SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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Check the appropriate box:
[_] Preliminary Proxy Statement [_] Soliciting Material Under Rule
[_] Confidential, For Use of the 14a-12
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
Denbury Resources Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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[GRAPHIC OMITTED]
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
April 11, 2003
To the Shareholders:
You are hereby notified that the 2003 Annual Meeting of Shareholders of
Denbury Resources Inc., a Delaware corporation ("Denbury" or the "Company"),
will be held at the Denbury offices located at 5100 Tennyson Parkway, Suite
3000, Plano, Texas 75024, at 3:00 P.M., CDT, on Tuesday, May 20, 2003, for the
following purpose:
(1) to elect nine directors, each to serve until their successor is
elected and qualified;
(2) to increase the number of shares that may be issued under our stock
option plan;
and to transact such other business as may properly come before the annual
meeting or any adjournment or postponement thereof.
Only shareholders of record at the close of business on April 4, 2003, are
entitled to notice of and to vote at the annual meeting.
Shareholders are urged to vote their proxy promptly by either returning the
enclosed proxy, voting by telephone or voting via the internet, each as more
fully described in the enclosed proxy statement, whether or not they expect to
attend the annual meeting in person.
/s/ Phil Rykhoek
Phil Rykhoek
Senior Vice President, Chief Financial Officer and
Secretary
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, SHAREHOLDERS ARE
URGED TO VOTE AND RETURN THEIR PROXY WHETHER OR NOT THEY EXPECT TO ATTEND THE
ANNUAL MEETING IN PERSON. YOUR PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS
VOTED.
DENBURY RESOURCES INC.
Proxy Statement
Annual Meeting of Shareholders
to be held on Tuesday, May 20, 2003
THE ENCLOSED PROXY IS FURNISHED IN CONNECTION WITH THE SOLICITATION OF
VOTES BY THE MANAGEMENT OF DENBURY RESOURCES INC., a Delaware corporation
("Denbury" or the "Company") for use at the annual meeting of the shareholders
of Denbury to be held on the 20th day of May, 2003 at the our offices at 5100
Tennyson Parkway, Suite 3000, Plano, Texas at 3:00 P.M. CDT, or at any
adjournment thereof.
We anticipate that this proxy statement, proxy card and our 2002 annual
report to shareholders will be mailed around April 15, 2003.
RECORD DATE AND COMMON STOCK OUTSTANDING
Our board of directors has fixed the record date for the annual meeting as
of the close of business on Friday, April 4, 2003. Only shareholders of Denbury
of record as of the record date are entitled to receive notice of and to vote at
the meeting. As of the record date, there were 53,741,052 shares of common stock
of Denbury outstanding.
VOTING OF COMMON STOCK
A proxy card accompanies the Notice of Annual Meeting and this proxy
statement. In order to be valid and acted upon at the annual meeting, your proxy
card must be received by the Secretary of Denbury or by the transfer agent,
American Stock Transfer and Trust, 40 Wall Street, New York, NY 10005, before
the time set for the holding of the meeting or any adjournment thereof. You may
also vote your shares by phone, (800)-PROXIES, or may vote via the internet at
www.voteproxy.com.
If you submit a proxy, you may revoke it any time prior to the meeting, or
if you attend the meeting personally, you may revoke your proxy at that time and
vote in person. In addition, regardless of which method you used to submit your
proxy, you may revoke it by any later-dated vote via the telephone, the internet
or in writing and deposited at either our registered office or our principal
place of business, at any time up to the time of the meeting, or with the
Chairman of the meeting on the day of the meeting. You should note that your
mere presence at the meeting, however, will not constitute a revocation of a
previously submitted proxy.
In order for us to have a quorum at our annual meeting, we must have at
least one-third of our issued and outstanding shares of common stock represented
in person or by proxy at the meeting. If you are a holder of our common stock,
you are entitled to one vote at the meeting for each share of common stock that
you held as of the record date. You will not be allowed to cumulate your votes
for the election of directors. If you do not wish to vote for a particular
nominee, you must clearly identify such nominee on your proxy card. A majority
of the votes cast in person or by proxy is required to elect each nominee for
director and to approve each item at the meeting. We will include abstentions in
the vote totals, which means that they
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have the same effect on each proposal as a negative vote. However, broker
non-votes, if any, will not be included in the vote totals and therefore will
not have any effect.
We will vote all properly executed proxies at the meeting in accordance
with the direction on the proxy. YOU SHOULD NOTE THAT IF NO DIRECTION IS
INDICATED, THE SHARES WILL BE VOTED FOR ALL THE DIRECTOR NOMINEES AND FOR
APPROVAL OF THE INCREASE IN THE NUMBER OF SHARES THAT MAY BE ISSUED UNDER THE
STOCK OPTION PLAN. Our board has designated Ron Greene and Gareth Roberts to
serve as proxies. We do not know of any matters, other than those matters listed
on the Notice of Annual Meeting of Shareholders, that will be brought before the
meeting. However, if any other matters are properly presented for action at the
meeting, we intend for Ron Greene and/or Gareth Roberts, as proxies named in the
enclosed proxy card, to vote at their discretion on such matters.
PERSONS MAKING THE SOLICITATION
We will bear all the costs incurred in the preparation and mailing of the
proxy, proxy statement and Notice of Annual Meeting. In addition to solicitation
by mail, our directors, officers or employees may solicit proxies by personal
interviews, telephone or other means of communication. If they do so, these
individuals will not receive any special compensation for these services. Even
though we have not made any provision to do so, we may also contract for the
distribution and solicitation of proxies for the meeting at our expense.
BUSINESS TO BE CONDUCTED AT THE MEETING
Proposal One:
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ELECTION OF DIRECTORS
Our Bylaws provide that our board of directors shall consist of a minimum
of three and a maximum of fifteen directors. Each of the directors is elected
annually and holds office until the close of the next annual meeting of
shareholders unless he resigns from that position or ceases to be a director by
operation of law. We presently have nine directors, all of whom are serving
terms that expire at the meeting.
Unless you mark a proxy to the contrary, we plan to vote the proxies for
the election of the nine nominees as directors as listed herein. All nine of
these individuals are current members of the board. We do not foresee any reason
why any of these nominees would become unavailable, but if they should, we may
either vote your proxy for a substitute that is nominated by the board or reduce
the size of our board accordingly.
David Bonderman
Ronald G. Greene
David I. Heather
David B. Miller
William S. Price, III
Gareth Roberts
Jeffrey Smith
Wieland F. Wettstein
Carrie A. Wheeler
3
The names, ages, offices held, period of time served as a director and the
principal occupation of each person nominated for election as a director are as
follows:
Officer or
Name and Municipality of Offices Director
Residence Age Held Since Principal Occupation
------------------------------- -------- ------------------- ------------- ---------------------------------------
Ronald Greene(1) 54 Chairman and 1995 Principal Shareholder, Officer and
Director Director of Tortuga Investment Corp.
David Bonderman 60 Director 1996 Principal of the Texas Pacific Group
David I. Heather (2) 61 Director 2000 President of The Scotia Group
David B. Miller (2) 53 Director 2001 Senior Managing Director of EnCap
Investments L.L.C.
William S. Price, III(1) 46 Director 1995 Principal of the Texas Pacific Group
Gareth Roberts 50 President, Chief 1992 President and Chief Executive Officer,
Executive Officer Denbury Resources Inc.
and Director
Jeffrey Smith 41 Director 2001 Principal of the Texas Pacific Group
Wieland F. Wettstein(2) 53 Director 1990 Executive Vice-President, Finex
Financial Corporation Ltd.
Carrie A. Wheeler 31 Director 2000 Principal of the Texas Pacific Group
(1) Member of the Compensation, Stock Option Plan and Stock Purchase Plan
Committees.
(2) Member of the Audit Committee.
DIRECTORS
Ronald G. Greene has been Chairman of the Board and a director of Denbury
since 1995. Mr. Greene was the founder and Chairman of the board of directors of
Renaissance Energy Ltd. and was Chief Executive Officer of Renaissance from its
inception in 1974 until May 1990. He is also the principal shareholder, officer
and director of Tortuga Investment Corp., a private investment company. Mr.
Greene also serves on the board of directors of WestJet Airlines Ltd., a public
Canadian scheduled airline and Husky Energy Inc., a Canadian public oil and gas
company.
David Bonderman has been a director of Denbury since 1996. Mr. Bonderman is
a founding partner of the Texas Pacific Group ("TPG"), which was formed in 1992.
Mr. Bonderman also serves on the board of directors of Continental Airlines,
Inc.; Co-Star Group, Inc.; Ducati Motor Holdings, S.p.A.; Magellan Health
Services, Inc.; Paradyne Networks, Inc.; ProQuest Company; Ryanair Holdings,
plc; and ON Semiconductor Corporation.
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David I. Heather has been a director of Denbury since 2000. Mr. Heather is
a founding partner and director of The Scotia Group, an independent geoscience
and reservoir-engineering group in Dallas and Houston, Texas, formed in 1981.
Mr. Heather is a Chartered Engineer of Great Britain and received his Bachelor
of Science degree in Chemical Engineering from the University of London in 1963.
David B. Miller has been a director of Denbury since 2001. Mr. Miller is a
co-founder and Senior Managing Director of EnCap Investments L.L.C., an
investment manager and provider of private equity capital to the independent
sector of the oil and gas industry. Prior to forming EnCap in 1988, Mr. Miller
was Co-Chief Executive Officer of MAZE Exploration Inc., an oil and natural gas
company he co-founded in 1981. Mr. Miller also serves on the board of directors
of 3TEC Energy Corporation, Cordillera Energy Partners, LLC., Sawtooth Energy
Partners, LLC and Ovation Energy Partners, LLC.
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 board of directors of Continental
Airlines, Inc.; Del Monte Foods Company; Gemplus International, S.A. and Petco
Animal Supplies, Inc. Mr. Price also serves on the boards of several private
companies.
Gareth Roberts has been President, Chief Executive Officer and a director
since 1992. Mr. Roberts founded Denbury Management, Inc., the former operating
subsidiary of the Company in April 1990. Mr. Roberts has more than 28 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 from St. Edmund Hall, Oxford University, where
he has been elected to an Honorary Fellowship. Mr. Roberts also serves as
Chairman of the Board of Directors of Genesis Energy, L.P. and as a director for
Belden & Blake Corporation.
Jeffrey Smith, a director since 2001, joined the Texas Pacific Group in
2000 in the capacity of Portfolio Company Operations. Mr. Smith has 10 years of
experience in management consulting, serving most recently as a Strategy
Consultant with Bain & Company, a consulting firm, from 1993 to 1999. He was
also previously employed by the consulting firms of The L|E|K Partnership and
McKinsey & Co., by Exxon USA as a Senior Engineer, and conducted research at the
R&D Division of Conoco, Inc. Mr. Smith received his Bachelor of Science and
Master of Science degrees in Petroleum Engineering from the University of Texas.
He received his Master of Business Administration from the Wharton School of
Business.
Wieland F. Wettstein has been a director of Denbury since 1990. Mr.
