIONS OF THE
CBCA. THEY ARE TECHNICAL AND COMPLEX. IT IS SUGGESTED THAT IF YOU WANT TO AVAIL
YOURSELF OF YOUR RIGHTS THAT YOU SEEK YOUR OWN LEGAL ADVICE. FAILURE TO COMPLY
STRICTLY WITH THE PROVISIONS OF THE CBCA MAY PREJUDICE YOUR RIGHT OF DISSENT.
For a general summary of income tax implications to a dissenting shareholder,
see "Move the Corporate Domicile-Material Canadian Federal Income Tax
Consequences of the Move of Corporate Domicile and Merger--Taxation of
Dissenting Shareholders" and "-Shareholders Not Resident in Canada-Dissenting
Shareholders" and "Moving the Corporate Domicile of Denbury--Material United
States Federal Income Tax Consequences to Shareholders of the Move of Corporate
Domicile and Merger".
GRANTING THE BOARD OF DIRECTORS AUTHORITY TO
ABANDON OR POSTPONE THE MOVE OF DOMICILE
The second proposal asks you to grant authority to the board of directors
to postpone or abandon the move, even if approved by the shareholders, if the
board later determines such a move or its timing would not be in the best
interests of you or us. Although it is difficult to foresee all possibilities or
reasons to postpone or abandon the move, if the following situations arise,
which are the two most likely, then the board could decide to postpone or
abandon the move:
o if it appeared that there would be adverse tax consequences to
shareholders or Denbury because of a significant increase in the
market value of Denbury between the date of this document and the
date of the move; or
o if the holders of more than 5% of the outstanding common shares
exercise their dissent rights and request payment for the fair value
of their shares; although the board may also make such decision if it
believes that the amount anticipated to be paid as the fair value to
dissenting shareholders is likely to exceed $5 million.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF THIS
PROPOSAL.
SALE OF SHARES TO TPG
The third proposal asks you to approve the sale of 18,552,876 common
shares to TPG, our largest shareholder, for $100 million, or $5.39 per share. If
shareholders approve the sale to TPG, it will take place whether or not the move
occurs.
REASONS FOR SEEKING SHAREHOLDER APPROVAL. The NYSE and the TSE require
shareholders to approve substantial sales of shares to a significant
shareholder. The NYSE also requires that holders of at least 50% of the
outstanding shares vote on the proposed sale. TPG's shares will be included to
determine whether 50% have voted, but a majority of the votes cast by
shareholders, other than TPG and its affiliates, must approve this proposal.
BACKGROUND OF THE TRANSACTION AND TPG'S INTEREST IN DENBURY. David
Bonderman, James G. Coulter and William S. Price, III founded the Texas Pacific
Group in 1992 to pursue public and private investment opportunities. The
principals of TPG manage TPG Partners, L.P., TPG Parallel I, L.P, and TPG
Partners II, L.P., the buyer of the shares discussed here, plus other investment
funds. TPG Partners, L.P. and TPG Parallel I, L.P. currently own 7,931,048 and
790,390 common shares of Denbury, respectively. TPG's other investments include
such branded consumer product companies such as Beringer Wine Estates Holdings,
Inc., Ducati Motors, S.p.A., Favorite Brands International, Inc. and J. Crew
Group, Inc.
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TPG first invested $40.0 million in Denbury in December 1995 to purchase
common shares, Convertible First Preferred Shares and warrants. In October 1996
at the time of our public offering of 4,940,000 common shares, TPG purchased
800,000 of those shares for approximately $9.6 million directly from Denbury at
the same price that shares were offered to the public less underwriting
discounts, $12.035 per share. In February 1998, TPG purchased 313,400 shares for
$5.0 million, $15.955 per share at the time of Denbury's public offering of
4,240,780 common shares, again at the public offering price less underwriting
discounts. As of February 28, 1999, TPG owned approximately 32% of Denbury's
issued and outstanding common shares.
EXISTING AGREEMENT WITH TPG. Under a December 1995 agreement signed when
TPG made their first investment in Denbury, TPG is entitled to nominate three of
the seven board members, who have been Messrs. Stanton, Price and Bonderman
since late 1995. As part of the same agreement, Denbury is entitled to nominate
three board members and Mr. Greene, Chairman of the board, is nominated by both
parties. However, this entire 1995 agreement will terminate upon the closing of
the TPG stock purchase transaction. Although TPG has indicated that they do not
have any current plans to make changes to the board, after this transaction they
will have adequate voting power to do so at their discretion.
Additionally, as part of TPG's original purchase in 1995, we amended our
charter so that the following actions require approval by 2/3 of the directors:
o an acquisition with a purchase price in excess of 20% of our assets;
o a change in the number of our directors;
o amendment to the certificate of incorporation or by-laws;
o any issuance of equity securities or securities convertible into
equity securities other than under our stock option or employee
benefit plans;
o creation of any series of preferred stock;
o issuance of debt securities in excess of 10% of our assets; and
o borrowings other than under existing credit lines or specified
increases in those credit lines.
Because three of our seven directors are affiliates of TPG, at least one of the
TPG affiliated directors must approve the actions listed above. These same
provisions are contained in the proposed certificate of incorporation of Denbury
Delaware and therefore, this approval requirement will continue to exist after
the move.
TPG'S INTENTIONS AFTER THE SALE. TPG intends to review continuously the
equity positions of its affiliates in Denbury. Depending upon future evaluations
of our business prospects and upon other developments, including general
economic and business conditions and money market and stock market conditions,
TPG or its affiliates may determine to increase or decrease their equity
interest by acquiring additional common shares or other securities convertible
into common shares or by disposing of all or a portion of their Denbury
holdings, subject to any applicable legal and contractual restrictions on its
ability
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to do so. TPG has no current intention to cause any of its affiliates to
increase their ownership of our outstanding common shares other than through the
current TPG purchase.
PURPOSE OF THE SALE OF SHARES. The primary purpose of the TPG stock sale
is to raise funds for acquisitions. At this time traditional financing for the
oil and gas industry is generally unavailable because of the downturn in the
U.S. equity and debt markets for our industry during the summer of 1998, along
with decreases in the oil and natural gas prices. The purchase prices for oil
and gas properties have decreased because of these factors. This increases the
likelihood of making attractive acquisitions. We perceive it to be an attractive
time to make acquisitions, especially if we have additional equity to buy
properties. With our current debt levels, it is doubtful that we could make any
meaningful acquisitions without this additional equity. This stock sale also
improves our debt ratios.
We will initially use the estimated $98.5 million net proceeds of the
sale to reduce our outstanding debt, although we ultimately plan to use these
funds primarily for acquisitions. Because of the low oil and gas prices and
reduced cash flows, we have scaled back our capital expenditures. Accordingly,
we do not plan to use any significant portion of these funds for development or
exploration activities. See also "Use of Proceeds."
ALTERNATIVES CONSIDERED. A private sale of equity to TPG was the first
alternative we considered because of TPG's familiarity with us, TPG's
substantial current ownership in Denbury, their interest in increasing their
investment in Denbury and the difficulty of finding another party that could
make such a substantial single investment on a timely basis. Because of TPG's
affiliation with Denbury, the board of directors created a Special Transactions
Committee, the "Committee," to negotiate with TPG. See "Conflicts of Interest
and Creation of the Special Transactions Committee" below. During the course of
negotiations with TPG, the Committee considered several other alternatives:
o The first was the sale of non-voting common stock to TPG. TPG
responded that it would expect to purchase such non-voting shares at
a discount from the price paid for voting shares. The Committee
determined that it would not benefit us to forego any premium in
order to sell TPG non-voting stock since TPG currently nominates
three of seven board members and is our largest shareholder.
o The Committee also considered seeking out other private investors
with the goal of obtaining a higher price. However, the Committee was
not confident that a better price could be obtained from another
party. TPG agreed to pay a 41% premium over market price at the time
of pricing. The attractiveness to another investor of making a
substantial purchase would be substantially reduced by TPG's existing
significant ownership interest in Denbury. The search for an
interested third party would only result in delays. Since we already
are receiving a premium over market price from TPG, a third party
offer might not be as attractive.
o The Committee also considered the alternative of a rights offering to
existing shareholders. However, rights offerings are typically sold
at a discount to current market. If stock were to be offered at a
premium in a rights offering, few if any shareholders other than TPG,
would be likely to acquire additional shares. Thus, in a rights
offering TPG might have been able to acquire control with a smaller
premium than the price you are being asked to approve.
BENEFITS TO TPG OF THE SALE. The effect of selling the shares to TPG and
its main benefit to TPG will be to give TPG control of us. The sale will
increase TPG's ownership of our issued and outstanding common shares from
approximately 32% to approximately 60%. Currently, we do not expect this
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transaction to result in any changes to our board, management or operations. If
the transaction is approved, after the sale TPG will be able to control the
election of directors, to determine the corporate and management policies of
Denbury and to effect the shareholder approval of a merger, consolidation or
sale of all or substantially all of the assets of Denbury.
If our legal domicile is moved to Delaware, the Certificate of
Incorporation of Denbury Delaware will opt out of the provisions of Section 203
of the Delaware General Corporation Law due to terms of the stock purchase.
Section 203 prohibits an interested shareholder, such as TPG, from engaging in a
"business combination" with a company for three years after the stockholder
becomes the direct or indirect owner of 15% of that company's stock, unless
approved by the holders of 2/3 of the company's issued and outstanding common
shares. A "business combination" includes a merger, sale of substantially all of
a company's assets or sale of its shares to an interested shareholder such as
TPG.
CONFLICTS OF INTEREST AND CREATION OF THE SPECIAL TRANSACTIONS
COMMITTEE. The sale of shares to TPG is subject to a number of conflicts of
interest:
o TPG is our largest shareholder;
o Three of the officers and directors of TPG's controlling entity
are members of our board;
o the requirement for 2/3 approval by our board of directors of
certain major actions described under "Existing Agreement with
TPG" above, requires approval of those actions by our directors
that are affiliated with TPG;
o TPG has historically had the right to maintain its pro rata
interest in our outstanding common shares by buying a portion of
any shares we issued on the same terms and conditions. This right
has been waived by TPG in each sale of equity securities since
1995 and this right will terminate upon the closing of the TPG
purchase.
Therefore, the board created a Special Transactions Committee. None of
the members of the Special Transactions Committee are members of management or
are affiliated in any way with TPG. Mr. Greene, the Chairman of the board and
the Chairman of the Committee, and Messrs. Wettstein and Matthews are members of
the Committee.
NEGOTIATION OF TPG PURCHASE PRICE. The Committee negotiated the price
with TPG taking into account discussions with management and financial
information prepared by Credit Suisse First Boston, our financial advisor.
Negotiations were concluded on December 1, 1998.
FACTORS CONSIDERED BY THE SPECIAL TRANSACTIONS COMMITTEE. The factors
considered by the Committee in negotiating the sale of shares to TPG and in
recommending that shareholders approve the transaction are:
o The $5.39 per share price was the midpoint of a November 24, 1998
preliminary financial analysis of our per share value prepared by
Credit Suisse First Boston. In subsequent financial analyses
prepared by Credit Suisse First Boston dated December 16, 1998,
the estimated equity reference ranges were approximately $0.39 per
share lower than those in Credit Suisse First Boston's preliminary
financial analyses, primarily due to decreases in oil prices in
the interim period.
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o The $100 million provides us with substantial funds to make
acquisitions at a time when attractive opportunities may be
available to us if we have sufficient capital. If we make
successful acquisitions, we can continue to grow. However, no
acquisitions by Denbury were proposed at the time of the purchase
agreement, and no consideration was given to any proposed
acquisition at the time the price was set.
o Credit Suisse First Boston has provided the board with an opinion,
attached to this document as Exhibit A, regarding the fairness,
from a financial point of view, to Denbury of the purchase price
paid for its shares by TPG.
o The $5.39 per share price represented a 41% premium over the
closing market price for our common shares at the time of pricing
on December 1, 1998. As of the date hereof, March __, 1999, the
$5.39 per share price was _____% higher than the closing market
price for the common shares on the NYSE. However, there have been
brief periods since the pricing date that our common stock has
traded above $5.39, meaning that the price to be paid by TPG could
be a discount to market price.
o The Committee considered other alternatives discussed below.
Because of TPG's current equity interest in us, it is unlikely
that another entity would be willing to pay a higher price than
TPG is willing to pay.
FAIRNESS OF THE TRANSACTION. Given the large number of shares being
purchased, the Committee believes that TPG is paying a fair price for the shares
despite fluctuations in the market place that could result in TPG purchasing the
shares at a discount. The purchase price was a substantial premium over the
market price at the time of pricing. The transaction must also be approved by a
majority of disinterested shareholders. In addition, Credit Suisse First Boston
has provided the board a written opinion dated December 16, 1998 as to the
fairness, from a financial point of view, to Denbury of the purchase price paid
for its shares by TPG.
CONDITIONS OF THE SALE. On December 16, 1998, Denbury and an affiliate
of TPG entered into a Stock Purchase Agreement specifying the terms of TPG's
$100 million purchase of 18,552,876 newly-issued common shares, which is a
purchase price of $5.39 per common share. If the move of corporate domicile is
approved by our shareholders, the shares will be purchased from Denbury Delaware
rather than Denbury Canada. Several remaining conditions must be met before the
sale can be closed:
o a majority of the non-TPG shareholders voting must approve the
sale;
o the TSE must approve the purchase price if closing does not occur
before April 23, 1999;
o no "material adverse effect" (as defined below) shall have
occurred prior to the closing;
o we must amend our bank credit agreement, which was completed on
February 19, 1999;
o Denbury and TPG must sign the registration rights agreement
covering all of TPG's shares, the terms of which have already
been negotiated by Denbury and TPG; and
o other conditions specified in the agreement must be satisfied.
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Material Adverse Effect. - As used in the agreement, a "material adverse
effect" means a material adverse effect on the financial condition, results of
operations, business or assets of Denbury. However this does not include:
o an adverse effect on our financial statements;
o non-cash writedowns in the book value of our oil and gas
properties;
o a decline in our reserve quantities or value;
o a decline in our production volumes; or
o a decrease in the borrowing base under our bank credit facility,
IF THESE THINGS RESULT PRIMARILY AND DIRECTLY FROM:
o prevailing oil prices or prevailing natural gas prices,
provided that the weighted average price realized by us over
any 28 consecutive day period between December 16, 1998 and the
closing does not fall below 80% of the per barrel or per Mcf
price realized by us for the week commencing December 6, 1998,
or
o a decrease in our production, provided that the average daily
production on a BOE basis during any 28 consecutive day period
between December 16, 1998 and the closing does not fall to a
level below 13,000 BOE per day.
We have agreed not to pursue any sale of more than 25% of our stock,
mergers or consolidations with any third parties and to pay TPG a break-up fee
of $3.0 million if any such transaction is agreed upon. TPG may terminate the
agreement if the stock sale is not approved at the shareholders meeting, if the
transaction is not consummated before the earlier of June 16, 1999 or the
expiration of the approval of the purchase price by the TSE. TPG is entitled to
a $1.0 million fee if any such termination takes place. This fee will be
included in the $3.0 million described above if that is also payable.
We have agreed to indemnify TPG and its affiliates for any losses
incurred by them as a result of our breach of any representation, warranty,
agreement or covenant made by it in the Stock Purchase Agreement or the TPG
Registration Rights Agreement or in any certificate delivered by us pursuant
thereto or any claim by a third party relating to the TPG purchase transaction,
except for losses resulting from such a claim that is finally judicially
determined to have resulted primarily from the conduct of TPG and its
affiliates. TPG has agreed to indemnify Denbury and its representatives for any
losses incurred by them as a result of TPG's breach of any representation,
warranty, agreement or covenant made by TPG in the Stock Purchase Agreement or
the TPG Registration Rights Agreement or in any certificate delivered by TPG
pursuant thereto.
THE REGISTRATION RIGHTS AGREEMENT. The new registration rights
agreement covers the shares proposed to be sold to TPG, plus the shares
currently owned by TPG, a total of 27,274,314 shares. The agreement will provide
TPG "piggyback" registration rights and also gives TPG the right to cause us to
file up to four demand registrations, including one shelf registration. These
demand rights expire on the sixth anniversary of the closing and are subject to
customary exceptions and black-out periods. We will bear the expenses of each
"piggyback" registration and the expenses of three of the four demand
registrations. Under this agreement, Denbury cannot grant any registration
rights more favorable than those granted to TPG to any other person. Denbury
also will indemnify TPG for specified items with regard to the registration
statements. Although TPG has had demand and "piggyback" registration rights
since December 1995, those rights have not been exercised to date.
LIQUIDITY OPINION. In addition, Denbury has received a liquidity
opinion from Griffiths McBurney & Partners, Calgary, Alberta, Canada, an
independent registered dealer, that the market for our common
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shares is liquid and will not be materially less liquid following the purchase
by TPG. The TSE has delivered a letter to the Ontario and Quebec Securities
Commissions indicating the concurrence of the TSE with the liquidity opinion. A
copy of the liquidity opinion is attached to this document as Exhibit F.
NO DISSENT RIGHTS IN TPG TRANSACTION. Shareholders will have no dissent
rights as to the proposed sale of shares to TPG. However, dissent rights are
available to shareholders in connection with the proposal to move the domicile
from Canada to the United States as a Delaware corporation.
EXPENSES OF THE TRANSACTION. The expenses of the TPG purchase
transaction, estimated to be $1.5 million, are to be paid by us, and include the
fee due to Credit Suisse First Boston and legal, accounting, filing fee,
printing and proxy solicitation expenses. Proxy solicitation expenses and the
related legal, accounting, filing fees and printing costs are related not only
to shareholder approval of the sale of shares to TPG, but also to the other
matters submitted to shareholders for approval. A substantial portion of those
expenses relate to the proposed move from Canada to Delaware.
The board of directors recommends that shareholders vote in favor of
the proposed sale of shares to TPG. This sale will provide needed equity capital
at a time when other capital sources are unavailable, which will enable us to
grow if we can find favorable acquisitions.
OPINION OF CREDIT SUISSE FIRST BOSTON
Credit Suisse First Boston was retained by Denbury to render an opinion
as to the fairness from a financial point of view to Denbury of the
consideration to be received by Denbury in the TPG purchase transaction. Credit
Suisse First Boston was selected by Denbury based on Credit Suisse First
Boston's experience and expertise. Credit Suisse First Boston is an
internationally recognized investment banking firm and is regularly engaged in
the valuation of businesses and securities in connection with mergers and
acquisitions, leveraged buyouts, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. Credit Suisse First Boston
rendered to the board a written opinion dated December 16, 1998 to the effect
that, as of such date and based upon and subject to those matters stated in such
opinion, the consideration to be received by Denbury pursuant to the TPG
purchase transaction was fair to Denbury from a financial point of view.
THE FULL TEXT OF CREDIT SUISSE FIRST BOSTON'S WRITTEN OPINION TO THE
BOARD, WHICH SETS FORTH THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS EXHIBIT A TO
THIS DOCUMENT AND IS INCORPORATED HEREIN BY REFERENCE. YOU ARE URGED TO READ
THIS OPINION CAREFULLY IN ITS ENTIRETY. CREDIT SUISSE FIRST BOSTON'S OPINION IS
ADDRESSED TO THE BOARD AND RELATES ONLY TO THE FAIRNESS OF THE CONSIDERATION TO
BE RECEIVED IN THE TPG PURCHASE TRANSACTION FROM A FINANCIAL POINT OF VIEW TO
DENBURY, DOES NOT ADDRESS ANY OTHER ASPECT OF THE PROPOSED TPG PURCHASE
TRANSACTION OR ANY RELATED TRANSACTION AND DOES NOT CONSTITUTE A RECOMMENDATION
TO ANY SHAREHOLDER WITH RESPECT TO MATTERS RELATING TO THE TPG PURCHASE
TRANSACTION. THE SUMMARY OF THE OPINION OF CREDIT SUISSE FIRST BOSTON SET FORTH
IN THIS DOCUMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF
SUCH OPINION.