Wettstein is the Executive Vice President, and indirectly controls 50%, of Finex
Financial Corporation Ltd., a merchant banking company in Calgary, Alberta, a
position he has held since 1987. Mr. Wettstein has been a director of a number
of Canadian public companies during the past 15 years, including several junior
oil and gas companies. Currently he is a Director and Chairman of the Audit
Committee of Triquest Energy Ltd., a junior Canadian public oil and gas
exploration company. Mr. Wettstein is a Chartered Accountant.
Carrie A. Wheeler has been a director of Denbury since 2000. Ms. Wheeler
has been a principal with the Texas Pacific Group since 1996 and prior to
joining the Texas Pacific Group was with Goldman, Sachs & Co. for three years.
OUR BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR EACH OF THE
FOREGOING DIRECTORS.
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Proposal Two:
------------
INCREASE IN NUMBER OF SHARES THAT MAY BE ISSUED UNDER OUR STOCK OPTION PLAN
The second proposal before the shareholders is the approval of an amendment
to our stock option plan previously approved by our board, which increases the
number of shares that may be issued under the plan by 850,000 shares.
When we first adopted the plan in August of 1995, a maximum of 1,050,000
shares of common stock were reserved for the plan. Subsequent amendments to date
by the board and shareholders have increased the maximum shares authorized to
7,345,587. If you approve the second proposal, the maximum shares authorized for
the plan will further increase to 8,195,587, of which 1,377,902 shares have been
issued upon exercise of previously granted options. As of March 31, 2003, there
were 5,703,949 stock options outstanding under the plan, of which 2,474,454
stock options were exercisable. Also on that same date, assuming approval of the
above proposal, 1,113,736 stock options would have been available for future
grants. At December 31, 2002, 4,997,475 stock options were outstanding with
exercise prices ranging from $3.77 to $22.25 per share, with a weighted average
exercise price of $8.46. At that same date, the closing price of our common
stock on the NYSE was $11.30 per share. Of the total outstanding stock options
as of year-end 2002, 2,267,497 options were exercisable.
Since August 9, 1995, the effective date of the plan, the following
activity has taken place, assuming the second proposal to increase the total
number of shares available under the plan is approved:
Actual Stock Stock Options Total Shares
Options Available for Reserved For
Outstanding Future Grants Future Issuance
--------------------- ------------------- --------------------
Balance - August 9, 1995 614,425 435,575 1,050,000
Granted 7,356,520 (7,356,520) -
Exercised (1,377,902) - (1,377,902)
Canceled (889,094) 889,094 -
Authorized increases (1) - 7,145,587 7,145,587
--------------------- ------------------- --------------------
Balance - March 31, 2003 5,703,949 1,113,736 6,817,685
===================== =================== ====================
Percent of common shares
outstanding - March 31, 2003 10.6% 2.1% 12.7%
===================== =================== ====================
(1) Includes 850,000 shares authorized by the board that are subject to
shareholder approval.
Our board is proposing to increase the number of shares available under the
plan in order to ensure that there will be sufficient shares available under the
plan for option grants to employees during the next twelve months. Stock options
are a vital element of our employees' compensation and we believe they are
necessary to recruit and maintain our employees, our most valuable asset. See
also "Executive Compensation - Board Compensation Committee Report on Executive
Compensation." We generally issue stock options to all new employees when they
begin their employment with us, and thereafter stock options are generally
issued on an annual basis during the month of January. However, as future option
grant recipients and future
6
option grant levels have not yet been determined, the number and value of awards
to be received by or allocated to employees in the future under the stock option
plan cannot be determined at this time.
SUMMARY OF THE KEY TERMS OF THE PLAN. Our stock option plan is designed to
provide employees and officers with an added incentive; to help us attract and
retain personnel of outstanding competence; and to align the interests of
employees with those of the shareholders by providing them with the opportunity
to acquire an increased proprietary interest in Denbury. Our plan is
administered by the Stock Option Plan Committee of the board, which is comprised
of Messrs. Price and Greene. Our plan terminates on August 9, 2005 (unless
sooner terminated by the board), except with respect to stock options then
outstanding. Our board may amend the plan, except that shareholders must approve
(i) an increase in the number of shares reserved under the plan, (ii) any
amendment of the maximum period during which options may be exercised, (iii) any
amendment of the plan more frequently than every six months, (iv) material
modifications in the requirements for eligibility to participate in the plan, or
(v) material increases in the benefits accruing to participants in the plan.
Pursuant to the plan, we may grant either non-qualified or incentive stock
options to directors, officers and full-time employees of Denbury. Although the
plan allows us to issue options to directors, none of our non-employee directors
have options, nor are there any current plans to issue any to such directors.
All of our employees, who numbered 356 at year end 2002, are participants in the
stock option plan. For the most recent year, the options were allocated among
the employees in approximately the same ratio as their bonuses. See also
"Executive Compensation - Board Compensation Committee Report on Executive
Compensation - Stock Options." The top five most highly compensated officers
received approximately 8.6% of the total option grants during 2002. See also
"Executive Compensation - Option Grants in 2002."
Our board sets the term, vesting and exercisability of options granted
under the plan, provided that if it fails to specify a vesting schedule to the
contrary, the options vest over a four year period at the rate of 25% per year.
Generally, options that have been granted to new employees at their time of
employment have vested 25% per year, but the options that have been granted to
existing employees on an annual basis vest 100% four years from the date of
grant. The exercise price of the options is based on market price at the time of
the grant, which is defined as the average closing price on the New York Stock
Exchange ("NYSE") for the ten trading days prior to the grant date. If stock
dividends, combinations or other recapitalizations, mergers or spin-offs occur
as part of our business, we will make adjustments to the option exercise price
and number of shares for any existing stock options. We cannot grant an option
with a term longer than 10 years from the date of the grant and the stock
options are not transferable.
If there is a change of control of Denbury, all outstanding options will
immediately vest. A change of control includes a tender offer, a change in a
majority of the incumbent directors or majority of our common stock, certain
mergers and a sale of substantially all our assets. If a plan participant
becomes disabled or retires, all outstanding stock options vest immediately and
are exercisable for a 90 day period. If a participant dies, the options also
vest immediately and are exercisable for a 365 day period.
KEY TAX ASPECTS OF THE PLAN. A participant will not recognize any taxable
income at the time an incentive stock option, or "ISO," is granted and Denbury
will not be entitled to a federal income tax deduction at that time. No taxable
income will be recognized by a participant exercising an ISO at the time of
exercise. If an ISO participant sells shares acquired pursuant to the exercise
of an ISO, then participant will recognize a long-term capital gain or loss in
an amount equal to the difference between the exercise price and the amount
realized upon disposition of the shares pursuant to such option provided that
the participant holds the shares received from the exercise of an ISO for the
longer of more than two years after the date such option was granted or more
than one year after the acquisition of the shares pursuant to such option.
Denbury will not be allowed a federal income tax deduction with respect to that
amount. If the shares
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acquired pursuant to the exercise of an ISO are disposed of by a participant
prior to either of these dates, the participant will realize taxable ordinary
income in an amount equal to the excess of the fair market value of the common
stock purchased at the time of exercise over the exercise price.
Correspondingly, Denbury will usually be allowed a federal income tax deduction
equal to that amount, predicated upon satisfaction of certain reporting
obligations.
The difference between the exercise price and fair market value of shares
received from the exercise of an ISO is generally an adjustment to income for
purposes of the alternative minimum tax ("AMT"). The AMT, imposed to the extent
it exceeds the taxpayer's regular tax, is 26% of an individual taxpayer's
alternative minimum taxable income (28% in the case of alternative minimum
taxable income in excess of $175,000). Alternative minimum taxable income is
determined by adjusting regular taxable income. If a participant incurs AMT as a
result of the exercise of an ISO, the participant will generally be allowed an
AMT credit carryover for use in future years.
A participant will generally not recognize any taxable income at the time a
non-qualified, or "NQO," is granted, and Denbury will not be entitled to a
federal income tax deduction at that time. For NQOs granted at an exercise price
equal to the fair market value of the common stock at the date granted, taxable
ordinary income will be recognized by the participant at the time of exercise in
an amount equal to the excess of the fair market value of the shares purchased
at the time of such exercise over the exercise price. Denbury will usually be
allowed a federal income tax deduction equal to the ordinary income attributable
to the exercising participant. The participant will generally recognize a
taxable capital gain or loss upon the subsequent sale of such shares.
BOARD OF DIRECTORS' RECOMMENDATION
Pursuant to NYSE regulations and the plan, this increase in the number of
shares of common stock reserved for issuance under our stock option plan must be
approved by the shareholders. This amendment requires a simple majority of votes
cast at the meeting, provided that there is a quorum. OUR BOARD OF DIRECTORS
BELIEVES THAT OUR STOCK OPTION PLAN IS AN INTEGRAL PART OF OUR OVERALL
COMPENSATION PLAN AND RECOMMENDS THAT YOU VOTE FOR THE AMENDMENT. Unless
otherwise directed by a proxy marked to the contrary, it is the intention of
management to vote the proxies for the approval of the amendment.
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EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information as of December 31, 2002, with respect
to certain of our compensation plans for which our common stock is authorized
for issuance.
Number of securities
remaining available
for future issuance
Number of securities under equity
to be issued upon Weighted-average compensation plans
exercise of exercise price of (excluding securities
outstanding options, outstanding options, reflected in column
warrants and rights warrants and rights (a))
--------------------------- ---------------------------- --------------------------
Plan Category (a) (b) (c)
---------------------------- --------------------------- ---------------------------- --------------------------
Equity compensation
plans approved by
security holders:
Stock Option Plan 4,997,475 $ 8.46 1,117,347
Employee Stock
Purchase Plan - - 593,272
Equity compensation
plans not approved
by security holders:
Director
Compensation Plan - - 81,136
--------------------------- ---------------------------- --------------------------
Total 4,997,475 $ 8.46 1,791,755
=========================== ============================ ==========================
A description of the material terms of the Director Compensation Plan is
included under the heading "Compensation of Directors-Director Fees."
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BOARD MEETINGS, ATTENDANCE AND COMMITTEES
The board met six times during the year ended December 31, 2002, including
telephone meetings. All incumbent directors, except for Mr. Bonderman, attended
at least 75% of the meetings. The board took all other actions by unanimous
written consent during 2002. In addition, all directors attended at least 75% of
all meetings of each of the committees on which they served. The board has an
Audit Committee, a Compensation Committee, a Stock Option Plan Committee and a
Stock Purchase Plan Committee. The board does not have a nominating committee.
The entire board acts in that capacity. On occasion, the board appoints other
committees to deal with certain matters.
AUDIT COMMITTEE REPORT
The Audit Committee is currently comprised of three outside independent
directors, Messrs. Heather, Miller and Wettstein, with Mr. Wettstein acting as
Chairman. In 2002, the Audit Committee was reduced from four to three members
when Mr. Greene elected to resign as a member of the Audit Committee. The Audit
Committee meets regularly with financial management, the internal auditor and
independent auditors to review financial reporting and accounting and financial
controls of the Company. The Audit Committee reviews and gives prior approval
for fees and non-audit related services of the independent auditors. The
internal auditor, independent auditors and independent engineers all have
unrestricted access to the Audit Committee and meet with the Audit Committee
without management representatives present to discuss the results of their
examinations and their opinions. The Audit Committee also meets with the
independent reserve engineers, has the power to conduct internal audits and
investigations, receives recommendations or suggestions for changes in
accounting procedures, and initiates or supervises any special investigations it
may choose to undertake. Each year, the Audit Committee recommends to the board
the selection of a firm of independent auditors and a firm of independent
reserve engineers. The Audit Committee met three times during 2002.