In arriving at its opinion, Credit Suisse First Boston reviewed the
stock purchase agreement and publicly available business and financial
information relating to Denbury. Credit Suisse First Boston also reviewed other
information relating to Denbury, including financial forecasts and reserve
reports, provided to or discussed with Credit Suisse First Boston by Denbury,
and met with the management of Denbury to discuss the business and prospects of
Denbury. Credit Suisse First Boston also considered financial and stock market
data of Denbury, and compared those data with similar data for other publicly
held companies in businesses similar to Denbury and considered, to the extent
publicly available, the financial terms of other
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transactions recently effected. Credit Suisse First Boston also considered such
other information, financial studies, analyses and investigations and financial,
economic and market criteria which Credit Suisse First Boston deemed relevant.
Credit Suisse First Boston's opinion was rendered during a period of volatility
in the financial and commodity markets and was necessarily subject to the
absence of further material developments in financial, economic and market
conditions from those prevailing on the date of such opinion.
In connection with its review, Credit Suisse First Boston did not
assume any responsibility for independent verification of any of the information
provided to or otherwise reviewed by Credit Suisse First Boston and relied on
such information being complete and accurate in all material respects. With
respect to financial forecasts, Credit Suisse First Boston was advised, and
assumed, that such forecasts were reasonably prepared on bases reflecting the
best currently available estimates and judgments of Denbury's management as to
its future financial performance. Credit Suisse First Boston also assumed, with
Denbury's consent, that the reserve reports reviewed by Credit Suisse First
Boston were reasonably prepared on bases reflecting the best currently available
estimates and judgments of the preparers of such reports as to the oil and gas
reserves of Denbury.
Credit Suisse First Boston was not requested to, and did not, make an
independent evaluation or appraisal of Denbury's assets or liabilities,
contingent or otherwise, nor was Credit Suisse First Boston furnished with any
such evaluations or appraisals. Credit Suisse First Boston's opinion was
necessarily based upon information available to, and financial, economic, market
and other conditions as they existed and could be evaluated by, Credit Suisse
First Boston on the date of its opinion. Credit Suisse First Boston did not
express any opinion as to the actual value of Denbury's common shares when
issued pursuant to the TPG purchase transaction or the prices at which Denbury's
common shares will trade subsequent to the TPG purchase transaction. In
connection with its engagement, Credit Suisse First Boston was not requested to,
and did not, participate in the negotiation and structuring of the TPG purchase
transaction, nor was Credit Suisse First Boston requested to, and Credit Suisse
First Boston did not, solicit third party indications of interest in acquiring
all or any part of Denbury. Although Credit Suisse First Boston evaluated the
consideration to be received by Denbury in the TPG purchase transaction from a
financial point of view, Credit Suisse First Boston was not requested to, and
did not, recommend the specific consideration payable in the TPG purchase
transaction, which consideration was determined through negotiations between
Denbury and TPG. No other limitations were imposed on Credit Suisse First Boston
with respect to the investigations made or procedures followed by Credit Suisse
First Boston in rendering its opinion.
In preparing its opinion to the board, Credit Suisse First Boston
performed a variety of financial and comparative analyses, including those
described below. The summary of Credit Suisse First Boston's analyses set forth
below does not purport to be a complete description of the analyses underlying
Credit Suisse First Boston's opinion. The preparation of a fairness opinion is a
complex analytic process involving various determinations as to the most
appropriate and relevant methods of financial analyses and the application of
those methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to summary description. In arriving at its opinion,
Credit Suisse First Boston made qualitative judgments as to the significance and
relevance of each analysis and factor considered by it. Accordingly, Credit
Suisse First Boston believes that its analyses must be considered as a whole and
that selecting portions of its analyses and factors, without considering all
analyses and factors, could create a misleading or incomplete view of the
processes underlying such analyses and its opinion.
In its analyses, Credit Suisse First Boston made numerous assumptions
with respect to Denbury, industry performance, regulatory, general business,
economic, market and financial conditions and other matters, many of which are
beyond the control of Denbury. No company, transaction or business used in such
analyses as a comparison is identical to Denbury or the proposed TPG purchase
transaction, nor is an evaluation of the results of such analyses entirely
mathematical; rather, such analyses involve complex
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considerations and judgments concerning financial and operating characteristics
and other factors that could affect the acquisition, public trading or other
values of the companies, business segments or transactions being analyzed. The
estimates contained in such analyses and the ranges of valuations resulting from
any particular analysis are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than those suggested by such analyses. In addition, analyses relating
to the value of businesses or securities do not purport to be appraisals or to
reflect the prices at which businesses or securities actually may be sold.
Accordingly, such analyses and estimates are inherently subject to substantial
uncertainty.
Credit Suisse First Boston's opinion and financial analyses were only
one of many factors considered by the board in its evaluation of the proposed
TPG purchase transaction and should not be viewed as determinative of the views
of Denbury's board or management with respect to the TPG purchase transaction or
the consideration payable in the TPG purchase transaction.
The following is a summary of the material analyses performed by Credit
Suisse First Boston in connection with its opinion dated December 16, 1998:
DISCOUNTED CASH FLOW ANALYSIS. Based on financial forecasts provided by
Company management and sensitivities to such forecasts, Credit Suisse First
Boston estimated the present value of Denbury's forecasted streams of unlevered
free cash flows using discount rates ranging from 10.0% to 12.0%. These
unlevered free cash flows were developed based on specific operating and
financial assumptions, estimates and other information and sensitivities to such
estimates regarding Denbury's business, including estimated commodity prices,
production, operating costs and related capital expenditures which were
discussed with Denbury management. This analysis indicated an implied enterprise
reference range for Denbury of approximately $310 million to $380 million.
SELECTED COMPANIES ANALYSIS. Credit Suisse First Boston compared
publicly available financial, operating and stock market data of Denbury to
corresponding data of the following selected publicly traded companies in the
oil and gas exploration and production industry, collectively the "Selected
Companies":
o Belco Oil & Gas Corporation;
o Coho Energy, Inc.;
o Comstock Resources, Inc.;
o Cross Timbers Oil Company;
o Forest Oil Corporation;
o HS Resources, Inc.;
o Patina Oil & Gas Corporation;
o Stone Energy Corporation;
o Vintage Petroleum, Inc.; and
o The Wiser Oil Company.
All multiples were based on closing stock prices as of December 15, 1998.
Applying a range of selected multiples for the Selected Companies of enterprise
value to estimated 1998 and 1999 earnings before interest, taxes, depreciation,
amortization and exploration expense, commonly known as EBITDAX, of 6.5x to 7.5x
and 5.0x to 6.0x, respectively; enterprise value to 1997 proved reserves of
$4.50 to $5.50 per BOE; and
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enterprise value to 1997 after-tax Standardized Measure of Discounted Future Net
Cash Flows, as defined by the SEC, of 0.9x to 1.1x to corresponding financial
data of Denbury , indicated an implied enterprise reference range for Denbury of
approximately $280 million to $340 million.
SELECTED TRANSACTIONS ANALYSIS. Using publicly available and other
information, Credit Suisse First Boston analyzed the purchase prices and implied
transaction multiples paid in selected recent transactions in the oil and gas
exploration and production industry, collectively the "Selected Transactions".
Credit Suisse First Boston reviewed the following transactions with
respect to Denbury's Mississippi properties, collectively the "Mississippi
Selected Transactions":
o the investment in Coho Energy, Inc. by Hicks, Muse, Tate & Furst
Inc.;
o Denbury's acquisition of properties of Chevron Corporation;
o the acquisition by an undisclosed acquirer of properties from
Murphy Oil Corporation;
o Denbury's acquisition of properties of Amerada Hess Corporation;
and
o the acquisition by Howell Corporation of properties of Norcen
Energy Resources Ltd.
Credit Suisse First Boston reviewed the following transactions with
respect to Denbury's Louisiana properties, collectively the "Louisiana Selected
Transactions":
o the acquisition by Swift Energy Company of properties of Sonat
Inc.;
o the merger of McMoRan Oil & Gas Company and Freeport-McMoRan
Sulphur Inc.;
o the acquisition by The Meridian Resource Corporation of
properties of Shell Oil Company;
o the acquisition by Cross Timbers Oil Company of properties of EEX
Corporation;
o the acquisition by Forest Oil Corporation of properties of LLOG
Exploration Company;
o the merger of Texoil, Inc. and Cliffwood Oil & Gas Corporation;
o the acquisition by Comstock Resources, Inc. of properties of Bois
d'Arc Resources;
o the acquisition by Equitable Resources, Inc. of properties of
Chevron Corporation;
o the acquisition by Rio Grande, Inc. of properties of Bechtel
Energy;
o the acquisition by Norcen Energy Resources Ltd. of properties of
Flores & Rucks, Inc.;
o the acquisition by Canadian Occidental Petroleum Ltd. of
properties of Shell Oil Company;
o the acquisition by American Exploration Company of properties of
Zilkha Energy Company;
o the acquisition by Flores & Rucks, Inc. of properties of Mobil
Corporation; and
o the acquisition by Newscope Resources Ltd., now Denbury, of
properties of an undisclosed seller.
All multiples were based on financial information available at the time of the
transaction. Applying a range of selected multiples for the selected
transactions of the enterprise value to proved reserves of $5.00 to $6.00 per
BOE for Denbury's total proved reserves, $4.75 to $5.75 per BOE for Denbury's
Mississippi proved reserves, and
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<PAGE>
$6.00 to $7.00 per BOE for Denbury's Louisiana proved reserves to corresponding
reserve data of Denbury, indicated an implied enterprise reference range for
Denbury of approximately $325 million to $390 million.
AGGREGATE REFERENCE RANGES. On the basis of the valuation methodologies
employed in the analyses described above, Credit Suisse First Boston derived
aggregate enterprise and equity reference ranges for Denbury of approximately
$310 million to $380 million and $99 million to $169 million, respectively, or
approximately $3.70 to $6.31 per diluted common share.
OTHER FACTORS. In preparing its opinion, Credit Suisse First Boston
performed other analyses and considered other information and data, including,
among other things:
o the potential pro forma effect of the TPG purchase transaction on
Denbury's estimated 1999 net income and cash flow;
o the latest 12 months pro forma credit statistics for Denbury
resulting from the TPG purchase transaction, including EBITDAX to
interest expense, earnings before interest and taxes to interest
expense, cash flow from operations to net debt and net debt to
net book capitalization;
o the trading characteristics of Denbury's common shares;
o the share price premiums paid in selected oil and gas exploration
and production transactions; and
o the comparative trading characteristics for Denbury and selected
other oil and gas exploration and production companies relative
to estimates of net asset value.
MISCELLANEOUS. Under the terms of Credit Suisse First Boston's
engagement, Credit Suisse First Boston will receive a fee for its services in
connection with the delivery of its opinion. We also have agreed to reimburse
Credit Suisse First Boston for out-of-pocket expenses incurred by Credit Suisse
First Boston in performing its services, including fees and expenses of legal
counsel and any other advisor retained by Credit Suisse First Boston, and to
indemnify Credit Suisse First Boston and related persons and entities against
liabilities, including liabilities under the federal securities laws, arising
out of Credit Suisse First Boston's engagement.
In the past, Credit Suisse First Boston has provided financial services
to TPG and its affiliates unrelated to the proposed TPG purchase transaction,
and for those services has received compensation. In the ordinary course of
business, Credit Suisse First Boston and its affiliates may actively trade the
debt and equity securities of Denbury for their own accounts and for the
accounts of customers and, thus, may at any time hold long or short positions in
such securities.
USE OF PROCEEDS
The net proceeds to us from the TPG purchase transaction are estimated
to be approximately $98.5 million. We intend to use the net proceeds to reduce
outstanding borrowings under our bank credit facility. The undrawn balance under
the credit facility will then be available for capital expenditures and general
corporate purposes, although our primary use of these funds will be for
acquisitions of additional oil and natural gas properties. As of February 28,
1999, the credit facility had an outstanding balance of $110 million and an
average interest rate of 6.8% per annum.
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<PAGE>
CAPITALIZATION AS ADJUSTED FOR TPG SHARE PURCHASE
The following table sets forth as of December 31, 1998 (i) the actual
capitalization of Denbury, and (ii) the capitalization of Denbury as adjusted to
give effect to the TPG purchase transaction and the use of the net proceeds from
that sale to reduce bank debt and increase the cash balance. See also "Use of
Proceeds." This table excludes 1,890,531 outstanding stock options as of
December 31, 1998 exercisable at various prices ranging from $4.71 to $22.24 per
share with a weighted average price of approximately $13.00 (of which 398,474
were currently exercisable), and 75,000 common shares reserved for issuance upon
exercise of common share purchase warrants.
<TABLE>
<CAPTION>
As of December 31, 1998
----------------------------------
As Adjusted
Company for the TPG
Historical Purchase
-------------- ---------------
(in thousands)
<S> <C> <C>
Cash and cash equivalents....................................................... $ 2,049 $ 2,049
============== ===============
Short-term debt:
Credit Facility........................................................ $ - $ -
-------------- ---------------
Long-term debt:
Credit Facility........................................................ 100,000 1,500
9% Senior Subordinated Notes Due 2008.................................. 125,000 125,000
-------------- ---------------
Total long-term debt.............................................. 225,000 126,500
-------------- ---------------
Shareholders' equity (deficit):
Common shares, no par value; unlimited shares authorized;
26,801,680 outstanding; 45,354,556 outstanding as adjusted for
the TPG Purchase........................................................ 227,796 326,296
Accumulated deficit........................................................ (260,061) (260,061)
-------------- ---------------
Total shareholders' equity (deficit).................................... (32,265) 66,235
-------------- ---------------
Total capitalization............................................. $ 192,735 $ 192,735
============== ===============
</TABLE>
INCREASE OF AUTHORIZED SHARES UNDER
EMPLOYEE STOCK PURCHASE PLAN
The fourth proposal to be voted on is amending our Employee Stock Purchase
Plan. If approved, the stock purchase plan will be amended by increasing the
maximum number of common shares under the plan from 250,000 shares to 750,000
shares. As of December 30, 1998, only 64,858 common shares were available for
purchase under the plan. The number of shares issued each quarter has steadily
increased due to the addition of several employees since the stock purchase plan
was adopted in 1996 and the recent decline in our stock price. The shares to be
issued on December 31, 1998 exceeded the shares available in the plan by 22,524.
As such, the shares purchased by the employees as of December 31 will not be
issued until after shareholder approval.
THE BOARD BELIEVES THAT THE STOCK PURCHASE PLAN IS AN INTEGRAL PART OF OUR
OVERALL COMPENSATION PLAN AND RECOMMENDS THAT YOU VOTE FOR THE AMENDMENT.
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<PAGE>
INCREASE OF AUTHORIZED SHARES UNDER
STOCK OPTION PLAN
The fifth proposal to be voted upon is amending our Stock Option Plan. This
was increased to 2,000,000 shares in 1997 and further increased to 2,648,000
shares in May, 1998. The board further amended the stock option plan on December
1, 1998 to increase the total number of shares reserved for future issuance to
4,535,000, subject to shareholder and regulatory approval.
The numbers shown below include 1,623,912 grants made on January 4, 1999,
subject to shareholder approval. Since the disclosures made in the 1998
Information Circular - Proxy Statement as of February 28, 1998, the following
activity in the stock option plan has taken place:
<TABLE>
<CAPTION>
Stock Options
Actual Stock Options Available for Reserved for
Outstanding Future Grants Future Issuance
--------------------- ------------------- --------------------
<S> <C> <C> <C>
Balance February 28, 1998 1,976,378 671,622 2,648,000
Granted 1,703,124 (1,703,124) -
Exercised (128,756) - (128,756)
Canceled (12,028) 12,028 -
Authorized increases - 2,015,756 2,015,756
--------------------- ------------------- --------------------
Balance February 28, 1999 3,538,718 996,282 4,535,000
===================== =================== ====================
Percent of common shares
outstanding February 28, 1999,
as adjusted (1) 7.8% 2.2% 10.0%
===================== =================== ====================
</TABLE>
Since August 9, 1995, the effective date of the Plan, the following
activity has taken place:
<TABLE>
<CAPTION>
Stock Options
Actual Stock Options Available for Reserved for
Outstanding Future Grants Future Issuance
--------------------- ------------------- --------------------
<S> <C> <C> <C>
Balance August 9, 1995 614,425 435,575 1,050,000
Granted 3,586,908 (3,586,908) -
Exercised (610,587) - (610,587)
Canceled (52,028) 52,028 -
Authorized increases - 4,095,587 4,095,587
--------------------- ------------------- --------------------
Balance February 28, 1999 3,538,718 996,282 4,535,000
===================== =================== ====================
Percent of common shares
outstanding February 28, 1999,
as ajusted (1) 7.8% 2.2% 10.0%
===================== =================== ====================
- ----------------------
<FN>
(1) Balance outstanding February 28, 1999 as adjusted for the proposed
sale of common stock to TPG.
</FN>
</TABLE>
Since the last annual meeting held in May 1998, the board of directors
authorized a 2,015,756 share increase subject to shareholder and regulatory
approval. The board of directors also authorized a grant of 1,623,912 stock
options made to all of our employees on January 4, 1999, in accordance with the
terms of the plan. These board authorized grants were meant to provide a similar
level of compensation to the employees as the employees received in prior years
and are an integral part of our overall compensation plan. These options will be
subject to shareholder and regulatory approval. If this amendment to the stock
option plan is approved, the stock options available for future grants under the
plan will be 996,282
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<PAGE>
common shares, and the maximum number of common shares reserved for future
issuance under the plan will be 4,535,000 common shares, or approximately 2.2%
and 10%, respectively, of the issued and outstanding common shares as at
February 28, 1999, as adjusted for the proposed sale of 18,552,876 common shares
to TPG. The board of directors approved this increase to ensure that there will
be sufficient stock options available for option grants made on January 4, 1999
and for additional option grants which may be approved during fiscal 1999 or
beyond. Pursuant to TSE regulations, this increase in the common shares reserved
for issuance under the plan must be approved by the shareholders. Accordingly,
at the special meeting an Ordinary Resolution to approve the amendment to our
Stock Option Plan will be presented which increases the Common Share Maximum, as
defined in the plan, by 2,015,756 common shares.
This 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.
WE BELIEVE THAT THE STOCK OPTION PLAN IS AN INTEGRAL PART OF OUR OVERALL
COMPENSATION STRATEGY. THE BOARD RECOMMENDS THAT YOU VOTE FOR THIS AMENDMENT.
MANAGEMENT
The names of our directors and officers, their ages and the offices held
by them are set forth below. Each officer and director holds office for one year
or until his death, resignation or removal or until his successor is duly
elected and qualified. The officers set forth below hold the same position in
both Denbury and DMI, unless otherwise noted.
Name Age Position(s)
- --------------------------------- ---- ----------------------------------------
Ronald G. Greene (a)(b)(c)(d).... 50 Chairman of the Board of Denbury
David Bonderman.................. 56 Director of Denbury
Wilmot L. Matthews (a)........... 62 Director of Denbury
William S. Price, III (b)(c)(d).. 42 Director of Denbury
David M. Stanton................. 36 Director of Denbury
Wieland F. Wettstein (a)......... 49 Director of Denbury
Gareth Roberts................... 46 President, Chief Executive Officer and
Director
Phil Rykhoek..................... 42 Chief Financial Officer and Secretary
and Director of DMI
Mark A. Worthey.................. 40 Vice President, Operations and Director
of DMI
Bobby J. Bishop.................. 38 Controller and Chief Accounting Officer
Ron Gramling..................... 53 President of DMI marketing subsidiary
Lynda Perrard.................... 55 Vice President, Land of DMI
(a) Member of the Audit Committee.
(b) Member of the Compensation Committee.
(c) Member of the Stock Option Plan Committee.
(d) Member of the Stock Purchase Plan Committee.
Ronald G. Greene is the Chairman of the board and a director of Denbury,
positions he has held since 1995. Mr. Greene is the founder and Chairman of the
Board of Renaissance Energy Ltd. and was Chief Executive Officer 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.