The NYSE and the Securities and Exchange Commission (the "SEC") have
adopted standards with respect to independence and financial experience of the
members of the audit committee. The standards require that all of the members of
audit committees be independent and that they all be able to read and understand
fundamental financial statements, including balance sheets, income statements
and cash flow statements. Additionally, at least one member of the committee
must be deemed to be the "audit committee financial expert." The financial
expert is to be knowledgeable in the application of generally accepted
accounting principles, the understanding and preparation of financial
statements, accounting for estimates, accruals and reserves, internal accounting
controls and audit committee functions. Such knowledge is to have been obtained
through past education and experience in positions of financial oversight. The
chairman of our Audit Committee, Mr. Wettstein, has such experience and has been
designated the "audit committee financial expert." All members of the Audit
Committee satisfy the criteria for both independence and experience.
The Audit Committee reports to the board on its activities and findings.
The board adopted a written charter for the Audit Committee in 2000. The board
reviews and approves changes to the Audit Committee Charter, which was most
recently amended in February 2003 and is included herein as Appendix A.
10
The Audit Committee reports as follows with respect to the Company's 2002
audited financial statements:
o The Committee has reviewed and discussed with management the Company's
2002 audited financial statements;
o The Committee has discussed with the independent auditors (Deloitte &
Touche LLP) the matters required to be discussed by SAS 61 which
include matters related to the conduct of the audit of the Company's
financial statements;
o The Committee has received written disclosures and the letter from the
independent auditors required by ISB Standard No. 1 (which relates to
the auditors' independence from Denbury and its related entities) and
has discussed with the auditors the auditors' independence from
Denbury; and
o Based on review and discussions of the Company's 2002 audited
financial statements with management and discussions with the
independent auditors, the Audit Committee recommended to the board
that the Company's 2002 audited financial statements be included in
Denbury's 2002 Annual Report on Form 10-K.
The Audit Committee
Wieland F. Wettstein, Chairman
David I. Heather
David B. Miller
COMPENSATION COMMITTEE
The Compensation Committee is comprised of Messrs. Greene and Price, with
Mr. Price acting as its Chairman. The Compensation Committee makes
recommendations to our board with respect to the nature and amount of all
compensation of our officers, reviews our benefit plans, including reports from
the Stock Option Plan and Stock Purchase Plan Committees and our health and
other benefit plans, and at least annually prepares a compensation report in
accordance with the rules and regulations promulgated under applicable
securities laws. The Compensation Committee met twice during 2002.
The board also has appointed a Stock Option Plan Committee and a Stock
Purchase Plan Committee to administer the two respective benefit plans and to
report and coordinate their efforts with the Compensation Committee. Both
committees are comprised of Messrs. Greene and Price, with Mr. Price acting as
their Chairman. These committees met as part of the Compensation Committee
during 2002.
11
COMPENSATION OF DIRECTORS
Information regarding the compensation received from Denbury, including
options, during the fiscal year ended December 31, 2002 by Mr. Roberts,
President, Chief Executive Officer and a director of the Company, is disclosed
under the heading "Executive Compensation - Summary Compensation Table."
DIRECTORS FEES
We have a Director Compensation Plan to provide compensation to all of our
non-employee directors so as to attract, motivate and retain experienced and
knowledgeable persons to serve as our directors and to promote an identity of
interest between our directors and you, our shareholders. The Director Plan was
adopted effective July 1, 2000, for a term of ten years.
Under the Director Plan, our non-employee directors are paid an annual
retainer fee of $20,000, plus $2,000 per board meeting attended and $1,000 per
telephone conference attended. The Chairman of the Compensation Committee and
the Chairman of the Board are also paid an additional fee of $5,000 per year.
Prior to the fourth quarter of 2002, the Chairman of the Audit Committee
received an additional fee of $5,000 per year. In September 2002, the board of
directors approved an increase in the fees paid to the Audit Committee Chairman
and instituted payment of an additional fee to its other members. Beginning in
the fourth quarter of 2002, the annual retainer for serving as the Chairman of
the Audit Committee was increased to $20,000 and the other Audit Committee
members began to receive an annual retainer of $5,000 for serving on the Audit
Committee. In September 2002, the board also approved that Audit Committee
members may receive an additional $5,000 per year for performing special
services. Mr. Heather performs review work on our annual reserve report and
began receiving this additional fee in the fourth quarter of 2002. The Director
Plan allows each director to make an annual election to receive his or her
compensation either in cash or in shares of our common stock and to elect to
defer receipt of such compensation, if they wish. The number of shares issued to
a director who elects to receive shares of common stock under the Director Plan
is calculated by dividing the director fees to be paid to such director by the
average price of the Company's common stock for the ten trading days prior to
the date the fees are payable. Generally directors' fees are paid quarterly. We
also reimburse our directors for out-of-pocket travel expenses in connection
with each board meeting attended. We have reserved 100,000 shares for issuance
under the Director Plan, for directors who elect to receive their compensation
in stock, and through December 31, 2002, had issued 18,864 shares pursuant to
the plan.
Although directors are eligible to receive options under our stock option
plan, no options were granted to directors in 2002 and no directors hold
options, other than Mr. Roberts, who holds options granted to him as an employee
under our Stock Option Plan. The options held by Mr. Roberts are disclosed under
the heading "Executive Compensation."
12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table lists, as of March 31, 2003, the shareholders of which
we are aware that beneficially own more than 5% of our issued and outstanding
common stock and the common stock held by our executive officers and directors,
individually and as a group. Unless otherwise indicated, each shareholder
identified in the table is believed to have sole voting and investment power
with respect to the shares beneficially held. The table includes shares that
were acquirable within 60 days following March 31, 2003 under our Stock Option
Plan. You should note that some shares are listed as being beneficially owned by
more than one shareholder.
Beneficial Ownership of
Common Stock as of
March 31, 2003
-----------------------------------------
Name and Address of Percent of
Beneficial Owner Shares Outstanding
--------------------------------------------------------------- ---------------------- ---------------
Ronald G. Greene............................................... 942,549 (1) 1.8%
David Bonderman................................................ 17,624,314 (2) 32.8%
301 Commerce Street, Suite 3300
Ft. Worth, TX 76102
William S. Price, III.......................................... 17,310,314 (3) 32.2%
345 California Street, Suite 3300
San Francisco, CA 94104
David I. Heather............................................... 6,500 (4) *
David B. Miller................................................ -(10) *
Wieland F. Wettstein........................................... 28,274 (5) *
Carrie A. Wheeler.............................................. 500 *
Jeffrey Smith.................................................. - *
Gareth Roberts................................................. 668,946 (6) 1.2%
Ronald T. Evans................................................ 24,436 (7) *
Phil Rykhoek................................................... 121,589 (7) *
Mark A. Worthey................................................ 102,864 (7) *
Mark C. Allen.................................................. 31,748 (7) *
Ray Dubuisson.................................................. 334 *
Ron Gramling................................................... 79,551 (7) *
All of the executive officers and directors as a group (15
persons).................................................. 19,667,105 (8) 36.3%
Texas Pacific Group............................................ 17,274,314 (9) 32.1%
301 Commerce Street, Suite 3300
Ft. Worth, TX 76102
EnCap Energy Capital Fund III ................................. 3,941,960 (10) 7.3%
301 Commerce Street, Suite 3300
Ft. Worth, TX 76102
* Less than 1%.
(1) Includes 30,150 shares of common stock held by Mr. Greene's spouse in her
retirement plan, 900 shares held in trust for Mr. Greene's minor children,
34,000 shares held in the Greene Family Charitable Foundation of which Mr.
Greene is the trustee, and 554,703 shares held by Tortuga Investment Corp.,
which is solely owned by Mr. Greene.
13
(2) Includes 350,000 shares of common stock in a family partnership 100%
controlled by Mr. Bonderman. Mr. Bonderman is also a director, executive
officer and shareholder of TPG Advisors, Inc. and TPG Advisors II, Inc.
TPG Advisors, Inc. 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 5,523,763 shares of common
stock attributed to Mr. Bonderman. TPG Advisors II, Inc. is the general
partner of TPG 1999 Equity Partners II, L.P. and also the general partner
of TPG GenPar II, L.P., which in turn is the sole general partner of each
of TPG Partners II, L.P., TPG Parallel II, L.P. and TPG Investors II, L.P.,
which are the direct beneficial owners of 11,750,551 shares of common stock
attributed to Mr. Bonderman.
(3) Includes 7,000 shares of common stock held by Mr. Price and 29,000 shares
held by Mr. Price's spouse. Mr. Price is also a director, executive officer
and shareholder of TPG Advisors, Inc., and TPG Advisors II, Inc. TPG
Advisors, Inc. 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 5,523,763 shares of common stock
attributed to Mr. Price. TPG Advisors II, Inc. is the general partner of
TPG 1999 Equity Partners II, L.P. and also the general partner of TPG
GenPar II, L.P., which in turn is the sole general partner of each of TPG
Partners II, L.P., TPG Parallel II, L.P. and TPG Investors II, L.P., which
are the direct beneficial owners of 11,750,551 shares of common stock
attributed to Mr. Price.
(4) Shares are held in a family trust of which Mr. Heather is a trustee.
(5) Includes 7,700 shares of common stock held by S.P. Hunt Holdings Ltd.,
which is solely owned by a trust of which Mr. Wettstein is a trustee. Also
includes 13,674 shares of common stock held by Finex Corporation Ltd., of
which Mr. Wettstein is an officer, director and indirectly controls 50%.
(6) Includes 138,330 shares of common stock held by a corporation which is
solely owned by Mr. Roberts, 2,228 shares held by his spouse and 153,000
shares which Mr. Roberts has the right to acquire pursuant to stock options
which are currently vested or which vest within 60 days from March 31,
2003. Ownership also includes 38,000 shares of common stock held in a
private charitable foundation which he and his spouse control, but in which
they have no beneficial interest.
(7) Includes 13,750; 114,000; 78,671; 23,000; and 72,650 shares of common stock
which Mr. Evans, Mr. Rykhoek, Mr. Worthey, Mr. Allen, and Mr. Gramling,
respectively, have the right to acquire pursuant to stock options that are
currently vested or that vest within 60 days from March 31, 2003.
(8) Includes 455,071 shares of common stock which the officers and directors as
a group have the right to acquire pursuant to stock options which are
currently vested or which vest within 60 days from March 31, 2003.
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. (See also Footnote 9).