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<PAGE>
David Bonderman has been a director of Denbury since 1996. Mr. Bonderman is a
co-founder and partner of TPG. Before forming TPG 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 AerFi Group plc; Bell & Howell Company, Carr Realty
Corporation; Continental Airlines; Inc.; Ducati Motors S.P.A.; National
Education Corporation; Ryanair, Limited; Virgin Cinemas, Limited; and Washington
Mutual, Inc.
Wilmot L. Matthews was first elected as director of Denbury on December 9, 1997.
Mr. Matthews, a Chartered Accountant, has been involved in all aspects of
investment banking by serving in various positions with Nesbitt Burns Inc. and
its predecessor companies from 1964 until his retirement in September 1996, most
recently as Vice Chairman and Director. Mr. Matthews is currently President of
Marjad Inc., a personal investment company, and also serves on the board of
directors of Renaissance Energy Ltd. and several private companies.
William S. Price, III has been a director of Denbury since 1995. Mr. Price is a
founding partner of TPG. Before forming TPG 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 serves on the Boards of Directors of AerFi Group
plc, Belden & Blake Corporation, Beringer Wine Estates Holdings, Inc.,
Continental Airlines, Inc., Del Monte Foods Company, Favorite Brands
International, Inc., Vivra Specialty Partners, Inc. and Zilog, Inc. and is a
managing member of Sandhill L.L.C.
David M. Stanton has been a director of Denbury since 1995. Mr. Stanton is a
partner of TPG. From 1991 until he joined TPG in 1994, Mr. Stanton was a venture
capitalist with Trinity Ventures where he specialized in information technology,
software and telecommunications investments. Mr. Stanton also serves on the
board of directors of Belden & Blake Corporation, Paradyne Partners, L.P., TPG
Communications, Inc. and Zilog, Inc.
Wieland F. Wettstein has been a director of Denbury since 1990. Mr. Wettstein is
the Executive Vice President of, 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, and on the board
of directors of a private technology firm.
Gareth Roberts is President, Chief Executive Officer, a director and is the
founder of DMI, 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. Mr. Roberts also serves on
the board of directors of Belden & Blake Corporation.
Phil Rykhoek is Chief Financial Officer and a Certified Public Accountant. He
joined Denbury and was appointed to the position of Chief Financial Officer and
Secretary in June 1995. Before joining the Company,
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<PAGE>
Mr. Rykhoek was Executive Vice President and co-founder of Petroleum Financial,
Inc., a private 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.
Mark A. Worthey as Vice President, Operations, is a geologist and is responsible
for all aspects of operations in the field. He joined Denbury 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.
Bobby J. Bishop is Controller and Chief Accounting Officer. He is a Certified
Public Accountant and joined Denbury as Controller in August 1993 and was
appointed to the position of Chief Accounting Officer in December, 1997. Before
joining Denbury, Mr. Bishop was the Chief Financial Officer for Arcadia
Exploration and Production Company, a private company. He also worked for Lake
Ronel Oil Company and TXO Production Corp. Mr. Bishop graduated from the
University of Oklahoma with a Bachelor of Business Administration in Accounting
in 1983.
Ron Gramling is President of our marketing subsidiary. He joined Denbury in May
1996 when Denbury purchased the subsidiary's assets. Before becoming affiliated
with Denbury, he was employed by Hadson Gas Systems as Vice President of term
supply. Mr. Gramling has 27 years of marketing, transportation and supply
experience in the natural gas and crude oil industry. He received his Bachelor
of Business Administration degree from Central State University, Edmond,
Oklahoma in 1970.
Lynda Perrard is Vice President, Land of DMI, a position she has held since
April 1994. Ms. Perrard has over 30 years of experience in the oil and gas
industry as a petroleum landman. Before joining Denbury, Ms. Perrard was the
President and Chief Executive Officer of Perrard Snyder, Inc., a corporation
performing contract land services. Ms. Perrard also served as Vice President,
Land for Snyder Exploration Company from 1986 to 1991.
Mr. Matthew Deso resigned from his position as Vice President of Exploration on
January 6, 1999 to pursue other interests.
COMPENSATION OF DIRECTORS AND OFFICERS
Information concerning compensation received by our executive officers
and directors was presented under the caption "Statement of Executive
Compensation" in the Proxy Statement for the 1998 Annual Meeting and is
incorporated by reference.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Denbury Canada's authorized capital consists of an unlimited number of
common shares without nominal or par value. The authorized capital of Denbury
Delaware under the proposed certificate of incorporation will be 100,000,000
shares of common stock, $0.001 par value per share and 25,000,000 shares of
preferred stock $0.001 par value per share. As of December 31, 1998, there were
26,801,680 common shares of Denbury outstanding. No preferred shares are
outstanding.
DENBURY CANADA AND DENBURY DELAWARE COMMON STOCK
The principal attributes of Denbury Delaware common stock and Denbury
Canada common shares are comparable, but there are material differences in
shareholder rights. The summary of these material differences are described
under "Comparison of Shareholders' Rights." The holders of Denbury Delaware
common stock will be entitled to vote at all meetings of shareholders, except
meetings at which only holders of a specified class of shares are entitled to
vote, to receive any dividend declared thereon, and, subject to the rights,
privileges, restrictions and conditions attaching to any other class of shares
of Denbury Delaware, to receive the remaining property of Denbury Delaware upon
dissolution.
DENBURY DELAWARE PREFERRED STOCK
The certificate of incorporation for Denbury Delaware authorizes the
future issuance of preferred shares, with such designations, rights, privileges,
restrictions and conditions as may be determined from time to time by the board
of directors. The board of directors is empowered, without shareholder approval,
to issue preferred shares with dividend, liquidation, conversion, voting or
other rights that could adversely affect the voting power or other rights of
holders of Denbury Delaware's common stock. In the event of issuance, the
preferred shares could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of Denbury Delaware.
Such actions could have the effect of discouraging bids for Denbury Delaware
and, thereby, preventing shareholders from receiving the maximum value for their
shares. Although Denbury Delaware has no present intention to issue any
additional preferred shares, there can be no assurance that Denbury Delaware
will not do so in the future. No preferred shares will be outstanding upon
consummation of the proposed move of domicile or sale of shares to TPG.
NATURE OF THE TRADING MARKET
Our common shares have been listed on the NYSE since May 8, 1997 and were
listed on the NASDAQ from August 25, 1995 through May 8, 1997. Our common shares
have also been listed on the TSE in Toronto, Canada, since February 14, 1984.
Our common shares currently trade under the symbol "DNR" on both the NYSE and
TSE. The following table summarizes the high and low last reported sale prices
(adjusted for the one-for-two reverse stock split in October 1996) as reported
by each exchange for each quarterly period during the last two fiscal years and
to date during 1999.
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<PAGE>
<TABLE>
<CAPTION>
NYSE / NASDAQ TSE
----------------------- ----------------------
High Low High Low
---------- ---------- --------- ----------
(US $) (C $)
<S> <C> <C> <C> <C>
1997
First Quarter................................... 16.00 12.00 21.75 16.40
Second Quarter.................................. 17.63 13.13 24.50 18.00
Third Quarter................................... 23.75 16.13 33.00 22.20
Fourth Quarter.................................. 24.63 17.88 33.50 25.50
1998
First Quarter................................... 20.63 16.13 29.00 23.00
Second Quarter.................................. 17.75 12.75 25.00 18.50
Third Quarter................................... 13.50 6.00 19.90 8.75
Fourth Quarter.................................. 8.50 3.50 13.10 5.40
1999
First Quarter (through February 28, 1999)....... 6.19 3.94 9.05 5.80
</TABLE>
LEGAL MATTERS
Certain matters of Canadian law in connection with the continuance will be
passed upon by Burnet, Duckworth & Palmer. Certain legal matters in connection
with the shares of Denbury Delaware capital stock to be issued in connection
with the continuance will be passed upon by Jenkens & Gilchrist, a Professional
Corporation, Houston, Texas on behalf of Denbury Delaware.
EXPERTS
The consolidated financial statements and the related financial statement
schedule incorporated in this document by reference from Denbury's Annual Report
on Form 10-K for the year ended December 31, 1998 have been audited by Deloitte
& Touche LLP, chartered accountants, as stated in their reports, which are
incorporated herein by reference, which reports express an unqualified opinion
and for U.S. Readers had a Canada-U.S. reporting difference which would require
the addition of an explanatory paragraph following the opinion paragraph
relating to Denbury's ability to continue as a going concern, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
AVAILABLE INFORMATION
Our SEC filings are available to the public over the Internet at the SEC's
web site at http//www.sec.gov. You may also read and copy any document we file
at the SEC's public reference rooms in Washington, D.C., New York, New York, and
Chicago, Illinois. Our filings can also be inspected at the New York Stock
Exchange, 20 Broad St., New York, New York 10005.
We have filed a Registration Statement with the SEC on Form S-4 to register
the common shares that will be deemed to be issued to stockholders in the move
of our corporate domicile. This Proxy
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<PAGE>
Statement/Prospectus is part of such Registration Statement and constitutes a
prospectus in addition to being a proxy statement of Denbury for the special
meeting. As allowed by SEC rules, this ProxyStatement/Prospectus does not
contain all the information contained in the Registration Statement or in the
exhibits to the Registration Statement.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to include information in this document by
"incorporating by reference," which means that we can disclose important
information to you by referring to those documents. The following documents have
been filed by Denbury with the SEC and are incorporated by reference in this
Proxy Statement/Prospectus and any future filings made with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act:
1. Annual Report on Form 10-K for the year ended December 31, 1998;
2. Current Reports on Form 8-K dated December 2, 1998 and December 17,
1998; and
3. Management Proxy Circular of Denbury dated March 30, 1998 prepared
in connection with Denbury's annual and special meeting of
shareholders held on May 19, 1998.
YOU MAY REQUEST A COPY OF THESE FILINGS AT NO COST BY WRITING OR
TELEPHONING US AT DENBURY RESOURCES INC., 17304 PRESTON ROAD, SUITE 200, DALLAS,
TEXAS 75252, TELEPHONE NUMBER (972) 673- 2000, ATTENTION: SECRETARY. TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE
BY MARCH __, 1999.
FORWARD-LOOKING STATEMENTS
The statements contained in this Proxy Statement/Prospectus that are
not historical facts, are forward-looking statements, that involve a number of
risks and uncertainties. Such forward-looking statements may be or may concern,
among other things, capital expenditures, drilling activity, acquisition plans
and proposals and dispositions, development activities, cost savings, production
efforts and volumes, hydrocarbon reserves, hydrocarbon prices, liquidity, Year
2000 issues, regulatory matters and competition. Such forward-looking statements
generally are accompanied by words such as "plan," "estimate," "expect,"
"predict," "anticipate," "projected," "should," "assume," "believe" or other
words that convey the uncertainty of future events or outcomes. Such
forward-looking information is based upon management's current plans,
expectations, estimates and assumptions and is subject to a number of risks and
uncertainties that could significantly affect current plans, anticipated
actions, the timing of such actions and Denbury's financial condition and
results of operations. As a consequence, actual results may differ materially
from expectations, estimates or assumptions expressed in or implied by any
forward-looking statements made by or on behalf of Denbury. Among the factors
that could cause actual results to differ materially are: fluctuations of the
prices received or demand for the Denbury's oil and natural gas, the uncertainty
of drilling results and reserve estimates, operating hazards, acquisition risks,
requirements for capital, general economic conditions, competition and
government regulations, as well as the risks and uncertainties discussed in this
Proxy Statement/Prospectus, and the uncertainties set forth from time to time in
Denbury's other public reports, filings and public statements.
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<PAGE>
INTERESTS OF CERTAIN PERSONS AND COMPANIES AND MATTERS
TO BE ACTED UPON
Management of Denbury is not aware of any material interest of any
director, senior officer or anyone who has held office as such since the
beginning of Denbury'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.
OTHER MATTERS
Our board does not intend to bring any matters before the special
meeting other than those proposals contained in this Proxy Statement/Prospectus.
We do not know of any matters to be brought before the meeting by others. If any
other matters properly come before the special meeting, it is the intention of
the persons named in accompanying proxies to vote such proxies in accordance
with the judgment of the board.
All information contained in this Proxy Statement/Prospectus relating
to the occupations, affiliations and securities holdings of directors and
officers of Denbury and their relationship and transactions with Denbury is
based upon information received from them. All information relating to any
beneficial owner of more than 5% of the common shares of Denbury is based upon
information contained in reports filed by them with the SEC.
SERVICE AND ENFORCEMENT OF LEGAL PROCESS
Denbury is currently incorporated in Canada. Some of our directors and
experts are residents of Canada and most, if not all, of these persons' assets
are located outside of the United States. It may be difficult for a shareholder
in the United States to effect service or realize anything from a judgment
against these Canadian residents or Denbury as a result of any possible civil
liability resulting from a violation of the United States federal securities
laws. This has been confirmed by our Canadian legal counsel, Burnet, Duckworth &
Palmer in Calgary, Alberta.
APPROVAL AND CERTIFICATION
The contents and sending of this Proxy Statement/Prospectus have been
approved by the board.
This document 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 as of the _____ day of March, 1999.
DENBURY RESOURCES INC.
Gareth Roberts Phil Rykhoek
President and Corporate Secretary and
Chief Executive Officer Chief Financial Officer
70
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GLOSSARY
The terms defined in this section are used throughout this Proxy
Statement/Prospectus.
Bbl. One stock tank barrel, of 42 U.S. gallons liquid volume, used herein
in reference to crude oil or other liquid hydrocarbons.
Bcf. One billion cubic feet of natural gas.
BOE. One barrel of oil equivalent using the ratio of one barrel of crude
oil, condensate or natural gas liquids to 6 Mcf of natural gas.
Btu. British thermal unit, which is the heat required to raise the
temperature of a one-pound mass of water from 58.5 to 59.5 degrees Fahrenheit.
MBbl. One thousand barrels of crude oil or other liquid hydrocarbons.
MBOE. One thousand BOEs.
MBtu. One thousand Btus.
Mcf. One thousand cubic feet of natural gas.
MMBbl. One million barrels of crude oil or other liquid hydrocarbons.
MMBOE. One million BOEs.
MMBtu. One million Btus.
MMcf. One million cubic feet of natural gas.
PV10 VALUE. When used with respect to oil and natural gas reserves, PV10
Value means the estimated future gross revenue to be generated from the
production of proved reserves, net of estimated production and future
development costs, using prices and costs in effect at the determination date,
without giving effect to non-property related expenses such as general and
administrative expenses, debt service and future income tax expense or to
depreciation, depletion and amortization, discounted to present value using an
annual discount rate of 10% in accordance with the guidelines of the Commission.
PROVED DEVELOPED RESERVES. Reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods.
PROVED RESERVES. The estimated quantities of crude oil, natural gas and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.
PROVED UNDEVELOPED RESERVES. Reserves that are expected to be recovered
from new wells on undrilled acreage or from existing wells where a relatively
major expenditure is required for recompletion.
Tcf. One trillion cubic feet of natural gas.
WORKING INTEREST. The operating interest which gives the owner the right to
drill, produce and conduct operating activities on the property as well as to a
share of production.
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EXHIBIT A
[Letterhead of Credit Suisse First Boston Corporation]
December 16, 1998
Board of Directors
Denbury Resources Inc.
17304 Preston Road, Suite 200
Dallas, Texas 75252
Members of the Board:
You have asked us to advise you with respect to the fairness to Denbury
Resources Inc. ("Denbury") from a financial point of view of the consideration
to be received by Denbury pursuant to the terms of the Stock Purchase Agreement,
dated as of December 16, 1998 (the "Stock Purchase Agreement"), between Denbury
and TPG Partners II, L.P. ("TPG"). The Stock Purchase Agreement provides for,
among other things, a U.S.$100 million equity investment in Denbury by TPG (the
"TPG Investment") pursuant to which TPG will purchase an aggregate of 18,552,876
newly issued common shares of Denbury (the "Denbury Common Shares") for a
purchase price of U.S.$5.39 per share in cash (the "Consideration").
In arriving at our opinion, we have reviewed the Stock Purchase Agreement and
certain publicly available business and financial information relating to
Denbury. We have also reviewed certain other information relating to Denbury,
including financial forecasts and reserve reports, provided to or discussed with
us by Denbury, and have met with Denbury's management to discuss the business
and prospects of Denbury. We have also considered certain financial and stock
market data of Denbury, and we have compared those data with similar data for
other publicly held companies in businesses similar to Denbury, and we have
considered, to the extent publicly available, the financial terms of certain
other transactions which have recently been effected. We also considered such
other information, financial studies, analyses and investigations and financial,
economic and market criteria which we deemed relevant. The opinion expressed
herein is being rendered during a period of volatility in the financial and
commodity markets and is necessarily subject to the absence of further material
developments in financial, economic and market conditions from those prevailing
on the date hereof.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, we have been advised, and have assumed, that such forecasts
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of Denbury's management as to the future financial
performance of Denbury. We also have assumed, with your consent, that the
reserve reports reviewed by us have been reasonably prepared on bases reflecting
the best currently available estimates and judgments of the preparers of such
reports as to the oil and gas reserves of Denbury. In addition, we have not been
requested to make, and have not made, an independent evaluation or appraisal of
the assets or liabilities (contingent or otherwise) of Denbury, nor have we been
furnished with any such evaluations or
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Board of Directors
Denbury Resources Inc.
December 16, 1998
Page 2
appraisals. Our opinion is necessarily based upon information available to us,
and financial, economic, market and other conditions as they exist and can be
evaluated, on the date hereof. Weare not expressing any opinion as to what the
value of Denbury Common Shares actually will be when issued pursuant to the TPG
Investment or the prices at which the Denbury Common Shares will trade
subsequent to the TPG Investment. In connection with our engagement, we were not
requested to, and we did not, participate in the negotiation or structuring of
the TPG Investment, nor were we requested to, and we did not, solicit third
party indications of interest in acquiring all or any part of Denbury.
We have acted as financial advisor to Denbury in connection with this opinion
and will receive a fee for such services, a significant portion of which will be
payable upon the delivery of this opinion. In the past, we have provided
financial services to TPG and certain of its affiliates unrelated to the
proposed TPG Investment, for which services we have received compensation. In
the ordinary course of business, Credit Suisse First Boston and its affiliates
may actively trade the debt and equity securities of Denbury for their own
accounts and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of Denbury in connection with its evaluation of the TPG Investment,
does not constitute a recommendation to any shareholder as to how such
shareholder should vote on any matter relating to the proposed TPG Investment,
and is not to be quoted or referred to, in whole or in part, in any registration
statement, prospectus or proxy statement, or in any other document used in
connection with the offering or sale of securities, nor shall this letter be
used for any other purposes, without our prior written consent.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Consideration to be received by Denbury pursuant to the TPG
Investment is fair to Denbury from a financial point of view.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
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EXHIBIT B
SHAREHOLDERS HAVE THE RIGHT TO DISSENT TO THE MOVE OF THE CORPORATE
DOMICILE OF THE COMPANY. SUCH RIGHT OF DISSENT IS DESCRIBED IN THE INFORMATION
CIRCULAR. SEE "MOVING THE CORPORATE DOMICILE OF THE COMPANY--DISSENTING
SHAREHOLDERS' RIGHTS" FOR FULL DETAILS OF THE RIGHT TO DISSENT AND THE PROCEDURE
FOR COMPLIANCE WITH THE RIGHT OF DISSENT. THE FULL TEXT
OF SECTION 190 OF THE CBCA IS SET FORTH BELOW.
SECTION 190 OF THE CANADA BUSINESS CORPORATIONS ACT
190. (4) RIGHT TO DISSENT -- Subject to sections 191 and 241, a holder of shares
of any class of a corporation may dissent if the corporation is subject to an
order under paragraph 192(4)(d) that affects the holder or if the corporation
resolves to
a. amend its articles under section 173 or 174 to add, change or
remove any provisions restricting or constraining the issue,
transfer or ownership of shares of that class;
b. amend its articles under section 173 to add, change or remove any
restriction on the business or businesses that the corporation
may carry on;
c. amalgamate otherwise than under section 184;
d. be continued under section 188; or
e. sell, lease or exchange all or substantially all of its property
under subsection 189(3).