(9) These shares are held by affiliates of the Texas Pacific Group. Mr. Price
and Mr. Bonderman, directors of Denbury, are directors, executive officers
and shareholders of TPG Advisors, Inc. and TPG Advisors II, Inc. TPG
Advisors, Inc. is the general partner of TPG GenPar, L.P., which in turn is
the sole general partner of both TPG Partners, L.P. and TPG Parallel I,
L.P., which are the direct beneficial owners of 5,523,763 shares of common
stock. TPG Advisors II, Inc. is the general partner of TPG 1999 Equity
Partners II, L.P. and also the general partner of TPG GenPar II, L.P.,
which in turn is the sole general partner of each of TPG Partners II, L.P.,
TPG Parallel II, L.P. and TPG Investors II, L.P., which are the direct
beneficial owners of 11,750,551 shares of common stock.
(10) These shares are held by Energy Capital Investment Company PLC, EnCap
Energy Capital Fund III-B, L.P., BOCP Energy Partners, L.P., and EnCap
Energy Capital Fund III, L.P., all affiliates of EnCap Investments L.L.C.
Mr. Miller is Senior Managing Director and co-founder of EnCap Investments
L.L.C., but disclaims any beneficial ownership of these shares of common
stock.
14
MANAGEMENT
The names of our officers, the offices held by them and the period during
which such offices have been held are set forth below. Each officer holds office
until his successor is duly elected and qualified in accordance with the Bylaws.
Name Age Position
-------------- --- --------
Gareth Roberts 50 President and Chief Executive Officer
Ronald T. Evans 40 Senior Vice President, Reservoir Engineering
Phil Rykhoek 46 Senior Vice President, Chief Financial Officer, Secretary and Treasurer
Mark A. Worthey 45 Senior Vice President, Operations
Mark C. Allen 35 Vice President & Chief Accounting Officer
Ray Dubuisson 52 Vice President, Land
Ron Gramling 57 Vice President, Marketing
Set forth below is a description of the business experience of each of our
officers other than Gareth Roberts. See "Business to be Conducted at the Meeting
- Election of Directors" for a discussion of the business experience of Gareth
Roberts.
Ronald T. Evans, Senior Vice President, Reservoir Engineering, is a
registered Professional Engineer who joined us in September 1999. Before joining
Denbury, he was employed in a similar capacity with Matador Petroleum
Corporation for 3 years and employed by Enserch Exploration, Inc. for 12 years
in various positions. Mr. Evans received his Bachelor of Science degree in
Petroleum Engineering from the University of Oklahoma in 1984 and his MBA from
the University of Texas at Dallas in 1995.
Phil Rykhoek, a Certified Public Accountant, is Senior Vice President,
Chief Financial Officer, Secretary and Treasurer of Denbury. Before joining us
in June 1995, Mr. Rykhoek was co-founder and an executive officer of Petroleum
Financial, Inc. ("PFI"), a private company formed in May 1991 to provide
accounting, financial, and management services on a contract basis to other
entities. While at PFI, Mr. Rykhoek was also an officer of Amerac Energy
Corporation, where he had been employed in various positions for eight years,
most recently as Vice President and Chief Accounting Officer.
Mark A. Worthey, Senior Vice President, Operations, is a geologist and is
responsible for all aspects of operations in the field. Before joining us in
September 1992, Mr. Worthey 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.
Mark C. Allen, a Certified Public Accountant, is Vice President and Chief
Accounting Officer. Mr Allen joined us in April 1999 as Controller and Chief
Accounting Officer. Prior to joining Denbury, Mr. Allen was Manager of Financial
Reporting for ENSCO International Incorporated from November 1996 to April 1999.
Prior to November 1996, Mr. Allen was a manager in the accounting firm of Price
Waterhouse LLP.
Ray Dubuisson is Vice President, Land, of Denbury. He joined us in July
2002. Prior to joining Denbury in 2002, Mr. Dubuisson was a practicing oil and
gas attorney in the Houston area primarily involved in exploration and
production transaction work, preparation of title opinions, and negotiation and
preparation of acquisition and divestiture agreements. He is licensed to
practice law in the State of Texas, and has previously served as Vice President
of Land for Weber Energy Corporation and Quanah Petroleum in Dallas, as Gulf
Coast District Land Manager for Aminoil in Houston, and as Landman for Chervron
in New Orleans.
15
Ron Gramling is Vice President, Marketing and President of Denbury Energy
Services, Inc., our marketing subsidiary. He joined us in May 1996 when we
purchased that subsidiary's assets. Before becoming affiliated with Denbury, he
was employed by Hadson Gas Systems as Vice President of Term Supply. Mr.
Gramling has 30 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.
16
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets out a summary of executive compensation for our
President and Chief Executive Officer and our next four most highly compensated
executive officers for each the last three completed fiscal years (collectively,
the "Named Executive Officers").
Annual Compensation (1) Long Term Compensation
------------------------------ -----------------------
Number of Securities
Underlying Options All Other
Name and Principal Position Year Salary Bonuses(2) Granted Compensation(3)
--------------------------- ---- ------ ------- ------------------- -------------
Gareth Roberts 2002 $ 309,500 $ 129,342 22,845 $ 14,390
President and Chief Executive Officer 2001 299,000 125,350 18,700 13,488
2000 282,000 118,223 21,200 12,949
Ronald T. Evans 2002 $ 201,750 $ 84,600 14,901 $ 26,102
Senior Vice President, Reservoir 2001 195,000 81,750 12,200 24,775
Engineering 2000 138,500 62,885 9,500 18,220
Phil Rykhoek 2002 $ 201,750 $ 84,600 14,901 $ 26,102
Senior Vice President, Chief Financial 2001 195,000 81,750 12,200 19,291
Officer and Secretary 2000 183,750 77,054 13,800 15,937
Mark A. Worthey 2002 $ 201,750 $ 84,600 14,901 $ 26,102
Senior Vice President, Operations 2001 195,000 81,750 12,200 24,775
2000 183,750 77,054 13,800 16,626
Ron Gramling 2002 $ 160,430 $ 67,245 11,844 $ 21,825
Vice President, Marketing 2001 155,000 64,981 9,700 21,619
2000 136,500 57,225 10,200 17,554
(1) The aggregate amount of all other non-cash annual compensation was
less than 10% of the total annual salary and bonus of each Named
Executive Officer for each year.
(2) Bonuses represent the amounts earned based on our performance for the
year indicated, even though they are actually paid in the subsequent
year. Bonuses also include a Christmas bonus that is equivalent to one
week's salary and has been paid to all employees for each of the last
three years.
(3) Amounts in this column for 2002 include our matching contributions to
the Employee Stock Purchase Plan, 401(k) Plan and group term life,
long-term disability and short-term disability insurance premiums paid
on behalf of the Named Executive Officers as follows:
Stock Purchase Insurance
Plan 401(k) Plan Premiums
----------------- ------------- -----------------
Gareth Roberts $ 11,606 $ - $ 2,784
Ronald T. Evans 15,131 8,250 2,721
Phil Rykhoek 15,131 8,250 2,721
Mark A. Worthey 15,131 8,250 2,721
Ron Gramling 12,032 7,579 2,214
17
OPTION GRANTS IN 2002
The following table represents the options granted to the Named Executive
Officers during 2002 and the value of such options as of the date of grant:
Individual Grants
--------------------------------------------------------------
% of
Total Options
Number of Granted to Exercise
Options Employees in Price Expiration Grant Date
Name Granted 2001 ($/Share) Date Present Value $(1)
---- --------- ------------- --------- ----------- ------------------
Gareth Roberts 22,845 (2) 2.5% $ 7.09 1/14/12 $90,450
Ronald T. Evans 14,901 (2) 1.6% 7.09 1/14/12 58,998
Phil Rykhoek 14,901 (2) 1.6% 7.09 1/14/12 58,998
Mark A. Worthey 14,901 (2) 1.6% 7.09 1/14/12 58,998
Ron Gramling 11,844 (2) 1.3% 7.09 1/14/12 46,894
(1) As permitted by the Securities and Exchange Commission rules, the
Grant Date Present Value of the options set forth in this table is
calculated in accordance with the Black-Scholes option pricing model,
using the following assumptions: expected volatility computed using,
as of the date of grant, the prior five year monthly average of the
our common stock listed on the NYSE, which was 61.5%; expected
dividend yield - 0%; expected option term - 5 years; and a risk-free
rate of return as of the date of grant of 4.1%, based on the yield of
five year U.S. Treasury securities. The real value of the options
presented in this table depends upon the actual performance of the
common stock during the applicable period in which they are exercised.
The dollar amounts in this column are not intended to forecast
potential future appreciation, if any, of the common stock.
(2) These options cliff vest 100% on January 14, 2006.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the Named
Executive Officers concerning unexercised options held by them as of December
31, 2002. The options exercised by the Named Executive Officers during 2002 are
listed below.
Aggregated Option Exercises in 2002
and December 31, 2002 Option Values
Number of Common Shares
Shares Underlying Unexercised Value of Unexercised In-the
Acquired on Value Options at Money Options at
Name Exercise Realized December 31, 2002 December 31, 2002 (1)
----------------- ------------- ----------- -------------------------------- --------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Gareth Roberts - $ - 135,125 80,620 $ 483,341 $ 412,511
Ronald T. Evans 5,000 28,550 13,750 42,851 96,594 199,542
Phil Rykhoek - - 102,625 52,276 368,903 266,871
Mark A. Worthey - - 78,671 55,771 274,381 266,871
Ron Gramling - - 64,200 40,194 192,090 202,371
(1) Based on the average of the high and low sales price of Denbury's
common stock on December 31, 2002, of $11.265 per share as reported by
the NYSE. For purposes of calculating the value of unexercised
in-the-money options, a conversion exchange rate of Cdn. $1.4461 =
U.S. $1.00 was assumed as to 6,250 of Mr. Rykhoek's options which are
denominated in Canadian dollars.
18
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the board (the "Committee") is responsible
for making recommendations to the board regarding the general compensation
policies of the Company, the compensation plans and specific compensation levels
for officers and certain other managers. The Committee also administers, along
with the Stock Option and Stock Purchase Plan Committees, our stock option and
stock purchase plans for all employees.
The basic policy adopted by the board is to ensure that salary levels and
compensation incentives are designed to attract and retain qualified individuals
in key positions and are commensurate with the level of executive
responsibility, the type and scope of our operations, and our financial
condition and performance. The overall compensation philosophy is (i) that we
pay base salaries that will attract and retain outstanding talent, generally
around the median salaries of comparable companies, (ii) that long-term
incentives are the main focus of compensation, (iii) that all employees are
encouraged to be shareholders, and (iv) that employees are rewarded primarily
for the effort and results of the team or Company as a whole, rather than
compensating only for individual performance. The components of this philosophy
consist of:
(i) competitive base salaries;
(ii) a stock purchase plan for all employees;
(iii) stock options for all employees, but with a higher level for
the professionals; and
(iv) a profit sharing plan or bonus plan.
BASE SALARIES. In determining an executives' salary, the Committee weighs
individual performance, overall corporate performance, the executive's position
and responsibility in the organization, the executive's experience and expertise
and compensation for comparable positions at comparable companies. In making
recommendations, the Committee exercises subjective judgment using no specific
weights for these factors. The Committee believes that base salaries that
average at or near the median of comparable companies, as determined from salary
surveys and other data, are generally appropriate as a frame of reference for
base pay decisions. The specific compensation for individual executives will
vary from these levels as a result of the subjective judgment of the Committee
and based on the recommendation of the Chief Executive Officer with regard to
the other executives. This is the primary part of the compensation package
whereby a distinction is made for individual performance, as the other
components of the compensation plan are generally consistent among employee
groups and are proportional to salaries.