(5) FURTHER RIGHT. -- A holder of shares of any class or series of shares
entitled to vote under section 176 may dissent if the corporation resolves to
amend its articles in a manner described in that section.
(6) PAYMENT FOR SHARES. -- In addition to any other right he may have, but
subject to subsection (26), a shareholder who complies with this section is
entitled, when the action approved by the resolution from which he dissents or
an order made under subsection 192(4) becomes effective, to be paid by the
corporation the fair value of the shares held by him in respect of which he
dissents, determined as of the close of business on the day before the
resolution was adopted or the order was made.
(7) NO PARTIAL DISSENT. -- A dissenting shareholder may only claim under this
section with respect to all the shares of a class held by him on behalf of any
one beneficial owner and registered in the name of the dissenting shareholder.
(8) OBJECTION. -- A dissenting shareholder shall send to the corporation, at or
before any meeting of shareholders at which a resolution referred to in
subsection (1) or (2) is to be voted on, a written objection to the resolution,
unless the corporation did not give notice to the shareholder of the purpose of
the meeting and of his right to dissent.
(9) NOTICE OF RESOLUTION. -- The corporation shall, within ten days after the
shareholders adopt the resolution, send to each shareholder who has filed the
objection referred to in subsection (5)
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notice that the resolution has been adopted, but such notice is not required to
be sent to any shareholder who voted for the resolution or who has withdrawn his
objection.
(10) DEMAND FOR PAYMENT -- A dissenting shareholder shall, within twenty days
after he receives a notice under subsection (6) or, if he does not receive such
notice, within twenty days after he learns that the resolution has been adopted,
send to the corporation a written notice containing
a. his name and address;
b. the number and class of shares in respect of which he dissents;
and
c. a demand for payment of the fair value of such shares.
(11) SHARE CERTIFICATE. -- A dissenting shareholder shall, within thirty days
after sending a notice under subsection (7), send the certificates representing
the shares in respect of which he dissents to the corporation or its transfer
agent.
(12) FORFEITURE. -- A dissenting shareholder who fails to comply with subsection
(8) has no right to make a claim under this section.
(13) ENDORSING CERTIFICATE. -- A corporation or its transfer agent shall endorse
on any share certificate received under subsection (8) a notice that the holder
is a dissenting shareholder under this section and shall forthwith return the
share certificates to the dissenting shareholder.
(14) SUSPENSION OF RIGHTS. -- On sending a notice under subsection (7), a
dissenting shareholder cases to have any rights as a shareholder other than the
right to be paid the fair value of his shares as determined under this section
except where
a. a dissenting shareholder withdraws his notice before the
corporation makes an offer under subsection (12),
b. the corporation fails to make an offer in accordance with
subsection (12) and the dissenting shareholder withdraws his
notice, or
c. the directors revoke a resolution to amend the articles under
subsection 173(2) or 174(5), terminate an amalgamation agreement
under subsection 183(6) or an application for continuance under
subsection 188(6), or abandon a sale, lease or exchange under
subsection 189(9),
in which case his rights as a shareholder are reinstated as of the date he sent
the notice referred to in subsection (7).
(15) OFFER TO PAY. -- A corporation shall, not later than seven days after the
later of the day on which the action approved by the resolution is effective or
the day the corporation received the noticed referred to in subsection (7), send
to each dissenting shareholder who has sent such notice
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a. a written offer to pay for his shares in an amount considered by
the directors of the corporation to be the fair value thereof,
accompanied by a statement showing how the fair value was
determined; or
b. if subsection (26) applies, a notification that it is unable
lawfully to pay dissenting shareholders for their shares.
(16) SAME TERMS. -- Every offer made under subsection (12) for shares of the
same class or series shall be on the same terms.
(17) PAYMENT. -- Subject to subsection (26), a corporation shall pay for the
shares of a dissenting shareholder within ten days after an offer made under
subsection (12) has been accepted, but any such offer lapses if the corporation
does not receive an acceptance thereof within thirty days after the offer has
been made.
(18) CORPORATION MAY APPLY TO COURT. -- Where a corporation fails to make an
offer under subsection (12), or if a dissenting shareholder fails to accept an
offer, the corporation may, within fifty days after the action approved by the
resolution is effective or within such further period as a court may allow,
apply to a court to fix a fair value for the shares of any dissenting
shareholder.
(19) SHAREHOLDER APPLICATION TO COURT. -- If a corporation fails to apply to a
court under subsection (15), a dissenting shareholder may apply to a court for
the same purpose within a further period of twenty days or within such further
period as a court may allow.
(20) VENUE. -- An application under subsection (15) or (16) shall be made to a
court having jurisdiction in the place where the corporation has its registered
office or in the province where the dissenting shareholder resides if the
corporation carries on business in that province.
(21) NO SECURITY FOR COSTS. -- A dissenting shareholder is not required to give
security for costs in an application made under subsection (15) or (16).
(22) PARTIES. -- On an application to a court under subsection (15) or (16),
a. all dissenting shareholders whose shares have not been purchased
by the corporation shall be joined as parties and are bound by
the decision of the court; and
b. the corporation shall notify each affected dissenting shareholder
of the date, place and consequences of the application and of his
right to appear and be head in person or by counsel.
(23) POWERS OF COURT. -- On an application to a court under subsection (15) or
(16), the court may determine whether any other person is a dissenting
shareholder who should be joined as a party, and the court shall then fix a fair
value for the shares of all dissenting shareholders.
(24) APPRAISERS. -- A court may in its discretion appoint one or more appraisers
to assist the court to fix a fair value for the shares of the dissenting
shareholders.
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(25) FINAL ORDER. -- The final order of a court shall be rendered against the
corporation in favour of each dissenting shareholder and for the amount of his
shares as fixed by the court.
(26) INTEREST. -- A court may in its discretion allow a reasonable rate of
interest on the amount payable to each dissenting shareholder from the date the
action approved by the resolution is effective until the date of payment.
(27) NOTICE THAT SUBSECTION (26) APPLIES. -- If subsection (26) applies, the
corporation shall, within ten days after the pronouncement of an order under
subsection (22), notify each dissenting shareholder that it is unable lawfully
to pay dissenting shareholders for their shares.
(28) EFFECT WHERE SUBSECTION (26) APPLIES. -- If subsection (26) applies, a
dissenting shareholder, by written notice delivered to the corporation within
thirty days after receiving a notice under subsection (24), may
a. withdraw his notice of dissent, in which case the corporation is
deemed to consent to the withdrawal and the shareholder is
reinstated to his full rights as a shareholder; or
b. retain a status as a claimant against the corporation, to be paid
as soon as the corporation is lawfully able to do so or, in a
liquidation, to be ranked subordinate to the rights of creditors
of the corporation but in priority to its shareholders.
(29) LIMITATION. -- A corporation shall not make a payment to a dissenting
shareholder under this section if there are reasonable grounds for believing
that
a. the corporation is or would after the payment be unable to pay
its liabilities as they become due, or
b. the realizable value of the corporation's assets would thereby be
less than the aggregate of its liabilities. 1994, c.24, s.23.
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EXHIBIT C
CERTIFICATE OF DOMESTICATION
OF
DENBURY RESOURCES, INC.
The undersigned, Phil Rykhoek, Secretary of Denbury Resources Inc. (the
"Corporation"), a corporation organized and existing under the laws of Canada,
in accordance with the provisions of Section 388 of Title 8 of the Delaware
code, does hereby certify as follows:
FIRST: The Corporation was first incorporated in the Providence of
Manitoba (Canada) as a specially limited company on March 7, 1951. On February
16, 1968, by supplementary letters patent, the Corporation was converted to a
limited company. On September 13, 1984, the Corporation was continued under the
Canada Business
Corporations Act.
SECOND: The name of the Corporation immediately prior to the filing of
this Certificate of Domestication was Denbury Resources Inc.
THIRD: The name of the Corporation under which it is filing a
Certificate of Incorporation is Denbury Resources Inc.
FOURTH: The jurisdiction that constituted the seat, siege social,
principal place of business or central administration for the Corporation
immediately prior to the filing of this Certificate of Domestication was Canada.
FIFTH: A Certificate of Incorporation of Denbury Resources Inc. is
being filed contemporaneously with this Certificate of Domestication.
IN WITNESS WHEREOF, I being the Secretary of the Corporation, and being
duly authorized to sign this Certificate of Domestication on behalf of the
Corporation have made, signed and sealed this Certificate of Domestication on
this ___ day of ________________, 1999.
DENBURY RESOURCES INC.
By:
-------------------------
Phil Rykhoek, Secretary
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EXHIBIT D
CERTIFICATE OF INCORPORATION
OF
DENBURY RESOURCES INC.
The undersigned, a natural person acting as incorporator of a
corporation under the General Corporation Law of the State of Delaware, as the
same exists or may hereafter from time to time be amended (the "DGCL"), hereby
makes this Certificate of Incorporation for such corporation.
ARTICLE I
NAME
The name of the corporation is Denbury Resources Inc. (the "Corporation").
ARTICLE II
REGISTERED OFFICE AND AGENT
The address of its registered office in the State of Delaware is 1209
Orange Street, Wilmington, Delaware 19801, County of New Castle. The name of the
registered agent of the Corporation at such address is The Corporation Trust
Company.
ARTICLE III
PURPOSES AND STOCKHOLDER LIABILITY
(a) Purposes. The nature of the business or purposes to be conducted or
promoted by the Corporation is to engage in any lawful business, act or activity
for which corporations may be organized under the DGCL.
(b) Stockholder Liability. The private property of the stockholders
shall not be subject to the payment of corporate debts to any extent whatsoever.
ARTICLE IV
AUTHORIZED CAPITAL STOCK
The aggregate number of shares of all classes of stock which the
Corporation shall have authority to issue is 125,000,000 shares, consisting of:
(i) 100,000,000 shares of common stock, par value $.001 per share (the "Common
Stock"), and (ii) 25,000,000 shares of preferred stock, par value $.001 per
share (the "Preferred Stock"). Shares of any class of capital stock of the
Corporation may be issued for such consideration and for such corporate purposes
as the Board of Directors of the Corporation (the "Board of Directors") may from
time to time determine. Each share of Common Stock shall be entitled to one
vote.
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A. Preferred Stock. The Preferred Stock may be divided into and issued
from time to time in one or more series as may be fixed and determined by the
Board of Directors. The relative rights and preferences of the Preferred Stock
of each series shall be such as shall be stated in any resolution or resolutions
adopted by the Board of Directors setting forth the designation of the series
and fixing and determining the relative rights and preferences thereof (a
"Directors' Resolution"). The Board of Directors is hereby authorized to fix and
determine the powers, designations, preferences, and relative, participating,
optional or other rights, including, without limitation, voting powers, full or
limited, preferential rights to receive dividends or assets upon liquidation,
rights of conversion or exchange into Common Stock, Preferred Stock of any
series or other securities, any right of the Corporation to exchange or convert
shares into Common Stock, Preferred Stock of any series or other securities, or
redemption provision or sinking fund provisions, as between series and as
between the Preferred Stock or any series thereof and the Common Stock, and the
qualifications, limitations or restrictions thereof, if any, all as shall be
stated in a Directors' Resolution, and the shares of Preferred Stock or any
series thereof may have full or limited voting powers, or be without voting
powers, all as shall be stated in the Directors' Resolution. Except where
otherwise set forth in the Directors' Resolution providing for the issuance of
any series of Preferred Stock, the number of shares comprising such series may
be increased or decreased (but not below the number of shares then outstanding)
from time to time by like action of the Board of Directors. The shares of
Preferred Stock of any one series shall be identical with the other shares in
the same series in all respects except as to the dates from and after which
dividends thereon shall cumulate, if cumulative.
B. Reacquired Shares of Preferred Stock. Shares of any series of any
Preferred Stock that have been redeemed (whether through the operation of a
sinking fund or otherwise), purchased by the Corporation, or which, if
convertible or exchangeable, have been converted into, or exchanged for, shares
of stock of any other class or classes or any evidences of indebtedness shall
have the status of authorized and unissued shares of Preferred Stock and may be
reissued as a part of the series of which they were originally a part or may be
reclassified and reissued as part of a new series of Preferred Stock or as part
of any other series of Preferred Stock, all subject to the conditions or
restrictions on issuance set forth in the Directors' Resolution providing for
the issuance of any series of Preferred Stock and to any filing required by law.
C. Increase in Authorized Preferred Stock. The number of authorized
shares of Preferred Stock may be increased or decreased by the affirmative vote
of the holders of a majority of the stock of the Corporation entitled to vote
without the separate vote of holders of Preferred Stock as a class.
ARTICLE V
EXISTENCE
The existence of the Corporation is to be perpetual.
ARTICLE VI
NO PREEMPTIVE RIGHTS
No stockholder shall be entitled, as a matter of right, to subscribe
for or acquire additional, unissued or treasury shares of any class of capital
stock of the Corporation whether now or hereafter
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authorized, or any bonds, debentures or other securities convertible into, or
carrying a right to subscribe to or acquire such shares, but any shares or other
securities convertible into, or carrying a right to subscribe to or acquire such
shares may be issued or disposed of by the Board of Directors to such persons
and on such terms as in its discretion it shall deem advisable.
ARTICLE VII
NO CUMULATIVE VOTING
At each election of directors, every stockholder entitled to vote at
such election shall have the right to vote in person or by proxy the number of
shares owned by him for as many persons as there are directors to be elected and
for whose election he has a right to vote. No stockholder shall have the right
to cumulate his votes in any election of directors.
ARTICLE VIII
BOARD OF DIRECTORS
A. Powers. The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors. In addition to the
authority and powers conferred upon the Board of Directors by the DGCL or by the
other provisions of this Certificate of Incorporation (this "Certificate of
Incorporation"), the Board of Directors is hereby authorized and empowered to
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation, subject to the provisions of the DGCL, this Certificate
of Incorporation and the Bylaws of the Corporation (the "Bylaws"); provided,
however, that no Bylaws hereafter adopted by the stockholders of the
Corporation, or any amendments thereto, shall invalidate any prior act of the
Board of Directors that would have been valid if such Bylaws or amendment had
not been adopted.
B. Number, Election and Terms. The number of directors which shall
constitute the whole Board of Directors shall be fixed from time to time by the
members of the Board of Directors then in office subject to Section D(2) of this
Article VIII. Each director shall hold office until the next annual meeting and
shall serve until his successor shall have been duly elected and qualified or
until his earlier death, resignation or removal. Election of directors need not
be by written ballot unless the Bylaws of the Corporation shall so provide.
C. Bylaws. Subject to Section D(3) of this Article VIII, the Board of
Directors is expressly authorized to adopt, amend or repeal the Bylaws, or adopt
new Bylaws, without any action on the part of the stockholders, except as may be
otherwise provided by applicable law or the Bylaws.
D. Special Voting Requirements. The following matters shall be decided
by a majority of not less than 2/3 of the members of the Board of Directors of
the Corporation voting in favor of a resolution in respect of any of the
following matters:
(1) an acquisition having a purchase price in excess of 20%
of the Assets (as herein defined) of the Corporation or
a disposition having a sale price in excess of 20% of
the Assets of the Corporation;
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(2) any increase or decrease in the total number of members
of the Board of Directors of the Corporation;
(3) any amendment to the Certificate of Incorporation or
Bylaws of the Corporation;
(4) any issuance of equity securities or securities
convertible into equity securities of the Corporation
(other than pursuant to any rights, options, warrants
or convertible or exchangeable securities outstanding
prior to the date of this Certificate of Incorporation
is made effective, and other than pursuant to any stock
option plan or employee benefit plans of the
Corporation existing from time to time); or
(5) the creation of any series of Preferred Stock and the
rights, privileges, restrictions and conditions
attached thereto; any change in the rights, privileges,
restrictions and conditions attached to unissued shares
of any series; the issuance of any debt securities in
excess of 10% of the Assets of the Corporation and (i)
any borrowings by the Corporation, other than advances
against existing credit lines and (ii) any increase in
the existing credit lines of the Corporation, in each
case, in excess of 10% of the Assets of the Corporation
in respect of which the Corporation is required to
grant security for the debt obligations or any borrowed
money.
For the purposes of subsections (a) and (e) above, "Assets" shall mean
the total assets of the Corporation as reported on the consolidated
balance sheet at the end of the last fiscal quarter of the Corporation,
prepared in accordance with generally accepted accounting principles.
ARTICLE IX
INDEMNIFICATION
A. Mandatory Indemnification. Each person who at any time is or was a
director or officer of the Corporation, and is threatened to be or is made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative, arbitrative or investigative (a
"Proceeding"), by reason of the fact that such person is or was a director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, partner, venturer, proprietor, member,
employee, trustee, agent or similar functionary of another domestic or foreign
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other for-profit or non-profit enterprise, whether the basis of
a Proceeding is an alleged action in such person's official capacity or in
another capacity while holding such office, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the DGCL, or any
other applicable law as may from time to time be in effect (but, in the case of
any such amendment or enactment, only to the extent that such amendment or law
permits the Corporation to provide broader indemnification rights than such law
prior to such amendment or enactment permitted the Corporation to provide),
against all expense, liability and loss (including, without limitation, court
costs and attorneys' fees, judgments, fines, excise taxes or penalties, and
amounts paid or to be paid in settlement) actually and reasonably incurred or
suffered by such person in connection with a Proceeding, and such
indemnification shall continue as to a person who has ceased to be a director or
officer of the
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Corporation or a director, officer, partner, venturer, proprietor, member,
employee, trustee, agent or similar functionary of another domestic or foreign
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other for-profit or non-profit enterprise, and shall inure to
the benefit of such person's heirs, executors and administrators. The
Corporation's obligations under this Section A include, but are not limited to,
the convening of any meeting, and the consideration of any matter thereby,
required by statute in order to determine the eligibility of any person for
indemnification.
B. Prepayment of Expenses. Expenses incurred by a director or officer
of the Corporation in defending a Proceeding shall be paid by the Corporation in
advance of the final disposition of such Proceeding to the fullest extent
permitted by, and only in compliance with, the DGCL or any other applicable laws
as may from time to time be in effect, including, without limitation, any
provision of the DGCL which requires, as a condition precedent to such expense
advancement, the delivery to the Corporation of an undertaking, by or on behalf
of such director or officer, to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not entitled to be
indemnified under Section A of this Article IX or otherwise. Repayments of all
amounts so advanced shall be upon such terms and conditions, if any, as the
Corporation's Board of Directors deems appropriate.
C. Vesting. The Corporation's obligation to indemnify and to prepay
expenses under Sections A and B of this Article IX shall arise, and all rights
granted to the Corporation's directors and officers hereunder shall vest, at the
time of the occurrence of the transaction or event to which a Proceeding
relates, or at the time that the action or conduct to which such Proceeding
relates was first taken or engaged in (or omitted to be taken or engaged in),
regardless of when such Proceeding is first threatened, commenced or completed.
Notwithstanding any other provision of this Certificate of Incorporation or the
Bylaws of the Corporation, no action taken by the Corporation, either by
amendment of this Certificate of Incorporation or the Bylaws of the Corporation
or otherwise, shall diminish or adversely affect any rights to indemnification
or prepayment of expenses granted under Sections A and B of this Article IX
which shall have become vested as aforesaid prior to the date that such
amendment or other corporate action is effective or taken, whichever is later.
D. Enforcement. If a claim under Section A or Section B or both
Sections A and B of this Article IX is not paid in full by the Corporation
within thirty (30) days after a written claim has been received by the
Corporation, the claimant may at any time thereafter bring suit in a court of
competent jurisdiction against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall also be
entitled to be paid the expense of prosecuting such claim. It shall be a defense
to any such suit (other than a suit brought to enforce a claim for expenses
incurred in defending any Proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the DGCL or other applicable law to indemnify the claimant
for the amount claimed, but the burden of proving such defense shall be on the
Corporation. The failure of the Corporation (including its Board of Directors,
independent legal counsel, or stockholders) to have made a determination prior
to the commencement of such suit as to whether indemnification is proper in the
circumstances based upon the applicable standard of conduct set forth in the
DGCL or other applicable law shall neither be a defense to the action nor create
a presumption that the claimant has not met the applicable standard of conduct.