STOCK PURCHASE PLAN. To encourage ownership in the Company by all of the
employees, we have a stock purchase plan which allows all employees to
contribute up to 10% of their base compensation with the Company matching 75% of
such contributions. The combined funds are used at the end of each quarter to
purchase common stock at the current market price. In addition, we pay the
income tax on the matching portion for employees that are below a certain salary
threshold, who are generally the employees that are not in the professional
group. The stock purchase plan requires each employee to hold these shares for a
minimum of one year before disposition. The top five most highly compensated
officers received approximately 8.4% of the total Company matching compensation
during 2002.
STOCK OPTIONS. Stock options have been awarded to all employees. To further
encourage our team concept, at the time of each grant, options are generally
allocated among employees on the basis of their bonuses. The executive officers
receive stock options at the same percentage of bonuses as the other employees
in the management and professional group. These options are designed to retain
and motivate the grantees and to improve long-term Company performance by making
executive rewards consistent with those of all shareholders. All options are
granted at the prevailing market price and will only have value if
19
the market price of the common stock increases after the date of grant. The top
five most highly compensated officers received approximately 8.6% of the total
option grants during 2002. See also "Executive Compensation - Option Grants in
2002."
Since 1997, we have granted options to our employees at their time of
employment, which options vest 25% per year over a period of four years.
Additional options have also been granted on an annual basis to the professional
group (and for the last four years to all employees) which generally vest 100%
four years from the date of grant. The annual grants made in early 1999 were an
exception to the normal annual vesting schedule, as these grants vested 25% per
year over a period of four years. In addition to a modification of the normal
vesting parameters, the Committee authorized a larger than normal grant at that
time in order to give the employees renewed long-term incentives in light of the
depressed prices for Denbury common stock and in lieu of salary increases and
bonuses which were not awarded for 1998.
All of the options granted under the Option Plan expire ten years from the
date of grant and, to the extent allowed under the United States federal income
tax laws, are granted as incentive stock options. In determining the specific
level of option grants, the Committee takes into consideration several factors,
without giving particular weight to any one factor. These factors include (i)
the total options relative to the total common stock outstanding, (ii) the level
of compensation for each optionee based on option pricing models such as
Black-Scholes, (iii) the number of option grants made by comparable companies
for similar positions, (iv) the perceived incentive value of the options
currently held by the employees, and (v) the overall compensation package for
that year.
BONUS PLAN. All of our employees participate in our bonus plan. Bonuses are
recommended by the Committee and awarded by the board each year based on our
overall results and the achievement of predetermined goals and objectives. The
bonus plan currently has four levels of compensation whereby at the base level,
which includes all employees, bonuses range from zero to ten percent of base
salaries. There is an additional compensation layer for all employees in the
professional group, whereby these employees could earn an additional bonus of up
to ten percent of salaries, or a total bonus ranging from zero to twenty
percent. In addition, certain members of the professional group that were part
of management or were exceptional performers were eligible to earn an additional
bonus of up to ten percent of salaries, or a total bonus ranging from zero to
thirty percent. Lastly, our officers and other senior management are eligible
for an additional ten percent of salaries, or a total bonus ranging from zero to
forty percent. In addition to the aforementioned profit sharing plan, we have
usually paid a Christmas bonus each year which is equivalent to one week of each
employee's base salary.
The Committee recommended that bonuses for 2002 be awarded at the maximum
end of the range, which were paid in early 2003. During 2002, the Company
achieved record levels of production and proved reserves at an overall finding
cost of $4.43 per BOE, one of the industry's best. The Company continued to
execute its strategy, acquiring two key fields in its tertiary carbon dioxide
play in West Mississippi, both with significant oil reserve potential. Even with
lower average natural gas prices in 2002 as compared to 2001, the Company
generated discretionary cash flow of $164.6 million, one of the Company's best
years, which, coupled with $7.7 million of property sales, funded 100% of the
Company's total capital expenditures. The Company also generally met its stated
objectives and goals for the year and met or exceeded its forecasts in almost
every area. As such, the Committee recommended the award of bonuses for 2002
equal to ten percent of salaries for all employees, an additional ten percent
for all members of the professional group, an additional ten percent for certain
professionals, and an additional ten percent for our top managers and officers.
These bonuses were at the highest point of each range. The President and Chief
Executive Officer and all other Named Executive Officers received a bonus equal
to 40% of their salaries.
20
In 2002, the Committee also approved salary increases, effective January 1,
2003, to reward employees for improved financial and operating results in 2002,
as described above, to keep our salaries competitive with our peers, and to
recognize the overall wage inflation in the industry. These salary increases
averaged 5.2% for the Company as a whole, 17.9% for the Named Executive Officers
as a group and 13.1% for the President and Chief Executive Officer. The raises
for the top level of officers was higher than the Company average and higher
than in prior years in order to adjust their compensation to a level more
commensurate with others in the industry.
The foregoing report has been furnished by the following members of the
Committee.
The Compensation Committee
William S. Price, III, Chairman
Ronald G. Greene
SEVERANCE PROTECTION PLAN
In December 2000, the board approved a severance protection plan for all of
our employees. Under the terms of the severance plan, an employee is entitled to
receive a severance payment if a change of control in the Company occurs and the
employee is terminated within two years of the change of control. The severance
plan will not apply to any employee that is terminated for cause or by an
employee's own decision for other than good reason (e.g., change of job status
or a required move of more than 25 miles). If entitled to severance payments
under the terms of the severance plan, the Chief Executive Officer and our three
senior vice presidents will receive three times their annual salary and bonus,
all of our other officers will receive two and one-half times their annual
salary and bonus, certain other members of management will receive two times
their annual salary and bonus, and all other employees will receive from
one-third to one and one-half times their annual salary and bonus depending on
their salary level and length of service with us. All employees will also
receive medical and dental benefits for one-half the number of months for which
they receive severance benefits.
The severance plan also provides that if our officers are subject to the
"parachute payment" excise tax, then the Company will pay the employee under the
severance plan an additional amount to "gross up" the payment so that the
employee will receive the full amount due under the terms of the severance plan
after payment of the excise tax.
21
SHARE PERFORMANCE GRAPH
The following graph illustrates changes over the five year period ended
December 31, 2002 in cumulative total shareholder return on our common stock,
assuming an initial investment of $100 on December 31, 1997, as measured against
the cumulative total return of the S&P 500 and the Dow Jones Oil - Secondary
Indexes.
Cumulative Total Return on $100 Investment
(December 31, 1997 - December 31, 2002)
1997 1998 1999 2000 2001 2002
------ -------- -------- -------- -------- --------
Denbury $ 100 $ 34 $ 23 $ 59 $ 39 $ 61
S&P 500 100 127 151 136 118 91
Dow Jones Oil -Secondary 100 68 77 120 109 110
[GRAPHIC OMITTED]
INTERESTS OF INSIDERS IN MATERIAL TRANSACTIONS
Other than as described below, there are no material interests, direct or
indirect, of any of our directors, officers or shareholders who beneficially
own, directly or indirectly, or exercise control or direction over more than 10%
of our outstanding common stock, or any known family member, associate or
affiliate of such persons, in any transaction within the last three years or in
any proposed transaction that has materially affected or would materially affect
the Company or any of its subsidiaries. We believe that the terms of the
transactions described below were as favorable to us as terms that reasonably
could have been obtained from non-affiliated third parties.
22
TPG INVESTMENTS
TPG has made several different investments in the Company. Its $40.0
million initial investment in December 1995 was comprised of a private placement
of securities, which included 4.2 million shares of common stock, 625,000
warrants and 1.5 million shares of convertible preferred stock. The convertible
preferred stock was converted into 2.8 million shares of common stock in 1996
and the warrants were exercised in January 1998. TPG also purchased shares in
two of our public stock offerings. TPG purchased 800,000 shares of common stock
in October 1996 at an aggregate cost of $9.6 million and 313,400 shares of
common stock in February 1998 at an aggregate cost of $5.0 million. Both of
these acquisitions were made at the same price that the shares were sold by the
Company to the underwriters. In April 1999, TPG purchased 18,552,876 shares of
common stock at $5.39 per share for an aggregate consideration of $100 million.
As a result of this investment, TPG's ownership at that time increased from
approximately 32% to 60% of our then issued and outstanding common stock.
In addition, as part of TPG's $100 million investment in 1999, we agreed to
execute a new registration rights agreement with TPG. The new registration
rights agreement covered all of the shares then owned by TPG, or a total of
27,274,314 shares of common stock. The agreement provides TPG "piggyback"
registration rights and also gives TPG the right to cause Denbury to file up to
four demand registrations, including one shelf registration. These demand rights
expire in April 2005 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 four demand registrations. Under the registration rights
agreement, we cannot grant any registration rights to any other person on terms
more favorable than those granted to TPG. We have also agreed to indemnify TPG
for specified items with regard to the registration statements.
In April 2001, TPG elected to be included as a selling shareholder under a
shelf registration statement filed by Denbury. During November and December
2002, TPG sold 7.5 million shares of common stock for net proceeds of
approximately $71.3 million. In March 2003, TPG sold an additional 2.5 million
shares under this registration statement for net proceeds of approximately $27.4
million. As a result of these transactions, TPG's ownership of the Company has
been reduced from 51.0 % to 32.1% currently. TPG representatives currently hold
four of the nine seats on our board. While TPG now holds less than 50% of our
common stock, it is still our largest shareholder and still controls such a
large portion of our stock that it has effective control. Since our certificate
of incorporation requires a two-thirds majority vote by the board of directors
on most significant transactions, such as significant asset purchases and sales,
issuances of equity and debt, changes in the board of directors and other
matters, assuming that representatives of TPG continue to hold over one-third of
the board seats (as proposed herein), they will still be able to veto any
decisions on these matters.
23
SHAREHOLDER PROPOSALS
All future shareholder proposals must be submitted in writing to Phil
Rykhoek, Chief Financial Officer and Secretary, 5100 Tennyson Parkway, Suite
3000, Plano, Texas 75024. In order for a shareholder proposal to be included in
the proxy materials for the 2004 Annual Meeting of Shareholders, the proposal
must be received by the Company no later than December 9, 2003. These proposals
must also meet other requirements of the Securities and Exchange Act of 1934 to
be eligible for inclusion.
The form of proxy for the annual meeting of shareholders grants authority
to the persons designated therein as proxies to vote in their discretion on any
other matters that come before the meeting, or any adjournment thereof, that are
not set forth in our proxy statement, except for those matters as to which
adequate notice is received. In order for a notice to be deemed adequate for
purposes of the 2004 annual meeting of shareholders, it must be received prior
to February 22, 2004.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The board has selected Deloitte & Touche LLP, which has audited the
Company's books annually since 1991, as independent accountants for 2003.