The termination of any Proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a
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manner which such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal Proceeding, had
reasonable cause to believe that his conduct was unlawful.
E. Nonexclusive. The indemnification provided by this Article IX shall
not be deemed exclusive of any other rights to which a person seeking
indemnification may be entitled under any statute, bylaw, other provisions of
this Certificate of Incorporation, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.
F. Permissive Indemnification. The rights to indemnification and
prepayment of expenses which are conferred to the Corporation's directors and
officers by Sections A and B of this Article IX may be conferred upon any
employee or agent of the Corporation if, and to the extent, authorized by the
Board of Directors.
G. Insurance. The Corporation shall have power to purchase and maintain
insurance, at its expense, on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, partner, venturer,
proprietor, member, employee, trustee, agent or similar functionary of another
domestic or foreign corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other for-profit or non-profit
enterprise against any expense, liability or loss asserted against such person
and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the
provisions of this Article IX, the Corporation's Bylaws, the DGCL or other
applicable law.
H. Implementing Arrangements. Without limiting the power of the
Corporation to procure or maintain insurance or other arrangement on behalf of
any of the persons as described in Section G of this Article IX, the Corporation
may, for the benefit of persons eligible for indemnification by the Corporation,
(i) create a trust fund, (ii) establish any form of self-insurance, (iii) secure
its indemnity obligation by grant of a security interest or other lien on the
assets of the Corporation, or (iv) establish a letter of credit, guaranty or
surety arrangement.
ARTICLE X
LIMITED DIRECTOR LIABILITY
No director of the Corporation shall be personally liable to the
Corporation or to its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that this Article X shall not eliminate or limit
the liability of a director: (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL, as it may hereafter be amended from
time to time, for any unlawful payment of a dividend or unlawful stock purchase
or redemption, or (iv) for any transaction from which the director derived an
improper personal benefit.
If the DGCL is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or
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limited to the fullest extent permitted by the DGCL, as so amended. No amendment
to or repeal of this Article X will apply to, or have any effect on, the
liability or alleged liability of any director of the Corporation for or with
respect to any acts or omissions of the director occurring prior to such
amendment or repeal.
ARTICLE XI
ARRANGEMENTS WITH CREDITORS
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for the Corporation under
Section 291 of Title 8 of the Delaware Code, order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If the majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders, of the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the Corporation, as the case
may be, and also on the Corporation.
ARTICLE XII
BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS
The Corporation shall not be governed by Section 203 of the DGCL.
ARTICLE XIII
INSPECTION RIGHTS OF BONDHOLDERS
The holders of any bonds, debentures or other obligations issued or to
be issued by the Corporation shall have the same right of inspection of the
Corporation's books, accounts and other records which the stockholders of
Corporation have.
ARTICLE XIV
INCORPORATOR
The name and mailing address of the incorporator:
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ARTICLE XV
DOMESTICATION
The Corporation was first incorporated in the Providence of Manitoba
(Canada) as a specially limited company on March 7, 1951. On February 16, 1968,
by supplementary letters patent, the Corporation was converted to a limited
company. On September 13, 1984, the Corporation was continued under the Canada
Business Corporations Act. Simultaneously with the filing of this Certificate of
Incorporation, the Corporation has filed its Certificate of Domestication with
the Secretary of State of the State of Delaware in order to domesticate itself
in the State of Delaware. This Certificate of Incorporation amends and
supersedes in all respects the previously adopted Articles of Incorporation, as
amended to date, of the Corporation. Each share of the common stock of the
Corporation outstanding on the effective date of this Certificate of
Incorporation is hereby converted into one share of the Common Stock without any
further action by the Corporation or any stockholder, and the currently
outstanding share certificates representing such shares of common stock
outstanding on the effective date of this Certificate of Incorporation shall
represent one share of the Common Stock until such share certificate is
surrendered for transfer or reissue.
I, the undersigned, being the incorporator, for the purpose of forming
a corporation pursuant to the DGCL, do make this Certificate of Incorporation,
hereby declaring under the penalties of perjury that this is my act and deed and
that the facts stated herein are true, and accordingly have executed this
Certificate of Incorporation on _______________, 1999.
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EXHIBIT E
DENBURY RESOURCES INC.
BYLAWS
ARTICLE I
OFFICES
Section 1.1. Registered Office. The registered office shall be in the
City of Wilmington, County of New Castle, State of Delaware.
Section 1.2. Other Offices. The corporation may also have offices at
such other places, either within or without the State of Delaware, as the board
of directors may from time to time to determine or as the business of the
corporation may require.
ARTICLE 2
MEETINGS OF STOCKHOLDERS
Section 2.l. Place of Meetings. All meetings of the stockholders shall
be held at the office of the corporation or at such other places as may be fixed
from time to time by the board of directors, either within or without the State
of Delaware, and stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2.2. Annual Meetings. Annual meetings of stockholders,
commencing with the year 1999, shall be held at the time and place to be
selected by the board of directors. At the meeting, the stockholders shall elect
a board of directors by written ballot and transact such other business as may
properly be brought before the meeting. The board of directors acting by
resolution may postpone and reschedule any previously scheduled annual meeting
of stockholders.
Nominations of persons for election to the board of directors of the
corporation and the proposal of business to be considered by the stockholders
may be made at an annual meeting of
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stockholders (a) pursuant to the notice of meeting, (b) by or at the direction
of the board of directors, or (c) by any stockholder of the corporation who was
a stockholder of record at the record date for the meeting, who is entitled to
vote at the meeting.
Section 2.3. Notice of Annual Meeting. Written notice of the annual
meeting stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten nor more than
sixty days before the date of the meeting.
Section 2.4. Voting List. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten (10) days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
Section 2.5 Special Meetings. Special meetings of the stockholders,
for any purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, shall be called by the board of directors or by
holders of capital stock representing at least twenty-five percent (25%) of the
aggregate voting power of the issued and outstanding capital stock of the
corporation. The board of directors acting by resolution may postpone and
reschedule any previously scheduled special meeting of stockholders called by
the board of directors, but shall have such right with respect to any special
meeting called by stockholders of the corporation only with the consent of such
shareholders calling the meeting.
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Section 2.6. Notice of Special Meetings. Written notice of a special
meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called shall be given not less than ten (10)
nor more than sixty (60) days before the date of the meeting, to each
stockholder entitled to vote at such meeting. Business transacted at any special
meeting of the stockholders shall be limited to the purposes stated in the
notice.
Section 2.7. Quorum. The holders of one-third (1/3) of the stock issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 2.8. Order of Business. At each meeting of the stockholders,
one of the following persons, in the order in which they are listed (and in the
absence of the first, the next, and so on), shall serve as chairman of the
meeting: chairman of the board, president, vice presidents (in the order of
their seniority if more than one) and secretary. The order of business at each
such meeting shall be as determined by the chairman of the meeting. The chairman
of the meeting shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts and things as are necessary
or desirable for the proper conduct of the meeting, including, without
limitation, the establishment of procedures for the maintenance of order and
safety, limitations on the time allotted
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to questions or comments on the affairs of the corporation, restrictions on
entry to such meeting after the time prescribed for the commencement thereof,
and the opening and closing of the voting polls.
Section 2.9. Majority Vote. When a quorum is present at any meeting,
the vote of the holders of a majority of the stock having voting power present
in person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which, by express provision of the
statutes or of the certificate of incorporation, a different vote is required,
in which case such express provision shall govern and control the decision of
such question.
Section 2.10. Method of Voting. Unless otherwise provided in the
certificate of incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one (1) vote in person or by proxy for each share of
the capital stock having voting power held by such stockholder, but no proxy
shall be voted on after three (3) years from its date, unless the proxy provides
for a longer period.
Section 2.11. Action Without Meeting. Unless otherwise restricted by
the certificate of incorporation, any action required or permitted to be taken
at any meeting of the stockholders may be taken without a meeting, without prior
notice and without a vote, if a consent or consents in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. The writing or writings shall be delivered to the
corporation by delivery to its registered office in Delaware, its principal
place of business or an officer or agent of the corporation having custody of
the book in which proceedings of meetings of stockholders are recorded. Delivery
made to a corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested.
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ARTICLE 3
DIRECTORS
Section 3.1. General Powers. The business and affairs of the
corporation shall be managed by or under the direction of the board of
directors, which may exercise all such powers of the corporation and do all such
lawful acts and things as are not by law or by the certificate of incorporation
of the corporation or by these bylaws directed or required to be exercised or
done by the stockholders.
Section 3.2. Number of Directors. Except as otherwise fixed by the
certificate of incorporation of the corporation, the board of directors shall
have not less than three (3) nor more than fifteen (15) directors. The number of
directors constituting the board shall be such number as from time to time shall
be specified by resolution of the board of directors; provided, however, no
director's term shall be shortened by reason of a resolution reducing the number
of directors.
Section 3.3. Election Qualification and Term of Office of Directors.
Directors shall be elected at each annual meeting of stockholders to hold office
until the next annual meeting. Directors need not be stockholders unless so
required by the certificate of incorporation or these bylaws, wherein other
qualifications for directors may be prescribed. Each director, including a
director elected to fill a vacancy, shall hold office until his successor is
elected and qualified or until his earlier resignation or removal. Elections of
directors need not be by written ballot.
Section 3.4. Regular Meetings. Written notice of the regular meetings
of the board of directors stating the place, date and hour of any of the regular
meetings shall be given to each director not less than two (2) nor more than
sixty (60) days before the date of any such meeting.
Section 3.5. Special Meetings. Special meetings of the board may be
called by the chairman of the board or the president, and shall be called by the
president or secretary on the written request of two (2) directors unless the
board consists of only a sole director, in which case special
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meetings shall be called by the president or secretary in like manner and on
like notice on the written request of the sole director.
Section 3.6. Quorum, Majority Vote. At all meetings of the board, a
majority of the entire board of directors shall constitute a quorum for the
transaction of business and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the board of
directors, except as may be otherwise specifically provided by statute or by the
certificate of incorporation. If a quorum shall not be present at any meeting of
the board of directors, the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present.
Section 3.7. Action Without Meeting. Unless otherwise restricted by the
certificate of incorporation or these bylaws, any action required or permitted
to be taken at any meeting of the board of directors or of any committee thereof
may be taken without a meeting, if all members of the board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of the proceedings of the board or committee.
Section 3.8. Telephone and Similar Meetings. Unless otherwise
restricted by the certificate of incorporation or these bylaws, members of the
board of directors, or any committee designated by the board of directors, may
participate in a meeting of the board of directors, or any committee, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
Section 3.9. Notice of Meetings. Notice of each meeting of the board
shall be given to each director by telegraph, facsimile, electronic mail,
overnight delivery or be given personally or by telephone, at least two (2) days
before the meeting is to be held. Notice need not be given to any director who
shall, either before or after the meeting, submit a signed waiver of such notice
or who
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shall attend such meeting without protesting, prior to or at its commencement,
the lack of notice to such director. Every such notice shall state the time and
place but need not state the purpose of the meeting.
Section 3.10. Rules and Regulations. The board of directors may adopt
such rules and regulations not inconsistent with the provisions of law, the
certificate of incorporation of the corporation or these bylaws for the conduct
of its meetings and management of the affairs of the corporation as the board
may deem proper.
Section 3.11. Resignations. Any director of the corporation may at any
time resign by giving written notice to the board of directors, the chairman of
the board, the president or the secretary of the corporation. Such resignation
shall take effect at the time specified therein or, if the time be not
specified, upon receipt thereof; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 3.12. Removal of Directors. Unless otherwise restricted by
statute or by the certificate of incorporation, any director or the entire board
of directors may be removed, with or without cause by the holders of a majority
of the shares then entitled to vote at an election of directors.
Section 3.13. Vacancies. Subject to the rights of the holders of any
class or series of stock having a preference over the common stock of the
corporation as to dividends or upon liquidation, any vacancies on the board of
directors resulting from death, resignation, removal or other cause, shall only
be filled by the affirmative vote of a majority of the remaining directors then
in office, even though less than a quorum of the board of directors, or by a
sole remaining director, and newly created directorships resulting from any
increase in the number of directors shall be filled by the board of directors,
or if not so filled, by the stockholders at the next annual meeting thereof or
at a special meeting called for that purpose in accordance with Section 2.5 of
these bylaws. Any director elected in accordance with the preceding sentence of
this Section 3.13 shall hold office for the remainder of
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the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until such successor shall have been elected
and qualified.
Section 3.14. Compensation of Directors. Unless otherwise restricted by
the certificate of incorporation or these bylaws, the board of directors shall
have the authority to fix the compensation of directors. The directors may be
paid their expenses, if any, of attendance at each meeting of the board of
directors and may be paid a fixed sum for attendance at each meeting of the
board of directors or a stated salary as director. No such payment shall
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
ARTICLE 4
EXECUTIVE AND OTHER COMMITTEES
Section 4.1. Executive Committee. The board of directors may, by
resolution adopted by a majority of the entire board, designate annually one (1)
or more of its members to constitute members or alternate members of an
executive committee, which committee shall have and may exercise, between
meetings of the board, all the powers and authority of the board in the
management of the business and affairs of the corporation, including, if such
committee is so empowered and authorized by resolution adopted by a majority of
the entire board, the power and authority to declare a dividend and to authorize
the issuance of stock, and may authorize the seal of the corporation to be
affixed to all papers which may require it, except that the executive committee
shall not have such power or authority with reference to:
(a) amending the certificate of incorporation of the
corporation;
(b) adopting an agreement of merger or consolidation
involving the corporation;
(c) recommending to the stockholders the sale, lease or
exchange of all or substantially all of the property
and assets of the corporation;
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(d) recommending to the stockholders a dissolution of the
corporation or a revocation of a dissolution;
(e) adopting, amending or repealing any Bylaw;
(f) filling vacancies on the board or on any committee of
the board, including the executive committee;
(g) fixing the compensation of directors for serving on the
board or on any committee of the board, including the
executive committee; or
(h) amending or repealing any resolution of the board which
by its terms may be amended or repealed only by the
board.
Section 4.2. Other Committees. The board of directors may, by
resolution adopted by a majority of the entire board, designate from among its
members one or more other committees, each of which shall, except as otherwise
prescribed by law, have such authority of the board as may be specified in the
resolution of the board designating such committee. A majority of all the
members of such committee may determine its action and fix the time and place of
its meetings, unless the board shall otherwise provide. The board shall have the
power at any time to change the membership of, to increase or decrease the
membership of, to fill all vacancies in and to discharge any such committee, or
any member thereof, either with or without cause.
Section 4.3. Procedure; Meetings; Quorum. Regular meetings of the
executive committee or any other committee of the board of directors may be held
at such times and places as shall be fixed by resolution adopted by a majority
of the members thereof. Special meetings of the executive committee or any other
committee of the board shall be called at the request of any member thereof.
Notice of each meeting of the executive committee or any other committee of the
board shall be given to each member of such committee by mailing written notice,
addressed to each member's residence, usual place of business or such other
place as designated by the member in writing provided to the
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secretary of the corporation or shall be sent to such member at such place by
telegraph, facsimile, electronic mail or overnight delivery or to be given
personally or by telephone at least two (2) days before the meeting is to be
held. Notice need not be given to any member who shall, either before or after
the meeting, submit a signed waiver of such notice or who shall attend such
meeting without protesting, prior to or at its commencement, the lack of such
notice to such member. Every such notice shall state the time and place but need
not state the purpose.
Any special meeting of the executive committee or any other committee
of the board shall be a legal meeting without any notice thereof having been
given, if all the members thereof shall be present thereat. Notice of any
adjourned meeting of any committee of the board need not be given if scheduled
at the original meeting. The executive committee or any other committee of the
board may adopt such rules and regulations not inconsistent with the provisions
of law, the certificate of incorporation of the corporation or these bylaws for
the conduct of its meetings as the executive committee or any other committee of
the board may deem proper. A majority of the executive committee or any other
committee of the board shall constitute a quorum for the transaction of business
at any meeting, and the vote of a majority of the members thereof present at any
meeting at which a quorum is present shall be the act of such committee. In the
absence or disqualification of a member, the remaining members, whether or not a
quorum, may fill a vacancy. The executive committee or any other committee of
the board of directors shall keep written minutes of its proceedings, a copy of
which is to be filed with the secretary of the corporation, and shall report on
such proceedings to the board.
ARTICLE 5
NOTICES
Section 5.l. Method. Except as otherwise specifically provided herein
or required by law, all notices required to be given to any director, officer or
stockholder shall be given in writing, by hand
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delivery or mail, addressed to such director, officer or stockholder, at his or
her address as it appears on the records of the corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be hand delivered or deposited in the United States mail. Except
as otherwise required by law, notice to directors shall also be given in
accordance with Section 3.9 of these bylaws.
Section 5.2. Waiver. Whenever any notice is required to be given under
the provisions of the statutes or of the certificate of incorporation or of
these bylaws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE 6
OFFICERS
Section 6.1. Election, Qualification. The officers of the corporation
shall be chosen by the board of directors and shall be a president, one or more
vice presidents, a secretary and a treasurer. The board of directors may also
choose a chairman of the board, one or more assistant secretaries and assistant
treasurers and such other officers and agents as it shall deem necessary. Any
number of offices may be held by the same person, unless the certificate of
incorporation or these bylaws otherwise provide.
Section 6.2. Salary. The salaries of all officers and agents of the
corporation shall be fixed by the board of directors.
Section 6.3. Term, Removal. The officers of the corporation shall hold
office until their successors are chosen and qualify. Any officer elected or
appointed by the board of directors may be removed at any time by the
affirmative vote of a majority of the board of directors. Any vacancy occurring
in any office of the corporation shall be filled by the board of directors.
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Section 6.4. Resignation. Subject at all times to the right of removal
as provided in Section 6.3 of these bylaws, any officer may resign at any time
by giving notice to the board of directors, the president or the secretary of
the corporation. Any such resignation shall take effect at the date of receipt
of such notice or at any later date specified therein; provided that the
president or, in the event of the resignation of the president, the board of
directors may designate an effective date for such resignation which is earlier
than the date specified in such notice but which is not earlier than the date of
receipt of such notice; and, unless otherwise specified therein, the acceptance
of such resignation shall not be necessary to make it effective.
Section 6.5. Vacancies. A vacancy in any office because of death,
resignation, removal or any other cause may be filled for the unexpired portion
of the term in the manner prescribed in these bylaws for election to such
office.
Section 6.6. Chairman of the Board. The chairman of the board shall, if
there be such an officer, preside at meetings of the board of directors and at
meetings of the stockholders. The chairman of the board shall counsel with and
advise the president and perform such other duties as the president or the board
or the executive committee may from time to time determine. Except as otherwise
provided by resolution of the board, the chairman of the board shall be
ex-officio a member of all committees of the board. The chairman of the board
may sign and execute in the name of the corporation deeds, mortgages, bonds,
contracts or other instruments authorized by the board or any committee thereof
empowered to authorize the same.
Section 6.7. President. The president shall be the chief executive
officer of the corporation, shall preside, if present, and in the absence of the
chairman of the board, at all meetings of the board of directors and at all
meetings of the stockholders, shall have general and active management of the
business of the corporation and shall see that all orders and resolutions of the
board of directors are carried into effect. He shall execute bonds, mortgages
and other contracts
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requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the corporation.
Section 6.8. Vice Presidents. In the absence of the president and the
chairman of the board or, in the event of their inability or refusal to act, the
vice president (or in the event there be more than one vice president, the vice
presidents in the order designated by the directors, or in the absence of any
designation, then in the order of their election) shall perform the duties of
the president, and when so acting, shall have all the powers of and be subject
to all the restrictions upon the president. The vice presidents shall perform
such other duties and have such other powers as the board of directors may from
time to time prescribe.
Section 6.9. Secretary. The secretary shall attend all meetings of the
board of directors and all meetings of the stockholders and record all the
proceedings of the meetings of the corporation and of the board of directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause to be given, notice
of all meetings of the stockholders and special meetings of the board of
directors, and shall perform such other duties as may be prescribed by the board
of directors or president, under whose supervision he shall be. He shall have
custody of the corporate seal of the corporation and he, or an assistant
secretary, shall have authority to affix the same to any instrument requiring it
and when so affixed, it may be attested by his signature or by the signature of
such assistant secretary. The board of directors may give general authority to
any other officer to affix the seal of the corporation and to attest the
affixing by his signature.
Section 6.10. Assistant Secretary. The assistant secretary, or if there
be more than one, the assistant secretaries in the order determined by the board
of directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the secretary or in the event
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<PAGE>
of his inability or refusal to act, perform the duties and exercise the powers
of the secretary and shall perform such other duties and have such other powers
as the board of directors may from time to time prescribe.
Section 6.11. Treasurer. The treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the board of
directors. He shall disburse the funds of the corporation as may be ordered by
the board of directors, taking proper vouchers for such disbursements, and shall
render to the president and the board of directors, at its regular meetings, or
when the board of directors so requires, an account of all his transactions as
treasurer and of the financial condition of the corporation. If required by the
board of directors, he shall give the corporation a bond in such sum and with
such surety or sureties as shall be satisfactory to the board of directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 6.12. Assistant Treasurer. The assistant treasurer, or if there
shall be more than one, the assistant treasurers in the order determined by the
board of directors (or if there be no such determination, then in the order of
their election), shall, in the absence of the treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
treasurer and shall perform such other duties and have such other powers as the
board of directors may from time to time prescribe.
E-14
<PAGE>
ARTICLE 7
INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES AND AGENTS
Section 7.1. Indemnification. The corporation shall indemnify any
person who is or was a director or officer of the corporation, or is or was
serving at the request of the corporation as a director or officer of another
entity, as provided in the certificate of incorporation.
Section 7.2. Definitions of Certain Terms. For purposes of
indemnification pursuant to the certificate of incorporation or this Article 7,
references to "the corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Article 7 with respect to the resulting or surviving corporation as such
person would have with respect to such constituent corporation if its separate
existence had continued.
For purposes of this Article 7, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; references
to "serving at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties on,
or involves services by such director, officer, employee or agent with respect
to an employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner such person reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit
E-15
<PAGE>
plan shall be deemed to have acted in a manner "not opposed to the best
interests of the corporation" as referred to in this Article 7.
Section 7.3. Liability of Directors. Notwithstanding any provision of
the certificate of incorporation or any other provision herein, no director
shall be personally liable to the corporation or any stockholder for monetary
damages for breach of fiduciary duty as a director, except for any matter in
respect of which such director shall be liable (a) under Section 174 of Title 8
of the Delaware Code (relating to the Delaware General Corporation Law), or any
amendment thereto or successor provision thereto, for any unlawful payment of
dividend of a dividend or unlawful stock purchase or redemption, or (b) by
reason that, in addition to any and all other requirements for such liability,
he (i) shall have breached his duty of loyalty to the corporation or its
stockholders, (ii) shall not have acted in good faith, (iii) shall have acted in
a manner involving intentional misconduct or a knowing violation of law or, in
failing to act, shall have acted in a manner involving intentional misconduct or
a knowing violation of law or (iv) shall have derived an improper personal
benefit.
ARTICLE 8
CERTIFICATES OF STOCK
Section 8.1. Certificates. Every holder of stock in the corporation
shall be entitled to have a certificate, signed by, or in the name of the
corporation by, the chairman or vice chairman of the board of directors, or the
president or a vice president and the treasurer or an assistant treasurer, or
the secretary or an assistant secretary of the corporation, certifying the
number of shares owned by him in the corporation.
Section 8.2. Facsimile Signatures. Any of or all the signatures on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar
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<PAGE>
before such certificate is issued, it may be issued by the corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
Section 8.3. Lost Certificates. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 8.4. Transfers of Stock. Upon surrender to the corporation or
the transfer agent of the corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 8.5. Fixing Record Date. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the board of directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
(10) days before the date of such meeting, nor more than sixty (60) days prior
to any other
E-17
<PAGE>
action. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
Section 8.6. Registered Stockholders. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Delaware.
ARTICLE 9
AFFILIATED TRANSACTIONS
Section 9.1. Validity. Except as otherwise provided for in the
certificate of incorporation, if Section 9.2 of these bylaws is satisfied, no
contract or transaction between the corporation and any of its directors,
officers or security holders, or any corporation, partnership, association or
other organization in which any of such directors, officers or security holders
are directly or indirectly financially interested, shall be void or voidable
solely because of this relationship, or solely because of the presence of the
director, officer or security holder at the meeting authorizing the contract or
transaction, or solely because of his or their participation in the
authorization of such contract or transaction or vote at the meeting therefor,
whether or not such participation or vote was necessary for the authorization of
such contract or transaction.
Section 9.2. Disclosure, Approval; Fairness. Section 9.1 shall apply
only if:
(a) the material facts as to the relationship or interest and
as to the contract or transaction are disclosed or are known:
E-18
<PAGE>
(i) to the board of directors (or committee thereof)
and it nevertheless in good faith authorizes or ratifies the
contract or transaction by a majority of the directors
present, each such interested director to be counted in
determining whether a quorum is present but not in calculating
the number necessary to carry the vote; or
(ii) to the stockholders and they nevertheless
authorize or ratify the contract or transaction by a majority
of the shares present at a meeting considering such contract
or transaction, each such interested person (stockholder) to
be counted in determining whether a quorum is present but not
in calculating the number necessary to carry the vote; or
(b) the contract or transaction is fair to the corporation as
of the time it is authorized or ratified by the board of
directors (or committee thereof) or the stockholders.
Section 9.3. Nonexclusive. This provision shall not be construed to
invalidate a contract or transaction which would be valid in the absence of this
provision.
ARTICLE 10
GENERAL PROVISIONS
Section 10.1. Dividends. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the board of directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation.
Section 10.2. Reserves. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other
E-19
<PAGE>
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
Section 10.3. Annual Statement. The board of directors shall present at
each annual meeting, and at any special meeting of the stockholders when called
for by vote of the stockholders, a full and clear statement of the business and
condition of the corporation.
Section 10.4. Checks. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
Section 10.5. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the board of directors.
Section 10.6. Seal. The corporate seal shall have inscribed thereon the
name of the corporation, the year of its organization and the words "Corporate
Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed, affixed, reproduced or otherwise.
ARTICLE 11
AMENDMENTS
Section 11.1. Amendments. These bylaws may be altered, amended or
repealed or new bylaws may be adopted by not less than two-thirds (2/3) of all
the members of the board of directors, at any meeting of the board of directors
if notice of such alteration, amendment, repeal or adoption of new bylaws be
contained in the notice of such meeting. The stockholders of the corporation
shall have the power to adopt, amend or repeal any provisions of the bylaws.
E-20
<PAGE>
GRIFFITHS McBURNEY & PARTNERS
February 25, 1999
The Independent Committee of the Board of Directors
Denbury Resources Inc.
17304 Preston Road Suite 200
Dallas, Texas
75252
Dear Sirs:
RE: LIQUIDITY OF DENBURY RESOURCES INC. COMMON SHARES
Griffiths McBurney & Partners ("GMP", "we" or "our") has been retained by the
independent committee of the board of directors of Denbury Resources Inc.
("Denbury" or the "Company") in connection with a proposal (the "Proposal") by
Denbury to sell 18,552,876 common shares of the Company from treasury to an
affiliate of the Texas Pacific Group ("TPG") for US$100,000,000 or US$5.39 per
common share. Concurrent with seeking shareholder approval for the Proposal, the
Company is also seeking shareholder approval to move the corporate domicile of
Denbury from Canada to the United States as a Delaware corporation as well as
increasing the number of common shares that may be issued pursuant to the
Company's Employee Stock Purchase Plan and Stock Option Plan.
In connection with our mandate, we have been expressly requested to provide our
opinion that there was a liquid market in common shares of Denbury for the
period prior to the proposed sale of common shares to TPG pursuant to the
Proposal and that the market would not be materially less liquid following the
completion of such sale.
DEFINITION OF LIQUID MARKET
- ----------------------------
For purposes of this opinion, the term liquid market is defined as a market for
the subject securities with sufficient breadth and depth to provide a reasonable
opportunity for the average retail investor to buy and sell shares without
materially impacting the market price. Factors we view as affecting liquidity
include the total market value of the subject securities, the "public float" of
securities, the number of shareholders, share trading
- --------------------------------------------------------------------------------
407 2nd Street S.W., Suite 310, Calgary, Alberta T2P 2Y3
Telephone:(403)543-3030 Fax:(403)543-3038
F-1
<PAGE>
volumes, the consistency of daily trading and the number of exchanges on which
the subject securities are traded.
LIQUIDITY OF DENBURY COMMON SHARES
- ----------------------------------
In considering the liquidity of Denbury common shares, we reviewed the trading
volumes of the Company in respect of such shares over a twelve month period on
both The Toronto Stock Exchange and the New York Stock Exchange. In addition,
over the same time frame, we compared the trading volumes of the Company to
those of selected senior and intermediate oil and gas companies listed on The
Toronto Stock Exchange, generally considered by GMP to be "liquid".
Set forth below is our understanding of the common share capitalization of the
Company as of September 30, 1998 prior to giving effect to the Proposal and
pro-forma after giving effect to the purchase of common shares by TPG as
contemplated by the Proposal. In addition, we have included the interest in the
Company held by TPG currently and their pro-forma interest. All common share
information has been obtained from the Form S-4 Registration Statement of the
Company as amended, filed with the United States Securities and Exchange
Commission.
<TABLE>
<CAPTION>
Proposed Pro-Forma
Common Shares Common Share Common Shares
Issued and Outstanding Issue to TPG Issued and Outstanding
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
DENBURY 26,801,680 18,552,876 45,354,556
HELD BY TPG 8,721,438 18,552,876 27,274,314
Percentage thereon 32.5% 100.0% 60.1%
</TABLE>
For the twelve month period ended February 25, 1999, the trading on The Toronto
Stock Exchange and the New York Stock Exchange of the common shares of the
Company and key statistical information is as follows:
<TABLE>
<CAPTION>
TSE NYSE COMBINED
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
AVERAGE DAILY VOLUME 21,500 30,500 52,000
AVERAGE WEEKLY VOLUME 107,900 153,000 260,900
12 MONTH VOLUME 5,500,000 7,800,000 13,300,000
DENBURY PUBLIC FLOAT 18,080,242
Percentage of public float
traded in 12 months 74%
</TABLE>
F-2
<PAGE>
As a comparison, a summary of trading statistics of selected Senior and
Intermediate oil and gas producers listed on The Toronto Stock Exchange is
outlined in the table below:
Average Percentage of Public Float Traded
in 12 months:
- --------------------------------------------------------------
Selected Senior Producers 73%
Selected Intermediate Producers 58%
According to information provided The Toronto Stock Exchange by Company
Management, Denbury has approximately 1300 common shareholders. Computation of
the common share holding of the average retail shareholder are outlined in the
table below:
<TABLE>
<CAPTION>
Average Retail Holding
- ----------------------------------------------
<S> <C>
Denbury Public Float 18,080,242
Institutional Holdings (1) 8,540,000
---------
Estimated Retail Holdings 9,540,242
=========
AVERAGE RETAIL HOLDING 7,300
COVERAGE OF AVERAGE DAILY VOLUME 7.1 TIMES
<FN>
(1) Source - Bloomberg
</FN>
</TABLE>
We have performed a review of the combined daily trading volumes of Denbury
common shares over the 12 month period and found that the daily trading activity
levels appear to be without any period of market inactivity.
Since the date of the Denbury public announcement of the Proposal, December 17,
1998, we have reviewed the trading activity of Denbury on both The Toronto Stock
Exchange and the New York Stock Exchange, and have found the volume of trading
of the common shares of Denbury has, in most cases, exceeded the normal trading
averages established.
F-3
<PAGE>
OPINION
- -------
Having given consideration to the foregoing, it is the opinion of Griffiths
McBurney & Partners that the market for the common shares of Denbury is liquid
and that the market would not be materially less liquid following the completion
of the sale of common shares of Denbury to TPG contemplated by the Proposal.
Yours truly,
GRIFFITHS McBURNEY & PARTNERS
(signed)
F-4
<PAGE>
EXHIBIT G
Special Resolution Approving
the Change of Corporate Domicile from Canada to the United States
BE IT RESOLVED as a special resolution of the shareholders of Denbury
Resources Inc. (the "Company") that:
1. the change of domicile of the Company from Canada to the United States
whereby the Company will be domesticated under the laws of the State
of Delaware pursuant to section 388 of the Delaware General
Corporation Law (the "DGCL")and discontinued under the provisions of
section 188(7) of the Canada Business Corporations Act (the "CBCA") be
and the same is hereby approved and authorized and the Company be and
it is hereby authorized to apply to the Secretary of State of the
State of Delaware for the purposes of domesticating the Company under
the laws of the State of Delaware pursuant to section 388 of the DGCL
and thereafter apply to the Director under the CBCA for a Certificate
of Discontinuance pursuant to section 188(7) of the CBCA;
2. the Certificate of Incorporation and the Certificate of Domestication,
which are attached as Exhibits "C" and "D", respectively, to the
Information Circular - Proxy Statement of the Company mailed to the
shareholders of the Company for the purposes of the Special Meeting,
subject to changes as the Secretary of State of the State of Delaware
may require or as the Board of Directors of the Company may approve,
be and the same are hereby adopted, approved and authorized;
3. any one director or officer of the Company be and is hereby authorized
for and on behalf of the Company to do all such acts and things and to
execute, deliver and file all such deeds, documents and other
instruments as may be necessary or desirable to carry out the
provisions of this resolution which, without limiting the generality
of the foregoing, shall include the execution and filing with the
Secretary of State of the State of Delaware of the Certificate of
Domestication and the Certificate of Incorporation, the application to
the Director under the CBCA to authorize and approve the Continuance,
the application to the Director under the CBCA for a Certificate of
Discontinuance pursuant to section 188(7) of the CBCA and all other
requisite notices and filings in respect of the domestication required
pursuant to applicable laws; and
4. conditional upon the domestication of the Company under the laws of
the State of Delaware in accordance with all legal requirements
relating thereto being made effective, the merger of the Company with
its wholly-owned subsidiary, Denbury Management Inc., whereby the
Company will be the surviving entity, be and the same is hereby
approved and authorized.
G-1
<PAGE>
Ordinary Resolution Authorizing
the Board the Authority to Postpone or Abandon the Move
BE IT RESOLVED as a special resolution of the shareholders of Denbury
Resources Inc. (the "Company") that:
1. the directors of the Company may, in their sole discretion and
notwithstanding that this resolution has been duly passed by the
shareholders of the Company, postpone or abandon the move of the
corporate domicile of the Company without further action or approval
of the shareholders if the Board of Directors determines that such a
move or timing of the domestication would not be in the Company's best
interests.
G-2
<PAGE>
Ordinary Resolution Approving the Sale of Shares to the Texas Pacific Group
WHEREAS Denbury Resources Inc. (the "Company") has entered
into a stock purchase agreement (the "TPG Purchase Agreement") dated December
16, 1998 with an affiliate of the Texas Pacific Group ("TPG"), pursuant to which
TPG has agreed to purchase 18,552,876 newly-issued Common Shares of Denbury
Resources Inc. for a total purchase price of U.S. $100 million, representing a
subscription price of U.S. $5.39 per Common Share, which agreement provides,
among other things, that the consummation of the sale of the shares to TPG is
conditional upon the approval by holders of the majority of the Common Shares of
the Company voting that are disinterested shareholders;
NOW THEREFORE BE IT RESOLVED, as an ordinary resolution of the
shareholders of the Company, that:
1. the private placement by the Company to TPG of an aggregate 18,552,876
Common Shares at a subscription price of U.S. $5.39 per share for an
aggregate purchase price of U.S. $100 million pursuant to the terms
and conditions of the TPG Purchase Agreement be and the same is hereby
authorized and approved and the TPG Purchase Agreement and all
transactions contemplated thereby be and the same are hereby ratified,
approved and confirmed including any and all other agreements,
documents and instruments and the performance of such further and
other actions as may be necessary or desirable in order to give full
effect to the TPG Purchase Agreement and the obligations of the
Company with respect thereto including the actions, documents,
agreements and instruments contemplated thereby or hereby;
2. any one director or officer of the Company be and is hereby authorized
for and on behalf of the Company to do all such acts and things and to
execute, deliver and file all such deeds, documents and other
instruments as may be necessary or desirable to carry out the
provisions of this resolution; and
3. the directors of the Company may, in their sole discretion and
notwithstanding that this resolution has been duly passed by the
shareholders of the Company, revoke this resolution before it is acted
upon without further action or approval of the shareholders.
G-3
<PAGE>
Ordinary Resolution Approving
Increase of Authorized Shares under the Company's Employee Stock Purchase Plan
BE IT RESOLVED as an ordinary resolution of the shareholders of Denbury
Resources Inc. (the "Company") that:
1. the amendment to the employee stock purchase plan of the Company made
effective February 1, 1996 (the "Employee Stock Purchase Plan"), by
increasing the maximum number of Common Shares of the Company which
shall be available for sale under the Employee Stock Purchase Plan
from 250,000 Common Shares to 750,000 Common Shares be and the same is
hereby ratified, approved and authorized; and
2. any one director or officer of the Company be and is hereby authorized
for and on behalf of the Company to do all such acts and things and to
execute, deliver and file all such deeds, documents and other
instruments as may be necessary or desirable to carry out the
provisions of this resolution including, without liming the generality
of the foregoing, all necessary notices, filings and applications to
the Toronto and New York stock exchanges in respect of the amendment
to the Employee Stock Purchase Plan and the additional listing of
Common Shares issued under the Employee Stock Purchase Plan.
G-4
<PAGE>
Ordinary Resolution Approving
Increase of Authorized Shares under the Company's Stock Option Plan
BE IT RESOLVED that an ordinary resolution of the shareholders
of Denbury Resources Inc. (the "Company") that:
1. the amendment to the stock option plan of the Company made effective
August 9, 1995 (the "Stock Option Plan"), as amended, by the increase
of an additional 2,015,756 Common Shares issuable under the Stock
Option Plan such that the maximum number of Common Shares reserved for
future issuance under the Stock Option Plan will be 4,535,000 Common
Shares representing approximately 10% of the outstanding Common Shares
after giving effect to the proposed sale of 18,552,876 Common Shares
to Texas Pacific Group, and pursuant to which the "Common Share
Maximum" as defined in section 4(a) of the Stock Option Plan is
increased to 5,145,587 Common Shares be and the same is hereby
ratified, approved and authorized; and
2. any one director or officer of the Company be and is hereby authorized
for and on behalf of the Company to do all such acts and things and to
execute, deliver and file all such deeds, documents and other
instruments as may be necessary or desirable to carry out the
provisions of this resolution including, without liming the generality
of the foregoing, all necessary notices, filings and applications to
the Toronto and New York stock exchanges in respect of the amendment
to the Stock Option Plan and the additional listing of Common Shares
issuable upon exercise of options granted under the Stock Option Plan.
G-5
<PAGE>
DENBURY RESOURCES INC.
Suite 2550, 140 - 4th Avenue S.W.
Calgary, Alberta T2P 3N3
Instrument of Proxy
Special Meeting of Shareholders
The undersigned shareholder of Denbury Resources Inc., "Denbury" or the
"Company", 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 Special Meeting of
shareholders of Denbury, the "Meeting", to be held on ___________, April __,
1999, 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.