Representatives of Deloitte & Touche LLP are expected to be present at the
annual meeting and will have an opportunity to make a statement and/or to
respond to appropriate questions.
INDEPENDENT AUDITOR'S FEES
The following table presents fees for professional services rendered by
Deloitte & Touche LLP for the Company for the years ended December 31, 2002 and
2001.
2002 2001
----------------- -----------------
Audit Fees (1) $ 217,405 $ 236,080
Audit Related Fees (2) 24,103 11,656
Tax Fees (3) 4,969 57,467
----------------- -----------------
Total $ 246,477 $ 305,203
================= =================
(1) Audit fees consisted of audit work and review services, as well as
work only the independent auditor can reasonably be expected to
provide, such as comfort letters, consents and review of documents
filed with the SEC.
(2) Audit related fees consisted of employee benefit plan audit and
consultation on financial accounting and reporting matters.
(3) Tax fees consisted of tax return preparation and tax compliance
assistance.
In September 2002, the Audit Committee passed a resolution that
pre-approved all audit and audit related services performed by Deloitte & Touche
LLP. The resolution also stated that any non-audit services performed by
Deloitte & Touche LLP should be pre-approved by the Audit Committee or its
Chairman. The non-audit services disclosed above were performed prior to this
resolution and prior to the adoption of the Sarbanes-Oxley Act of 2002, which
requires such pre-approval.
24
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 and the rules
thereunder require our executive officers and directors, and persons who own
more than ten percent (10%) of our common stock, to file reports of ownership
and changes in ownership with the Securities and Exchange Commission and stock
exchanges and to furnish us with copies. Based solely on our review of the
copies of such forms received by us, or representations made to us, we are aware
of four late filings of these forms. Mr. William S. Price and Mr. David
Bonderman were late in filing Forms 4 relating to sales of stock by the Texas
Pacific Group in November and December 2002 in an underwritten public offering.
These dispositions by the Texas Pacific Group were reported timely on Form 4 by
TPG Advisors, Inc. and TPG Advisors II, Inc., the ultimate general partners of
the partnerships which own the Denbury common stock. We are not aware of any
other late filings or filings that were not made by our officers and directors.
OTHER MATTERS
We know of no other matter to come before the annual meeting other than the
matters referred to in the Notice of Annual Meeting. However, if any other
matter properly comes before the meeting, the accompanying proxy will be voted
on such matter at the discretion of the person or persons voting the proxy.
All information contained in this proxy statement relating to the
occupations, affiliations and securities holdings of our directors and officers
and their relationship and transactions with us is based upon information
received from the individual directors and officers. All information relating to
any beneficial owner of more than 5% of our common stock is based upon
information contained in reports filed by such owner with the SEC. The
information contained in this proxy statement in the sections entitled "Board
Compensation Committee Report on Executive Compensation,""Share Performance
Graph" and "Audit Committee Report" shall not be deemed incorporated by
reference by any general statement incorporating by reference any information
contained in this proxy statement into any filing under the Securities Act of
1933 or the Securities Exchange Act of 1934, except to the extent that the
Company specifically incorporates by reference the information contained in such
sections, and shall not otherwise be deemed filed under the SecuritiesAct or the
Exchange Act.
WE HAVE PROVIDED TO EACH PERSON WHOSE PROXY IS SOLICITED HEREBY A COPY
OF OUR 2002 ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED DECEMBER 31, 2002.
THE ANNUAL REPORT TO SHAREHOLDERS DOES NOT CONSTITUTE A PART OF THE PROXY
SOLICITING MATERIAL. A COPY OF OUR ANNUAL REPORT ON FORM 10-K FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION MAY BE OBTAINED WITHOUT CHARGE BY WRITING TO
DENBURY RESOURCES INC., ATTN: INVESTOR RELATIONS, 5100 TENNYSON PARKWAY, SUITE
3000, PLANO, TEXAS 75024, OR BY E-MAIL TO INVREL@DENBURY.COM.
By order of the board of directors
/s/ Phil Rykhoek
Phil Rykhoek
Senior Vice President, Chief Financial
Officer and Secretary
25
Appendix A
AUDIT COMMITTEE CHARTER
OF
THE BOARD OF DIRECTORS
OF
DENBURY RESOURCES INC.
AUTHORITY
---------
The Audit Committee (the "COMMITTEE") of the Board of Directors (the "BOARD") of
Denbury Resources Inc., a Delaware corporation (the "COMPANY") is established
pursuant to Section 4.2 of the Company's Bylaws and Section 141(c) of the
Delaware Corporation Laws.
The Committee is granted the authority to investigate any activity of the
Company, and all employees are directed to cooperate as requested by the members
of the Committee. The Committee has the authority to retain, at the Company's
expense, special legal, accounting or other consultants or experts it deems
necessary in the performance of its duties.
COMPOSITION
-----------
The Committee shall be comprised of at least three Directors who are independent
of the management and operating executives, free from any relationship that
would interfere with the exercise of his or her independent judgment. Committee
members shall meet the independence and experience requirements of the
Securities and Exchange Commission (the "SEC") and the New York Stock Exchange
(as they may be modified and supplemented). No member of the Committee may
receive any direct or indirect consulting, advisory or other compensatory fee
from the Company other than payment for services as a Director or as a member of
a Committee of the Board of Directors.
The Board of Directors shall appoint members of the Committee, including the
Committee Chairman. All members shall have sufficient financial experience and
ability to enable them to discharge their responsibilities and at least one of
the Committee members shall qualify as an "audit committee financial expert" in
accordance with the requirements of the SEC and the New York Stock Exchange.
MEETINGS
--------
The Committee is to meet as many times as the Committee deems necessary, but at
a minimum, twice a year. A majority of the members of the Committee shall
constitute a quorum. In addition, the "audit committee financial expert" will
discuss the Company's financial results with the independent public accountants
and management on a quarterly basis.
26
The Chairman is to meet, at least annually, outside of normal meeting times,
with management and internal/external auditors to:
1. Clearly agree on mutual expectations;
2. Agree on an annual detailed plan of Committee activities; and
3. Agree on nature, extent, and timing of Committee information needs.
It is the responsibility of the Chairman to schedule all meetings of the
Committee and to provide the committee with a written agenda at least one week
prior to all meetings.
ATTENDANCE
----------
As necessary or desirable, the Committee may request that members of management,
representatives of the independent public accountants, internal auditors or
representatives of the independent engineers be present at meetings of the
Committee.
Additional attendees at Committee meetings are to include the following:
1. The Manager of Internal Audit is to attend meetings and to report, at least
annually, on the results of audits, the current audit schedule, and annual
audit plan;
2. The Company's outside general counsel shall report, at least annually, to
the Committee or Committee Chairman on legal matters that may have a
significant impact on the Company's financial statements;
3. The Chief Financial Officer and Chief Accounting Officer shall report, at
least annually, to the Committee on issues relating to financial reporting;
and
4. The Committee or the "audit committee financial expert" shall meet with the
Manager of Internal Audit, the independent public accountants, the Chief
Financial Officer, and Chief Accounting Officer in separate executive
sessions to discuss any matters that the Committee or these groups believe
should be discussed privately with the Committee.
MINUTES
-------
The Secretary or Assistant Secretary of the Company will prepare the minutes of
each meeting and send a copy of the minutes to the Committee members and the
Company Directors who are not members of the Committee.
27
DUTIES AND RESPONSIBILITIES
---------------------------
The Committee shall be empowered in accordance with its judgment, with the
following Duties and Responsibilities:
1. Review and evaluate the effectiveness of the Company's processes for
assessing, mitigating and controlling significant business risks.
2. At least annually, consider and review with management the independent
public accountants and the Manager of Internal Audit the effectiveness
of the Company's internal controls.
3. Ensure that the independent public accountants and internal auditors
keep the Committee and management informed about any fraud, illegal
acts, and deficiencies in internal control.
4. Review with the independent public accountants and the Manager of
Internal Audit coordination of their respective audit effort and
coverage.
5. Make its independent perspective available to management for
consultation in the resolution of financial statement issues and for
discussion on significant judgment matters.
6. Review annually the adequacy of the Company's liability insurance
coverage and review the Company's policies with respect to risk
assessment and risk management.
7. Review annually with the Company's independent public accountants
and/or internal auditors, if applicable, audits of the employee
benefit plans to determine that there are proper Company procedures to
ensure compliance with all relevant laws and regulations.
8. The Committee shall provide a copy of the Audit Committee charter and
a report in the Company's proxy statement in accordance with the
requirements of Item 306 of Regulation S-K and Item 7(e)(3) of
Schedule 14A.
FINANCIAL REPORTING
9. In conjunction with the review of all financial statements, review the
quality of accounting principles and/or critical accounting policies
adopted by the Company, and discuss with the Company's independent
public accountants how the Company's accounting principles and/or
critical accounting policies compare with those used by the Company's
peers or leaders in its industry and whether all alternative
accounting treatments of financial information within generally
accepted accounting principles have been discussed with management,
including the ramifications of use of such alternative disclosures,
along with consideration of the treatment preferred by the Company's
independent public accountants.
28
10. Assess the internal processes for managing financial statement risk
areas.
11. Review with financial management and the independent public
accountants financial statements, interim reports, SEC filings and
other documents (including earnings press releases) containing the
Company's financial statements, prior to their filing or release. If
not performed by the entire committee, the reviews relating to interim
financial results may be done by the "audit committee financial
expert" with subsequent reporting to the committee. All reviews are to
encompass:
o Significant transactions not a normal part of the Company's
operations and key accounting decisions affecting the Company's
financial statements, including alternatives to, and the
rationale for, the decisions made;
o Review and discuss with management and the Company's independent
public accountants the audited consolidated financial statements
and Management's Discussion and Analysis in the Company's Annual
Report on Form 10-K (or the Annual Report to Shareholders if
distributed prior to the filing of Form 10-K) and the interim
financial results in the Company's quarterly report on Form 10-Q
prior to filing with the SEC, and review with the Company's
independent public accountants the results of the annual audit
and the quarterly review and the matters required to be discussed
by Statement of Auditing Standards ("SAS") No. 61, as amended;
o Changes, if any, during the period in the Company's accounting
principles or their application; and
o Adjustments proposed by the independent public accountants.
12. Periodically review with management financial reporting policies and
financial information and earnings guidance provided to analysts and
rating agencies.
13. Periodically review the adequacy and performance of Denbury's finance
organization.
14. Review prior to filing each annual and quarterly financial report, all
material off-balance sheet transactions, arrangements, obligations,
and other relationships of the Company.
29
EXTERNAL RESERVE ENGINEERS
15. Select the independent reserve engineers to be employed by the
Company, and the retention or non-retention of the independent reserve
engineers.
16. Review, prior to preparation of the year-end reserves, the scope and
general extent of the independent reserve engineer's work (i.e.
engagement letter). The engineer's fees are to be agreed with
management and annually summarized for Committee review.
17. Review the independent reserve engineer's identification of issues and
business risks and exposures.
18. Review the independence of the independent reserve engineers as it
relates to the Company and confirm their independence.
19. Inform the independent reserve engineers and management that the
independent reserve engineers and the Committee may communicate with
each other at all times.