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 AGAINST [ ] the Special Resolution approving the move of
Denbury's corporate domicile from Canada to the United States as a
Delaware corporation;
2. FOR [ ] or AGAINST [ ] the Ordinary Resolution granting the board of
directors of Denbury the authority to postpone or abandon the move of
the corporation domicile from Canada to the United States, even if
approved by the shareholders, if the board in its discretion
determines such move or the timing thereof is not to be in Denbury's
best interest;
3. FOR [ ] or AGAINST [ ] the Ordinary Resolution approving the U.S. sale
of 18,552,876 common shares of Denbury to an affiliate of the Texas
Pacific Group, Denbury's largest shareholder, for $100 million or
$5.39 per share;
4. FOR [ ] or AGAINST [ ] the Ordinary Resolution approving an increase
in the number of common shares reserved for issuance under Denbury's
Employee Stock Purchase Plan;
5. FOR [ ] or AGAINST [ ] the Ordinary Resolution approving an increase
in the number of common shares reserved for issuance under Denbury's
Stock Option Plan; and
6. 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 IN FAVOUR OF THE
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.
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__________________, 1999.
----------------------------------
Shareholder's Signature
----------------------------------
Name of Shareholder (Please Print)
(See over for notes)
<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 the Secretary of Denbury Resources Inc., c/o CIBC Mellon
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.
<PAGE>
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Canada
Section 124(1) of the Canada Business Corporations Act ("CBCA")
provides that, except in respect of an action by or on behalf of a corporation
or body corporate to procure a judgment in its favor, a corporation may
indemnify a director or officer of the corporation, a former director or officer
of the corporation or a person who acts or acted at the corporation's request as
a director or officer of a body corporate of which the corporation is or was a
shareholder or creditor, and his heirs and legal representatives, against all
costs, charges, and expenses, including an amount paid to settle an action or
satisfy a judgment, reasonably incurred by him in respect of any civil, criminal
or administrative action or proceeding to which he is made a party by reason of
being or having been a director or officer of such corporation or body
corporate, if:
(a) he acted honestly and in good faith with a view to the best
interests of the corporation; and
(b) in a case of a criminal or administrative action or proceeding
that is enforced by a monetary penalty, he had reasonable grounds
for believing that his conduct was lawful.
Section 124(2) of the CBCA provides that even if such a person is named
in an action by or on behalf of the corporation or body corporate to procure a
judgment in its favor, a corporation may indemnify such a person with court
approval if such person meets the standards set forth in Section 124(1).
Additionally, a person named in Section 124(1) is entitled to indemnity from the
corporation if the person seeking indemnity:
(a) was substantially successful on the merits in his defense of the
action or proceeding; and
(b) fulfills the conditions set forth above.
Section 5.02 of the Company's Bylaws contains the same standards set
forth in Section 124(1), but makes indemnification in such circumstances
mandatory by the Company.
Texas
DMI has authority under Articles 2.02(A) (16) and 2.02-1 of the Texas
Business Corporation Act (the "TBCA") to indemnify its directors and officers to
the extent provided for in such statute. Section 3.06 of DMI's Bylaws provides
that the board of directors of DMI may authorize DMI to pay expenses incurred
by, so as to satisfy a judgment or fine rendered or levied against, present or
former directors, officers or employees of DMI as provided by Article
2.02(A)(16) of the TBCA.
The TBCA provides in part that a corporation may indemnify a director or
officer or other person who was, is, or is threatened to be made a named
defendant or respondent in a proceeding because the person is or was a director,
officer, employee or agent of the corporation, if it is determined that (i) such
person conducted himself in good faith; (ii) reasonably believed, in the case of
conduct in his official capacity as a director or officer of the corporation,
that his conduct was in the corporation's best interest, and, in all other
cases, that his conduct was not opposed to the corporation's best interests; and
(iii) in the case of any criminal proceeding, had no reasonable cause to believe
that his conduct was unlawful.
A corporation may indemnify a person under the TBCA against judgments,
penalties (including excise and similar taxes), fines, settlements, and
reasonable expenses actually incurred by the person in connection with the
proceeding. If the person is found liable to the corporation or is found liable
on the basis that personal benefit was improperly received by the person, the
indemnification is limited to reasonable expenses actually incurred by the
person in connection with the proceeding, and shall not be made in respect of
any proceeding in which the person shall have been found liable for willful or
intentional misconduct in the performance of his duty to the corporation.
<PAGE>
A corporation may also pay or reimburse expenses incurred by a person in
connection with his appearance as a witness or other participation in a
proceeding at a time when he is not a named defendant or respondent in the
proceeding.
In addition to the above provisions, both the Company and DMI have also
entered into an indemnity agreement with their officers and directors, which,
subject to the CBCA and TBCA, respectively, sets forth the procedures by which a
person may seek indemnity and clarifies the situations in which a person may be
entitled to indemnity by the Company or DMI, both.
Effective in August 1997, the Company modified the directors and officers
insurance covering each of its officers and directors. The insurance provides up
to $15 million of coverage for the officers and directors with deductibles
ranging from zero to $350,000, depending on the type of claim, and $15 million
of coverage for the Company. The Company has paid for 100% of the cost of this
insurance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
3(a) Articles of Continuance of Denbury Resources Inc., as amended
(incorporated by reference as Exhibits 3(a), 3(b), 3(c), 3(d)
of the Company's Registration Statement on Form F-1 dated
August 25, 1995, Exhibit 4(e) of the Company's Registration
Statement on Form S-8 dated February 2, 1996 and Exhibit 3(a)
of the Pre-effective Amendment No. 2 of the Company's
Registration Statement on Form S-1 dated October 22, 1996).
3(b) General By-Law No. 1: A By-Law Relating Generally to the
Conduct of the Affairs of Denbury Resources Inc., as amended
(incorporated by reference as Exhibit 3(e) of the Company's
Registration Statement on Form F-1 dated August 25, 1995,
Exhibit 4(d) of the Registrant's Registration Statement on Form
S-8 dated February 2, 1996.
3(c) Restated Articles of Incorporation of Denbury Management, Inc.
(incorporated by reference as Exhibit 3(c) of the Registrant's
Registration Statement on Form S-3 dated February 19, 1998).
3(d) Bylaws of Denbury Management, Inc. (incorporated by reference
as Exhibit 3(c) of the Registrant's Registration Statement on
Form S-3 dated February 19, 1998).
3(e) Certificate of Domestication of Denbury Resources Inc.
(attached as Exhibit C to the Prospectus of this Registration
Statement).
3(f) Form of Articles of Incorporation of Denbury Resources Inc., a
Delaware corporation (attached as Exhibit D to the Prospectus
of this Registration Statement).
3(g) Form of By-laws of Denbury Resources Inc., a Delaware
corporation (attached as Exhibit E to the Prospectus of this
Registration Statement).
4(a) See Exhibits 3(a), 3(b), 3(c) and 3(d) for provisions of the
Articles of Continuance and General By-Law No. 1 of the Company
defining the rights of the holders of Common Shares.
4(b) Form of Indenture between DMI and Chase Bank of Texas National
Association, as trustee (incorporated by reference as Exhibit
4(b) of Registrant's Registration Statement on Form S-3 dated
February 19, 1998).
4(c) Section 190 of the Canada Business Corporation Act (attached as
Exhibit B to the Prospectus of this Registration Statement).
<PAGE>
EXHIBIT DESCRIPTION OF EXHIBIT
- ------- ----------------------
5(a)** Form of legality opinion of Jenkens & Gilchrist, a
Professional Corporation.
8(a)** Form of opinion of Burnet, Duckworth & Palmer as to Canadian
tax matters.
8(b)** Form of opinion of Jenkens & Gilchrist, a Professional
Corporation as to United States tax matters.
10(a) Stock Purchase Agreement dated December 16, 1998 between the
Company and TPG Partners II, L.L.C. (incorporated by reference
as Exhibit 99.1 of the Registrant's Form 8-K dated December 17,
1998).
10(b)* Consent letter and form of Fourth Amendment to First Restated
Credit Agreement, by and among Denbury Management, as borrower,
Denbury Resources Inc., as guarantor, NationsBank of Texas,
N.A. as administrative agent and NationsBank of Texas, N.A. as
bank, dated November 30, 1998.
12* Statement of Ratio of Earnings to Fixed Charges.
13 Registrant's Annual Report on Form 10-K for the year ended
December 31, 1998 (incorporated by reference and separately
filed).
21 Subsidiaries of the Denbury Resources Inc., (incorporated by
reference as Exhibit 21 of Registrant's Form 10-K for the year
ended December 31, 1997).
23(a)** Consent of Deloitte & Touche LLP.
23(b)** Consent of Burnet, Duckworth & Palmer (contained in its opinion
filed as Exhibit 8 (a).
23(c)** Consent of Jenkens & Gilchrist, a Professional Corporation
(contained in its opinion filed as Exhibit 5(a)).
23(d)** Netherland, Sewell & Associates Reserve Summary Letter as to
reserves at December 31, 1998.
24(a)* Power of Attorney (contained on the signature page of this
Registration Statement).
99.1* Consent of Credit Suisse First Boston Corporation.
99.2** Termination of securities purchase agreement Letter Agreement
dated March 1, 1999, by and between TPG Partners, L.P. and TPG
Parallel I, L.P., as purchaser and Denbury Resources Inc., as
seller.
99.3** Opinion of Griffiths, McBurney and Partners regarding liquidity
of Registrant's trading market (attached as Exhibit F to the
Prospectus of this Registration Statement).
- ---------------------------
* Previously filed.
** Filed herewith.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11, or 13 of this form, within one business
<PAGE>
day of receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
Company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on March 3, 1999.
DENBURY RESOURCES INC.
By: /s/ Phil Rykhoek
-----------------------------
Phil Rykhoek
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated, in multiple counterparts with the effect
of one original.
Signatures Title Date
---------- ----- ----
/s/ Gareth Roberts President, Chief Executive Officer March 3, 1999
- --------------------- and Director of Denbury
Gareth Roberts (Principal Executive Officer)
/s/ Phil Rykhoek Chief Financial Officer, Secretary and March 3, 1999
- --------------------- Authorized Representative of Denbury
Phil Rykhoek (Principal Financial Officer)
/s/ Bobby J. Bishop Controller and Chief Accounting March 3, 1999
- --------------------- Officer of Denbury
Bobby J. Bishop (Principal Accounting Officer)
/s/ Ronald G. Greene* Chairman of the Board and March 3, 1999
- --------------------- Director of Denbury
Ronald G. Greeene
/s/ Wieland Wettstein* Director of Denbury March 3, 1999
- ---------------------
Wieland Wettstein
/s/ Wilmot Matthews * Director of Denbury March 3, 1999
- ---------------------
Wilmot Matthews
By: /s/ Phil Rykhoek
- -----------------------
Phil Rykhoek *Attorney-in-Fact pursuant to
Power of Attorney contained in
original filing of the Registration
Statement.
EXHIBIT 5(a)
Jenkens & Gilchrist
A P R O F E S S I O N A L C O R P O R A T I O N
AUSTIN, TEXAS
1100 Louisiana (512) 499-3800
Suite 1800
Houston, Texas 77002 DALLAS, TEXAS
(214) 855-4500
(713) 951-3300
Telecopier (713) 951-3314 LOS ANGELES, CALIFORNIA
(310) 820-8800
WRITER'S DIRECT DIAL NUMBER
Donald W. Brodsky SAN ANTONIO, TEXAS
(713) 951-3341 (210) 246-5000
March __, 1999
WASHINGTON, D.C.
(202) 326-1500
Denbury Resources Inc.
17304 Preston Road, Suite 200
Dallas, Texas 75252
Re: Opinion as to Legality of Organization and Certain Securities
of Denbury Resources Inc.
Ladies and Gentlemen:
We have acted as U.S. securities counsel to Denbury Resources Inc., a
corporation formed under the Canada Business Corporations Act (the "Company"),
in connection with the move of corporate domicile of the Company from Canada to
the United States as a Delaware corporation and the registration under the
Securities Act of 1933, as amended ("Securities Act"), of 31,976,538 shares of
common stock to be issued to the shareholders of the Company upon the change of
corporate domicile. This change of corporate domicile is being submitted to the
shareholders of the Company for approval, along with several other proposals,
all as described in a Proxy Statement/Prospectus (the "Prospectus") contained in
a registration statement (File Number 333-69577), as amended (the "Registration
Statement"), on Form S-4 first filed with the Securities and Exchange Commission
on December 23, 1998.
We have examined (i) the Prospectus and Registration Statement, (ii)
the proposed Certificate of Incorporation and Certificate of Domestication
proposed to be filed upon the domestication of the Company as a Delaware
corporation, (iii) corporate proceedings of the Company and (iv) such other
records, documents, opinions, and instruments as in our judgment are necessary
or appropriate to enable us to render this opinion. We have made such legal and
factual determinations as we have deemed relevant.
Based upon our examination and consideration of the foregoing, subject
to the comments, assumptions, exceptions, qualifications and limitations set
forth below, we are of the opinion that:
1. upon filing with the Delaware Secretary of State of the proposed
Certificate of Incorporation and Certificate of Domestication and
Certificate of Discontinuance by the Director of the Canada Business
Corporations Act, in the form contained
5(a)-1
<PAGE>
as exhibits to the Prospectus, the Company will become a corporation
duly organized, validly existing and in good standing under the laws
of the State of Delaware; and
2. upon domestication of the Company as a Delaware corporation, the
shares of the Delaware corporation to be issued to the shareholders of
the Company will be duly authorized, validly issued, fully paid and
non-assessable securities of the Delaware corporation.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to reference being made to our firm under the caption
"Legal Matters" in the Prospectus. In giving this consent, this firm does not
thereby admit that it comes into the category of persons whose consent is
required under Section 7 of the Securities Act or the rules and regulations of
the Commission promulgated thereunder.
Sincerely yours,
JENKENS & GILCHRIST,
A Professional Corporation
By:
-------------------------
Donald W. Brodsky
Authorized Signatory on
Behalf of the Corporation
5(a)-2
EXHIBIT 8(a)
BURNET, DUCKWORTH & PALMER LAW FIRM
Denbury Resources Inc.
17304 Preston Road, Suite 200
Dallas, Texas 75252
Dear Sirs:
Re: Form S-4 Registration Statement under the Securities Act of 1933 of
Denbury Resources Inc. ("Denbury")
Attached hereto as Schedule "A" is our opinion as to the Material Canadian
Federal Income Tax Considerations generally applicable to Denbury and its
shareholders of Denbury's change of corporate domicile and merger. Such opinion
is subject to the comments and qualifications specifically referenced therein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration statement and to reference being made to our firm under the caption
"Legal Matters" and "Moving the Corporate Domicile-Material Canadian Federal
Income Tax Consequences of the Move of Corporate Domicile and Merger" in the
Prospectus.
BURNET, DUCKWORTH & PALMER
1400, 350 - 7 Avenue S.W.
Calgary, Alberta T2P 3N9
Phone: (403) 260-0100
Fax: (403) 260-0332
www.bdplaw.com
Frank L. Burnet Q.C. (1890-1982)
Thomas J. Duckworth Q.C., Counsel
8(a) - 1
<PAGE>
Schedule A
Material Canadian Federal Income Tax Consequences of the Move of Corporate
Domicile and Merger
In the opinion of Burnet, Duckworth & Palmer, Canadian counsel to Denbury,
the following is a summary of the material Canadian federal income tax
considerations under the Income Tax Act (Canada), the "Canadian Tax Act", with
respect to the move generally applicable to Denbury and to you if, for purposes
of the Canadian Tax Act, hold your shares of Denbury Canada's common shares and
will hold your Denbury Delaware common stock as capital property and who deal at
arm's length with Denbury. This opinion does not apply to you if you are or will
be a foreign affiliate of any person resident in Canada, or to whom Denbury will
be a foreign affiliate following continuation within the meaning of the Canadian
Tax Act. This opinion is also not applicable to a corporation which is a
"specified financial institution" or to whom the mark-to-market provisions of
the Canadian Tax Act otherwise apply.
Shares will generally be considered to be capital property to you unless
such shares are held in the course of carrying on a business or are acquired in
a transaction considered to be an adventure in the nature of trade. You should
consult your own tax advisors regarding whether you hold your shares of Denbury
Canada's common shares as capital property and will hold your Denbury Delaware
common stock as capital property for the purposes of the Canadian Tax Act. If
you are resident in Canada and your shares might not otherwise qualify as
capital property, you may be entitled to obtain this qualification by making an
irrevocable election under Subsection 39(4) of the Canadian Tax Act prior to the
continuance. If you do not hold your shares as capital property, you should
consult your own tax advisors regarding their particular circumstances.
This opinion is based on the current provisions of the Canadian Tax Act,
the regulations thereunder, the Canada-United States Income Tax Convention,
1980, as amended, the "Tax Treaty", and counsel's understanding of the current
administrative practices published by Revenue Canada, Customs, Excise and
Taxation: "Revenue Canada". This opinion takes into account specific proposals
to amend the Canadian Tax Act and regulations publicly announced by the Minister
of Finance prior to the date of the Proxy Statement/Prospectus, collectively the
"Tax Proposals", and assumes that all Tax Proposals will be enacted in their
present form. However, no assurances can be given that the Tax Proposals will be
enacted in their present form. This opinion does not take into account or
anticipate any other changes in the law, nor does it take into account
provincial, territorial or foreign income tax legislation or considerations,
which may differ from the Canadian federal income tax considerations described
herein. No ruling has been obtained from Revenue Canada to confirm the tax
consequences of any of these transactions.
These opinions are based on the assumptions that shares of Denbury continue
to be listed on a stock exchange which is prescribed for the purposes of the Tax
Act, and Denbury Canada common shares and the Denbury Delaware common stock may
not reasonably be considered to derive their value, directly or indirectly,
primarily from portfolio investment in shares, debt, commodities or any other
similar properties.
This summary does not discuss all aspects of Canadian federal income
taxation that may be relevant to you. You should consult your own tax advisors
with respect to the tax consequences of these transactions in your particular
circumstances.
8(a) - 2
<PAGE>
Taxation of the Company. Upon the continuance, Denbury will be deemed to
have disposed of all of its property for fair market value immediately prior to
the continuance. Denbury will be subject to tax under the Canadian Tax Act on
any income and net taxable capital gains that result. Denbury will also be
subject to an additional tax at the rate of five percent on the amount by which
the fair market value of Denbury's assets, net of liabilities, exceeds the
paid-up capital of the Denbury's issued and outstanding shares. However, if one
of the main reasons for Denbury changing its residence to the United States was
to reduce the amount of such additional tax or Canadian withholding tax, the
rate of such tax would be 25 percent. Denbury will not be resident in Canada
after the continuance for the purposes of the Canadian Tax Act. The management
of Denbury, in consultation with some of its advisors, has reviewed Denbury's
assets, liabilities and paid-up capital and has advised counsel that no Canadian
federal taxes should be due and payable by Denbury under the Canadian Tax Act as
a result of the continuance. Based upon key representations made by Denbury,
counsel is of the opinion that no Canadian tax liability will result from the
continuance. The representations of Denbury which this opinion is based are that
the fair market value of Denbury's assets is less than the aggregate value of
the paid-up capital of all of Denbury's issued and outstanding shares and all of
the liabilities of Denbury, and the deemed disposition of all of Denbury's
assets at fair market value upon the continuance will not create income in
excess of the Canadian tax deductions available to Denbury.
Denbury's representations are based on the trading value of Denbury's
securities and the price at which securities are to be issued to TPG, and
counsel can express no opinion on matters of factual determination. The facts
underlying Denbury's assumptions and conclusions may also change prior to the
effective date of the continuance. Denbury has not applied to Canadian federal
tax authorities for a ruling as to the amount of federal taxes payable by
Denbury under the Canadian Tax Act as a result of the continuance and does not
intend to apply for such a ruling given the factual nature of the determinations
involved. It is possible that the Canadian federal tax authorities will not
accept the valuations or the positions that Denbury has adopted. Accordingly, it
is possible that the Canadian federal tax authorities will conclude after the
8(a) - 3
<PAGE>
effective date of the continuance that Canadian federal taxes are due under the
Canadian Tax Act as a result of the continuance.