20. Instruct the independent reserve engineers that the Committee expects
to be advised if there are any areas that require its special
attention.
21. Evaluate the cooperation received by the independent reserve engineers
in performing their duties, including their access to all requested
records, data and information. Also, elicit the comments of management
regarding the responsiveness of the independent reserve engineers to
the Company's needs.
22. Discuss with the independent reserve engineers the quality of the
Company's technical personnel, and relevant recommendations which the
independent reserve engineers may have.
23. Review with management and the independent petroleum engineers the
proved reserves of the Company. The review is to encompass:
o Review of significant changes from prior period reports;
o Evaluation of the quality of the reserve estimates prepared by
both the independent engineers and the Company relative to the
Company's peers in the industry; and
o Review of significant differences between the Company's and
independent engineers' reserve estimates.
30
EXTERNAL AUDIT
24. Select the independent public accountants to examine the Company's
accounts, controls and financial statements. The Committee shall have
the sole authority and responsibility to select, evaluate, and if
necessary replace, the independent public accountant, including
resolving any disagreements between management and the Company's
independent public accountants regarding financial reporting.
25. Review and approve, prior to the annual audit, the scope and general
extent of the independent public accountant's audit. Approve the fees
and other significant compensation to be paid to the independent
public accountants.
26. Assess the independent public accountants process for identifying and
responding to key audit and internal control risks.
27. At least annually, obtain and review a report by the independent
public accountants describing the internal quality-control procedures
and any material issues raised by the most recent internal-quality
control review.
28. Review the independent public accountants' identification of business
and financial statement risks and exposures.
29. The Committee shall periodically discuss with the Company's
independent public accountant whether, in accordance with generally
accepted accounting principles and the rules of the SEC, all material
correcting adjustments identified by the Company's independent public
accountant are reflected in the Company's financial statements.
30. Review the independence of the independent public accountants, giving
additional consideration to the range of audit and non-audit services
performed by them. Obtain a formal written statement describing any
relationships between the independent public accountants and the
Company and its management consistent with Independence Standards
Board Standard Number 1.
31. The Committee shall approve all engagements for non-audit services by
the independent public accountant prior to the commencement of
services. The Committee may designate a member of the Committee to
represent the entire Committee for purposes of approval of non-audit
services, subject to review by the full Committee at its next
regularly scheduled meeting.
31
32. Instruct the independent public accountants that the Committee expects
to be advised if there are any areas that require its special
attention.
33. Review with the Company's management and independent public
accountants the Company's general policies and procedures to
reasonably assure itself of the adequacy of internal accounting and
financial reporting controls.
34. Evaluate the cooperation received from management and accounting
personnel by the independent public accountants during their audit,
including their access to all requested records, data and information.
Also, elicit the comments of management regarding the responsiveness
of the independent public accountants to the Company's needs. Inquire
of the independent public accountants whether there have been any
disagreements with management which if not satisfactorily resolved
would have caused them to issue a nonstandard report on the Company's
financial statements.
35. Discuss with the independent public accountants the quality of the
Company's financial and accounting personnel, and relevant
recommendations which the independent public accountants may have.
36. Discuss with the independent public accountants the "letter of
comments and recommendations" and their comments thereon, and review
written responses of management to the "letter of comments and
recommendations" from the independent public accountants. Topics to be
considered during this discussion include improving internal financial
controls, the quality of earnings, and a review of accounting policies
and management reporting systems.
INTERNAL AUDIT
37. Concur in the appointment, replacement, reassignment or dismissal of
the Manager of Internal Audit.
38. Evaluate the internal audit process for establishing the annual
internal audit plan, including business risk assessment and risk
management.
39. Review and approve the annual internal audit plan.
40. Review significant findings and management's response to internal
audit reports, including follow-up actions.
41. Confirm and assure the independence of the internal auditor.
42. Insure the internal auditor's compliance with the Institute of
Internal Auditors, Standards for the Professional Practice of Internal
Auditing.
32
COMPLIANCE WITH LAWS AND REGULATIONS
43. Determine whether the Company has an effective process for determining
risks and exposures from litigation and claims from noncompliance with
laws and regulations.
44. Review with the Company's outside general counsel any legal, tax or
regulatory matters that may have a material impact on the Company's
operations and financial statements.
OTHER
45. Establish procedures in the Company's Code of Business Conduct and
Ethics for the receipt and consideration of complaints received by the
Company regarding accounting, internal controls, and auditing and
establish and maintain procedures for the confidential, anonymous
submission by employees of the Company of concerns regarding any
questionable accounting or auditing matters.
46. Review in-house policies and procedures for regular review of
officers' expenses and perquisites, including any use of corporate
assets. Inquire as to the results of the review, and, if appropriate,
review a summary of the expenses and perquisites of the period under
review.
47. The Committee shall recommend whether each year's financial statements
should be included in the Company's Annual Report.
48. Apprise the Board of Directors, through minutes and special
presentations as necessary, of significant developments in the course
of performing the above duties.
49. Review and approve all related-party transactions affecting management
or any board member.
50. Set policies for the hiring of employees or former employees of the
Company's independent public accountant.
51. Recommend to the Board of Directors any appropriate extension or
changes in the duties of the Committee or to the Committee charter. To
facilitate review of Committee activities, duties and charter, the
Committee shall:
o Periodically survey the Board of Directors, management and
independent public accountants on the role of the Committee to
identify possible changes and revisions;
33
o Complete a self-assessment process annually and review the
results with the Board of Directors, Corporate Governance
Committee, management and external/internal auditors. The charter
should be re-evaluated in light of assessment results.
o Review and reassess the adequacy of the Charter on an annual
basis.
While the Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Committee to conduct audits or
to determine that the Company's financial statements are complete and
accurate and are in accordance with generally accepted accounting
principles, which is the responsibility of management and the
independent public accountants. It is also the responsibility of
management to assure compliance with laws and regulations and the
Company's corporate policies with oversight by the Committee in areas
covered by this Charter.
34
*** PROXY CARD ***
DENBURY RESOURCES INC.
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD
TUESDAY, MAY 20, 2003
--------------------------------------------------------------------------------
PROXY VOTING INSTRUCTIONS
--------------------------------------------------------------------------------
TO VOTE BY MAIL
---------------
Please date, sign and mail your proxy card in the envelope provided as soon as
possible.
TO VOTE BY TELEPHONE (TOUCH-TONE PHONE ONLY)
-------------------------------------------
Please call toll-free 1-800-PROXIES and follow the instructions. Have your
control number, which is presented below, available when you call.
TO VOTE BY INTERNET
-------------------
Please access the web page at "www.voteproxy.com and follow the on-screen
instructions. Have your control number, which is presented below, available when
you access the web page.
YOUR CONTROL NUMBER IS [ ]
Please Detach and mail in the Envelope Provided
Please mark your
votes as in this
example [X]
FOR, except vote
withheld from the
1. Proposal to elect directors. FOR AGAINST following nominees:
Nominees: [ ] [ ] [ ]
Ronald G. Greene ----------------------
David Bonderman ----------------------
David I. Heather ----------------------
David B. Miller ----------------------
William S. Price, III ----------------------
Gareth Roberts ----------------------
Jeffrey Smith ----------------------
Wieland F. Wettstein ----------------------
Carrie A. Wheeler ----------------------
FOR AGAINST ABSTAIN
2. Proposal to increase the number of shares that may be [ ] [ ] [ ]
issued under Denbury's Stock Option Plan by 850,000 shares
of Common Stock.
Signature:_________________________Date:___________________Signature: ___________________________ Date:___________________
*** PROXY CARD ***
DENBURY RESOURCES INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 20, 2003
By signing this proxy, I appoint Ronald G. Greene, Chairman of the Board of
Denbury, and Gareth Roberts, President and Chief Executive Officer of Denbury,
and each of them acting singly, my attorney and proxy, with full power of
substitution, to vote on my behalf all of the shares of Denbury Resources Inc.
common stock that I am entitled to vote at the Annual Meeting of Shareholders to
be held on May 20, 2003, and at any adjournments of the meeting. This proxy
revokes any earlier proxy I have signed with respect to these shares.
IF THIS PROXY IS PROPERLY EXECUTED, YOUR SHARES OF DENBURY RESOURCES INC.
COMMON STOCK REPRESENTED BY THIS PROXY WILL BE VOTED IN THE MANNER YOU SPECIFY.
IF NO SPECIFICATION IS MADE, YOUR SHARES OF DENBURY RESOURCES INC. STOCK WILL BE
VOTED FOR EACH OF THE NINE NOMINEES FOR DIRECTOR AND FOR THE PROPOSAL TO
INCREASE THE NUMBER OF SHARES ISSUABLE UNDER THE STOCK OPTION PLAN. THE PROXIES
ARE AUTHORIZED TO VOTE YOUR SHARES, IN THEIR DISCRETION, ON ANY OTHER MATTER
THAT IS PROPERLY BROUGHT BEFORE THE MEETING.
PLEASE SIGN AND MAIL YOUR PROXY TODAY.
[Letterhead of Jenkens & Gilchrist]
April 11, 2003
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Re: Denbury Resources Inc. - 2003 Annual Meeting Definitive Proxy
Materials and Stock Option Plan
Ladies and Gentlemen:
On behalf of Denbury Resources Inc. (the "Company"), pursuant to Rule
14a-6(b) of the Securities Exchange Act of 1934, as amended (the "Act"),
enclosed for filing by EDGAR is a copy of the Company's definitive notice and
proxy statement for its 2003 Annual Meeting of Shareholders. Also enclosed for
filing via EDGAR is a copy of the Company's definitive form of proxy.
Among the items slated for approval at the Annual Meeting is a proposal to
amend the Company's Stock Option Plan to increase the number of shares that may
be issued under the plan. In accordance with Instruction 3 to Item 10 of
Schedule 14A, a copy of the plan as proposed to be amended is included herewith
via EDGAR as an appendix to the proxy statement. Pursuant to Instruction 5 to
the same item, the Company hereby advises the Commission that the shares to be
issued under the plan will be registered pursuant to a registration statement on
Form S-8 to be filed by the Company shortly after the Annual Meeting, which is
being held on May 20, 2003.
The Company intends to mail the definitive notice, proxy statement and
proxy on or about April 15, 2003, to its shareholders of record on April 4,
2003.
Please do not hesitate to call the undersigned at (713) 951-3341 if you
have any questions or comments regarding this filing.
Sincerely,
/s/ Donald W. Brodsky
Donald W. Brodsky
DWB:pag
Enclosures
cc: Mr. Phil Rykhoek
Denbury Resources Inc.
5100 Tennyson Pkwy., Ste. 3000
Plano, TX 75024
APPENDIX
FILED WITH THE SEC PURSUANT TO
INSTRUCTION 3 TO ITEM 10 OF SCHEDULE 14A
DENBURY RESOURCES INC.