Taxation of Shareholders Resident in Canada. The following portion of the
opinion applies to you if you are resident in Canada for the purposes of the
Canadian Tax Act.
You will not be considered to have disposed of your Denbury Canada common
shares or to have realized a taxable capital gain or loss solely due to the
continuance. The continuance will also have no effect on the adjusted cost base
to you of your Denbury Canada common shares.
Following the continuance, dividends received by you on shares of Denbury
Delaware common stock will be included in computing income and will generally
not be deductible if you are a corporation, and, if you are an individual, such
dividends will not receive the gross-up and dividend tax credit treatment
generally applicable to dividends on shares of taxable Canadian corporations.
Also, following the continuance, shares of Denbury Delaware common stock
will be a qualified investment for trusts governed by deferred profit sharing
plans, registered retirement saving plans and registered income funds,
collectively "Deferred Income Plans", provided such shares remain listed on a
prescribed stock exchange. Such shares will be foreign property after the
effective date of the continuance, and accordingly, the holding of such shares
by Deferred Income Plans or by other tax-exempt entities including registered
investments and registered pension plans may subject such holders to penalty
taxes under the Canadian Tax Act. However, these holders of Denbury shares at
the time of the continuance may be entitled to avail themselves of a provision
of the Canadian Tax Act to eliminate such penalty tax for up to 24 months
following the continuance. This permits Deferred Income Plans and other tax
exempt persons to either dispose of their shares on a orderly basis, or to
re-balance their portfolios to fall within the limits placed in ownership of
"foreign property". Such holders are urged to contact their own tax advisors to
determine the potential applicability of such penalty taxes to them.
Taxation of Dissenting Shareholders. Pursuant to the administrative
practices of Revenue Canada, the amount paid to you if you dissent should be
treated as proceeds of your common shares. Accordingly, you would recognize a
capital gain, or a capital loss, to the extent that the amount received, net of
any reasonable costs of disposition, exceeds, or is less than, the adjusted cost
base of such holder's common shares. If you are a corporation, any capital loss
arising on the disposition of common shares may in certain circumstances be
reduced by the amount of any dividends which have been received on such share,
and analogous rules apply to a partnership or trust of which a corporation is a
member or beneficiary. You will be required to include three-quarters of any
capital gain in computing your income for purposes of the Canadian Tax
8(a) - 4
<PAGE>
Act and will be entitled to deduct three-quarters of any capital loss only
against taxable capital gains in accordance with the Canadian Tax Act.
Taxation of Shareholders Not Resident in Canada. The following portion of
this summary applies to you if for purposes of the Canadian Tax Act you:
o are not resident or deemed to be resident in Canada at any time when
they held or hold Denbury Canada common shares;
o do not use or hold and are not deemed to use or hold their Denbury
Canada common shares in the course of carrying on a business in Canada;
or
o carry on an insurance business in Canada and elsewhere, and establish
that Denbury Canada common shares are "designated insurance property".
You will not be considered to have disposed of your Denbury Canada common
shares or to have realized a taxable capital gain or loss solely due to the
continuance. The continuance will also have no effect on the adjusted cost base
of your Denbury Canada common shares. After the effective date of the
continuance, dividends received by a shareholder on Denbury Delaware Common
stock will not be subject to Canadian withholding tax.
Provided that a Denbury Canada common share is not "taxable Canadian
property" to you at the time of disposition of such share, you will not be
subject to Canadian tax on any capital gain arising by reason of the disposition
of such Denbury Canada common share. After the effective date of the
continuance, based on the present activities of Denbury Delaware, Denbury
Delaware Common stock will not generally be "taxable Canadian property" to a
shareholder at any particular time.
Pursuant to the administrative practices of Revenue Canada, the amount paid
to you if you dissent should be treated as proceeds of disposition of his or her
Denbury Canada common shares. Provided that such shares are not taxable Canadian
property for the purposes of the Canadian Tax Act, such proceeds of disposition
will not be subject to Canadian tax. You should consult your own tax advisors in
this regard.
8(a) - 5
EXHIBIT 8(b)
Jenkens & Gilchrist
A P R O F E S S I O N A L C O R P O R A T I O N
AUSTIN, TEXAS
1100 Louisiana (512) 499-3800
Suite 1800
Houston, Texas 77002 DALLAS, TEXAS
(214) 855-4500
(713) 951-3300
Telecopier (713) 951-3314 LOS ANGELES, CALIFORNIA
(310) 820-8800
WRITER'S DIRECT DIAL NUMBER
Andrius R. Kontrimas SAN ANTONIO, TEXAS
(713) 951-3303 (210) 246-5000
March 2, 1999
WASHINGTON, D.C.
(202) 326-1500
Denbury Resources Inc.
17304 Preston Road, Suite 200
Dallas, Texas 75252
Ladies and Gentlemen:
We have acted as counsel to Denbury Resources, Inc., a corporation
constituted under the Canada Business Corporations Act (the "Company"), in
connection with the domestication of the Company into Delaware (the
"Continuation") and the subsequent liquidation of Denbury Management, Inc.
("DMI") into the resulting Delaware corporation ("DRI Delaware"), as described
in the Form S-4 registration statement filed with the Securities and Exchange
Commission (the "Commission") on December 23, 1998 (as thereafter amended from
time to time and together with all exhibits thereto, the "Registration
Statement"). Except as otherwise indicated, capitalized terms used herein shall
have the meanings assigned to them in the Registration Statement.
Set forth below are our opinions and the assumptions and documents upon
which we have relied in rendering our opinions.
A. Documents Reviewed
In connection with the opinions rendered below, we have reviewed and
relied upon the following documents:
1. the Registration Statement,
2. the Merger Agreement,
3. the Certificate of the Company attached hereto as Exhibit "A",
and
4. such other documents as we have deemed necessary or
appropriate for purposes of this opinion.
8(b) - 1
<PAGE>
Jenkens & Gilchrist
A P R O F E S S I O N A L C O R P O R A T I O N
Denbury Resources, Inc.
March 2, 1999
Page 2
B. Assumptions
In connection with the opinions rendered below, we have assumed:
1. that all signatures on all documents submitted to us are
genuine, that all documents submitted to us as originals are
authentic, that all documents submitted to us as copies are accurate,
that all information submitted to us is accurate and complete, and
that all persons executing and delivering originals or copies of
documents examined by us are competent to execute and/or deliver such
documents; and
2. that the Continuation, Merger and the other transactions
specified in the Registration Statement to be effected on or prior to
the Closing Date will be consummated as contemplated in the
Registration Statement and without waiver of any material provision
thereof.
C. Opinions
Based solely upon the documents and assumptions set forth above, and
conditioned upon the initial and continuing accuracy of the factual
representations set forth in the Certificate as of the date hereof and as
of the date of the effective times of the Continuation, it is our opinion
that:
(a) the Continuation will be a reorganization within the meaning
of Section 368(a) of the Code; and
(b) the descriptions of the law and the legal conclusions
contained in the Registration Statement under the caption "Material
United States Federal Income Tax Consequences to Shareholders of the
Continuance and the Merger" and "Material United States Federal Income
Tax Consequences to Company of the Continuation and the Merger" as
they relate to the Continuation and the Merger are correct in all
material respects and that the discussion thereunder fairly summarizes
the United States federal income tax consequences of the Continuation
and the Merger that are likely to be material to the Company and the
U.S. Shareholders and non-U.S. Shareholders of the Company.
D. Limitations
1. Except as otherwise indicated, the opinions contained in this
letter are based upon the Code and its legislative history, the
Treasury regulations promulgated thereunder (the "Regulations"),
judicial decisions, and current administrative rulings and practices
of the Internal Revenue Service, all as in effect on the date of this
letter. These authorities may be amended or revoked at any time. Any
such changes may or may not be retroactive with respect to
transactions entered into or contemplated prior to the effective date
thereof and could significantly alter the conclusions reached in this
letter. There is no assurance
8(b) - 2
<PAGE>
Jenkens & Gilchrist
A P R O F E S S I O N A L C O R P O R A T I O N
Denbury Resources, Inc.
March 2, 1999
Page 3
that legislative, judicial, or administrative changes will not occur
in the future. We assume no obligation to update or modify this letter
to reflect any developments that may occur after the date of this
letter.
2. The opinions expressed herein represent counsel's best legal
judgment and are not binding upon the Internal Revenue Service or the
courts and are dependent upon the accuracy and completeness of the
documents we have reviewed under the circumstances, the assumptions
made and the factual representations contained in the Certificate. To
the extent that any of the factual representations provided to us in
the Certificate is with respect to matters set forth in the Code or
the Regulations, we have reviewed with the individuals making such
factual representations the relevant portions of the Code and the
applicable Regulations and are reasonably satisfied that such
individuals understand such provisions and are capable of making such
factual representations. We have made no independent investigation of
the facts contained in the documents and assumptions set forth above,
the factual representations set forth in the Certificate or the
Registration Statement. No facts have come to our attention, however,
that would cause us to question the accuracy and completeness of such
facts or documents in a material way. Any material inaccuracy or
incompleteness in these documents, assumptions or factual
representations (whether made by the Company) could adversely affect
the opinions stated herein.
3. We are expressing opinions only as to those matters expressly
set forth in Section C above. No opinion should be inferred as to any
other matters, including any other transactions described in the
Registration Statement. This opinion does not address the various
state, local or foreign tax consequences that may result from the
Continuation or Merger. In addition, no opinion is expressed as to any
federal income tax consequence of the Continuation or Merger, except
as specifically set forth herein, and this opinion may not be relied
upon except with respect to the consequences specifically discussed
herein.
4. This opinion letter is issued for your benefit and the U.S.
Shareholders and non-U.S. Shareholders of the Company and no other
person or entity may rely hereon without our express written consent.
This opinion letter may be filed as an exhibit to the Registration
Statement. Furthermore, we consent to the reference to Jenkens &
Gilchrist, a Professional Corporation, under the captions "Legal
Matters" and "United States Federal Income Tax Consequences." In
giving this consent, we do not thereby admit that we are within the
category of persons whose consent is required under section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of
the Commission promulgated thereunder.
8(b) - 3
<PAGE>
Jenkens & Gilchrist
A P R O F E S S I O N A L C O R P O R A T I O N
Denbury Resources, Inc.
March 2, 1999
Page 4
Very truly yours,
JENKENS & GILCHRIST,
a Professional Corporation
By:
------------------------------------------
Andrius R. Kontrimas, Authorized Signatory
ARK/bn
8(b) - 4
EXHIBIT 23(a)
Consent of Deloitte & Touche, LLP
We consent to the incorporation by reference in this Amendment No. 2 to
Registration Statement No. 333-69577 of Denbury Resources Inc. on Form S-4 of
our reports dated February 19, 1999 (which express an unqualified opinion and
for U.S. Readers had a Canada-U.S. reporting difference which would require the
addition of an explanatory paragraph (following the opinion paragraph) relating
to the Company's ability to continue as a going concern) appearing in the Annual
Report on Form 10-K of Denbury Resources Inc. for the year ended December 31,
1998, and to the reference to us under the heading "Experts" in the Prospectus,
which is part of such Registration Statement.
Deloitte & Touche LLP
Chartered Accountants
Calgary, Alberta
March 4, 1999
Exhibit 23(d)
February 26, 1999
Mr. William E. Gross
Denbury Management, Inc.
17304 Preston Road, Suite 200
Dallas, Texas 75252
Dear Mr. Gross:
In accordance with your request, we have estimated the proved and
probable reserves and future revenue, as of December 31, 1998, to the Denbury
Management, Inc. (DMI) interest in certain oil and gas properties located in
Louisiana, Mississippi, Ohio, and Texas as listed in the accompanying
tabulations. This report has been prepared using constant prices and costs as
set forth in this letter. For the proved reserves, this report conforms to the
guidelines of the Securities and Exchange Commission (SEC). However, inasmuch as
the SEC does not recognize probable reserves, the sections of this report
dealing with such reserves should not be used in filings with the SEC.
As presented in the accompanying summary projections, Tables I through
V, we estimate the net reserves and future net revenue to the DMI interest, as
of December 31, 1998, to be:
<TABLE>
<CAPTION>
Net Reserves Future Net Revenue
---------------------------------- -----------------------------------------
Oil Gas Present Worth
Category (Barrels) (MCF) Total at 10%
- ------------------------- --------------- --------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Proved Developed
Producing 10,961,908 19,505,074 $ 78,347,000 $ 64,250,600
Non-Producing 9,395,088 25,489,761 75,771,900 42,660,300
Proved Undeveloped 7,892,514 3,807,871 26,621,000 8,108,400
--------------- --------------- ------------------ -----------------
Total Proved 28,249,510 48,802,706 $ 180,739,900 $ 115,019,300
=============== =============== ================== =================
Probable (1) 23,095,457 62,244,431 177,599,500 82,690,500
=============== =============== ================== =================
<FN>
(1) These reserves are not risk weighted.
</FN>
</TABLE>
The oil reserves shown include crude oil, condensate, and gas plant
liquids. Oil volumes are expressed in barrels which are equivalent to 42 United
States gallons. Gas volumes are
23(d)-1
<PAGE>
expressed in thousands of standard cubic feet (MCF) at the contract temperature
and pressure bases.
As shown in the Table of Contents, this report includes summary
projections of reserves and revenue for each state by reserve category along
with one-line summaries of reserves, economics, and basic data by lease.
Supplemental data summaries are also included by reserve category for each
state. For the purposes of this report, the term "lease" refers to a single
economic projection.
The estimated reserves and future revenue shown in this report are for
proved developed producing, proved developed non-producing, proved undeveloped,
and probable reserves. No study was made to determine whether possible reserves
might be established for these properties. This report does not include any
value which could be attributed to interests in undeveloped acreage beyond those
tracts for which undeveloped reserves have been estimated.
Future gross revenue to the DMI interest is prior to deducting state
production taxes and ad valorem taxes. Future net revenue is after deducting
these taxes, future capital costs, and operating expenses, but before
consideration of federal income taxes. In accordance with SEC guidelines, the
future net revenue has been discounted at an annual rate of 10 percent to
determine its "present worth." The present worth is shown to indicate the effect
of time on the value of money and should not be construed as being the fair
market value of the properties.
For the purposes of this report, a field inspection of the properties
has not been performed nor has the mechanical operation or condition of the
wells and their related facilities been examined. We have not investigated
possible environmental liability related to the properties; therefore, our
estimates do not include any costs which may be incurred due to such possible
liability. Also, our estimates do not include any salvage value for the lease
and well equipment nor the cost of abandoning the properties.
Oil prices used in this report are based on either a December 31, 1998
NYMEX West Texas Intermediate spot price of $12.05 per barrel, adjusted by lease
for gravity, transportation fees, and regional price differentials, or the
contract price. For the Apollo, Heidelberg, Sandersville, and South Thompson
Creek Fields, oil prices are held constant at current contract floor prices
until contract expiration. These prices are then reduced to the December 31,
1998 NYMEX West Texas Intermediate spot price of $12.05 per barrel, adjusted by
lease for gravity, transportation fees, and regional price differentials, and
held constant thereafter. All other oil prices are held constant in accordance
with SEC guidelines. The natural gas liquids price used for Eucutta Field,
Mississippi, is $6.50 per barrel and is held constant in accordance with SEC
guidelines.
23(d)-2
<PAGE>
Gas prices used in this report are based on a December 1998 NYMEX Henry
Hub natural gas settlement price of $2.15 per MMBTU, adjusted by lease for
transportation fees, BTU content, and regional price differentials. These prices
are held constant in accordance with SEC guidelines.
Lease and well operating costs are based on operating expense records
of DMI. For non-operated properties, these costs include the per-well overhead
expenses allowed under joint operating agreements along with costs estimated to
be incurred at and below the district and field levels. As requested, lease and
well operating costs for the operated properties include only direct lease and
field level costs. Headquarters general and administrative overhead expenses of
DMI are not included. Lease and well operating costs are held constant in
accordance with SEC guidelines. Capital costs are included as required for
workovers, new development wells, and production equipment.
We have made no investigation of potential gas volume and value
imbalances which may have resulted from overdelivery or underdelivery to the DMI
interest. Therefore, our estimates of reserves and future revenue do not include
adjustments for the settlement of any such imbalances; our projections are based
on DMI receiving its net revenue interest share of estimated future gross gas
production.
The reserves included in this report are estimates only and should not
be construed as exact quantities. They may or may not be recovered; if
recovered, the revenues therefrom and the costs related thereto could be more or
less than the estimated amounts. A substantial portion of these reserves are for
behind pipe zones, undeveloped locations, and producing wells that lack
sufficient production history upon which performance-related estimates of
reserves can be based. Therefore, these reserves are based on estimates of
reservoir volumes and recovery efficiencies along with analogies to similar
production. As such reserve estimates are usually subject to greater revision
than those based on substantial production and pressure data, it may be
necessary to revise these estimates up or down in the future as additional
performance data become available. The sales rates, prices received for the
reserves, and costs incurred in recovering such reserves may vary from
assumptions included in this report due to governmental policies and
uncertainties of supply and demand. Also, estimates of reserves may increase or
decrease as a result of future operations.
In evaluating the information at our disposal concerning this report,
we have excluded from our consideration all matters as to which legal or
accounting, rather than engineering and geological, interpretation may be
controlling. As in all aspects of oil and gas evaluation, there are
uncertainties inherent in the interpretation of engineering and geological data;
therefore, our conclusions necessarily represent only informed professional
judgments.
The titles to the properties have not been examined by Netherland,
Sewell & Associates, Inc., nor has the actual degree or type of interest owned
been independently confirmed. The
23(d)-3
<PAGE>
data used in our estimates were obtained from Denbury Management, Inc.; other
interest owners; various operators of the properties; and the nonconfidential
files of Netherland, Sewell & Associates, Inc. and were accepted as accurate. We
are independent petroleum engineers, geologists, and geophysicists; we do not
own an interest in these properties and are not employed on a contingent basis.
Basic geologic and field performance data together with our engineering work
sheets are maintained on file in our office.
Very truly yours,
DMA:EIB
23(d)-4
EXHIBIT 99.2
TPG PARTNERS, L.P.
TPG PARALLEL I, L.P.
201 Main Street
Suite 2420
Fort Worth, Texas 76102
March 1, 1999
Denbury Resources Inc.
17204 Preston Road
Suite 200
Dallas, Texas 75252
RE: Termination of Securities Purchase Agreement
Ladies and Gentlemen:
Reference is made to the Securities Purchase Agreement, dated as of
November 13, 1995 between TPG Partners, L.P. and Denbury Resources Inc. (as
successor in interest to Newscope Resources Ltd.), as amended by the First
Amendment to Securities Purchase Agreement, dated as of December 21, 1995 among
TPG Partners, L.P., TPG Parallel I, L.P. and Denbury Resources Inc. (as
successor in interest to Newscope Resources Ltd.) (such agreement as so amended,
the "Securities Purchase Agreement").
This letter confirms our understanding and agreement that, effective as
of the closing under the Stock Purchase Agreement dated as of December 16, 1998
between Denbury Resources Inc. and TPG Partners II, L.P., the Securities
Purchase Agreement shall terminate and cease to have any force or effect. Please
acknowledge your confirmation of this understanding and agreement by
countersigning and returning to us the enclosed copy of this letter where
indicated below.
Very truly yours,
TPG PARTNERS, L.P.
By: TPG GenPar, L.P., its general partner
By: TPG Advisors, Inc., its general partner
By: ___________________________________
Name: William S. Price, III
Title: Vice President
TPG PARALLEL II, L.P.
By: TPG GenPar, L.P., its general partner
By: TPG Advisors, Inc., its general partner
By: ___________________________________
Name: William S. Price, III
Title: Vice President
Confirmed and agreed:
DENBURY RESOURCES, INC.
By:__________________________________
Name: Phil Rykoek
Title: Chief Financial Officer