STOCK OPTION PLAN
Made effective the 9th day of August, 1995 ("Effective Date")
As Amended on:
May 21, 1997
May 19, 1998,
April 20, 1999
May 24, 2000,
May 22, 2002 and
May 20, 2003
1. Purpose of Plan
This plan (the "Plan") is designed to (i) provide key employees, officers
and directors with an added incentive, (ii) to attract and retain personnel of
outstanding competence, (iii) to compensate independent contractors whose
activities substantially benefit Denbury Resources Inc. (the "Corporation") and
its subsidiaries ("Subsidiaries"), and (iv) to further the identity of their
interests with those of the shareholders by providing them with the opportunity
through share purchase options to acquire an increased proprietary interest in
the Corporation.
2. Administration
The Plan shall be administered by the Compensation Committee of the Board,
which shall consist of at least two directors appointed from time to time by the
Board of Directors of the Corporation (or if no such committee is appointed, the
Board of Directors of the Corporation) (hereinafter referred to as the
"Committee") in the manner and on the terms authorized by the Board of
Directors.
The members of the Committee shall serve at the pleasure of the Board
of Directors, which shall have the power, at any time and from time to
time, to remove members from the Committee or to add members to the
Committee. Vacancies on the Committee, however caused, shall be filled
by action of the Board of Directors.
The Committee shall elect one of its members as its Chairman and
shall hold its meetings at such times and places as it may determine.
All decisions and determinations of the Committee shall be made by the
majority vote or decision of all of its members present at a meeting;
provided, however, that any decision or determination reduced to
writing and signed by all of the members of the Committee shall be as
fully effective as if it had been made at a meeting duly called and
held. The Committee may make any rules and regulations for the conduct
of its business that are not inconsistent with the provisions of this
Plan and with the bylaws of the Corporation as it may deem advisable.
Subject to the express provisions of this Plan, the Committee
shall have the authority, in its sole and absolute discretion, (a) to
adopt, amend, and rescind administrative and interpretive rules and
regulations relating to the Plan; (b) to determine the terms and
provisions of the respective agreements ("Agreement") pursuant to
which options are granted under the Plan (which need not be
identical); (c) to construe the terms of any Agreement and the Plan;
and (d) to make all other determinations and perform all other acts
necessary or advisable for administering the Plan, including the
delegation of such ministerial acts and responsibilities as the
Committee deems appropriate. The Committee may correct any defect or
supply any omission or reconcile any inconsistency in the Plan or in
any Agreement in the manner and to the extent it shall deem expedient
to carry it into effect, and it shall be the sole and final judge of
such expediency. The Committee shall have full discretion to make all
determinations on the matters referred to in this Section. Any such
determinations shall be final, binding and conclusive.
3. Granting of Stock Options
The Committee may from time to time grant options ("Stock Options") to
purchase common shares of the Corporation ("Common Shares") to directors,
officers, or full-time employees of the Corporation or any other "service
provider" to the Corporation within the meaning of the rules of the New York
Stock Exchange (collectively, the "Optionees") and fix the number of Common
Shares to be optioned to each Optionee.
A stock option granted under the Plan may either be an incentive stock
option ("Incentive Option or ISO") which shall be intended to qualify as an
incentive stock option under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), or a non-statutory stock option ("Non-qualified Option
or NQ") which is not intended to qualify as an incentive stock option under Code
Section 422. All Stock Options shall comply with the requirements of the Plan
and/or option agreements issued thereunder.
The provisions of the Non-qualified Options and Incentive Options granted
under the Plan shall be the same except as specifically provided herein.
Incentive Stock Options may be granted only to employees of the Corporation or a
Subsidiary of the Corporation that is a Subsidiary Corporation within the
meaning of Code Section 424(f). All Stock Options granted to directors who are
not employees shall be NQs. Incentive Options may not be granted to any person
who, immediately after such option is granted, would own (within the meaning of
Sections 421 and 424 of the Code) securities of the Corporation representing
more than 10% of the total combined voting power of all classes of shares of the
Corporation or its Subsidiaries, unless the option price is at least 110% of the
Current Market Value (as defined in Section 6 hereof) of the Common Shares as of
the date the option is granted and unless the option by its terms must be
exercised not later than five (5) years from the date it is granted. In
addition, no Incentive Option may be granted after the expiration of ten (10)
years from the date this Plan was adopted.
With respect to any Incentive Option granted under this Plan, the sum of:
a. the aggregate Current Market Value of Common Shares subject to such
Incentive Option that first become purchasable in a calendar year under such
Incentive Option, and
b. the aggregate Current Market Value of Common Shares or stock of any
Subsidiary (or a predecessor of the Corporation or a Subsidiary) subject to any
other incentive stock option (within the meaning of Section 422 of the Code) of
the Corporation or its Subsidiaries (or a predecessor corporation of any such
corporation), that first become purchasable in a calendar year under such
incentive stock option, may not (with respect to any Optionee) exceed $100,000,
with such Current Market Value to be determined as of the date the ISO or such
other incentive stock option is granted.
For purposes of this paragraph, "predecessor corporation" means (i) a
corporation that was a party to a transaction described in Section 424(a) of the
Code (or which would be so described if a substitution or assumption under such
section had been effected) with the Corporation, (ii) a corporation which, at
the time the new incentive stock option (within the meaning of Section 422 of
the Code) is granted, is a Subsidiary of the Corporation or a predecessor
corporation of any such corporations, or (iii) a predecessor corporation of any
such corporations.
2
4. Authorized Shares
The total number of Common Shares issuable pursuant to the exercise of
Stock Options granted pursuant to the Plan shall not exceed 8,195,587 Common
Shares (the "Common Share Maximum"), subject to adjustment as set forth in
Section 15. Subject to all necessary regulatory approvals, the Common Share
Maximum may be increased by the Board of Directors of the Corporation with the
approval of the shareholders of the Corporation. The number of Common shares
reserved for issuance to any one Optionee shall not exceed 5% of the issued and
outstanding common Shares at any time.
5. Expiry Date
All Stock Options granted pursuant to this Plan will expire on a date (the
"Expiry Date") as determined by the Board of Directors at the time of the grant
provided that no Stock Option may be exercised beyond ten (10) years from the
time of the grant.
6. Exercise Price
The exercise price (the "Exercise Price") of any Stock Option shall be
fixed by the Committee when such Stock Option is granted and shall not be less
than the Current Market Value. For this purpose, the "Current Market Value"
shall mean the simple average closing trading price per Common Share on the New
York Stock Exchange (and if the Common Shares are not listed on the New York
Stock Exchange, on such stock exchange on which the Common Shares are traded)
for the ten (10) trading days preceding the date of the grant, or if such Common
Shares are not listed on any stock exchange at a price determined by the
Committee. If no trades are reported in any one of the ten trading days, the
"Current Market Value" shall be determined by reference to the closing trading
price on the last trading day preceding the ten (10) trading day period.
7. Vesting of Stock Options
Stock Options will vest on the date (the "Vesting Date") the Optionee
becomes entitled to exercise that portion of the granted Stock Option and
purchase that portion of the Common Shares as determined by a vesting schedule.
This vesting schedule will be determined by the Board of Directors of the
Corporation, and modified from time to time, in their sole discretion. Unless
modified by the Board of Directors, 25% of a Stock Option shall vest one year
from the date the Stock Option is granted (the "Grant Date") and an additional
25% of the Stock Option shall vest on each successive anniversary of the Grant
Date until the Stock Option is fully vested.
8. Vesting of Stock Options on Death
Notwithstanding the Vesting Date but subject to the Expiry Date, in the
event of an Optionee's death while a director or employee of the Corporation,
all of the Stock Options granted to the Optionee will vest on the day
immediately preceding the date of his death and the Optionee's estate will have
the right, for a period of 365 days thereafter, to exercise all of the Stock
Options unexercised. Stock Options not exercised within said 365 day period will
automatically terminate.
9. Vesting of Stock Options on Disability
Notwithstanding the Vesting Date but subject to the Expiry Date, in the
event an Optionee becomes Disabled, all of the Stock Options granted to the
Optionee will vest on the day immediately preceding the day on which the
Optionee becomes entitled to long-term disability payments. For all Incentive
Stock Options, Disability shall mean permanent and total disability as defined
in Code Section 22(e)(3). For Non-qualified Options, Disabled shall mean
entitlement to long-term disability payments pursuant to the Corporation's
disability insurance program, if any (or if not a participant in such program,
would have been entitled to such payments if the Optionee were a participant in
such program). The Optionee will have the right, for a period of 90 days after
his date of termination due to Disability, to exercise all of the Stock Options
unexercised. Stock Options not exercised within the said 90 day period will
automatically terminate.
3
10. Vesting on Change of Control
Notwithstanding the Vesting Date but subject to the Expiry Date and
paragraphs 8, 9, 11 and 12, all of the Stock Options granted to the Optionee
will vest on the day immediately preceding a Change of Control (as hereinafter
defined) and the Optionee will have the right, for a period of 180 days
thereafter, to exercise all of the Stock Options unexercised. Stock Options not
exercised within the said 180 day period will terminate on the earlier of their
Expiry Date and the expiry of the said 180 day period.
For the purposes of this clause, "Change of Control" of the Corporation
will include and be interpreted as including the following events and
circumstances:
a. the purchase or acquisition of Common Shares or other securities capable
of becoming voting securities ("Convertible Securities") by a Person (as
hereinafter defined) which results in the Person beneficially owning, or
exercising control or direction over, Common Shares or Convertible
Securities such that, assuming only the conversion of Convertible
Securities beneficially owned or over which control or direction is
exercised by the Person, the Person would beneficially own, or exercise
control or direction over, Common Shares carrying the right to cast more
than 50% of the votes attaching to all Common Shares; or
b. directors serving in such capacity for one (1) year or more ceasing to
constitute a majority of the Board of Directors; or
c. approval by the shareholders of the Corporation of: (i) an amalgamation,
arrangement, merger or other consolidation or combination of the
Corporation with another corporation pursuant to which the shareholders of
the Corporation immediately thereafter do not own shares of the successor
or continuing corporation which would entitle them to cast more than 50% of
the votes attaching to all shares in the capital of the successor or
continuing corporation which may be cast to elect directors of that
corporation; (ii) the liquidation, dissolution or winding-up of the
Corporation; or (iii) the sale, lease or other disposition of all or
substantially all of the assets of the Corporation.
For the purposes of this definition, "Person" means: (a) an individual; (b)
a partnership; (c) a corporation, an incorporated association, an incorporated
syndicate or any other incorporated organization; (d) an unincorporated
association, an unincorporated syndicate or any other unincorporated
organization; (e) a trust; or (f) a trustee, an executor, an administrator or
any other legal representative.
For the purposes of determining who has made an acquisition referred to in
this definition, the beneficial owner of the acquired Common Shares shall be
considered the acquirer of such Common Shares. For the purposes of this
definition, all Common Shares and Convertible Securities acquired by Persons
will include Common Shares and Convertible Securities held by their Affiliates.
For the purposes of this clause, "Affiliate" means, with respect to a specified
person, a person that directly or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with the specified
person. Where Common Shares or Convertible Securities are acquired by any two or
more Persons act jointly or in concert, all such Common Shares or Convertible
Securities will be included in the calculation of a Change of Control. For the
purposes of determining when a Change of Control occurs by Persons acting
jointly or in concert, a Change of Control will be deemed to occur when the
Persons first attempt to act, or in fact act, jointly or in concert.
In the event of a Change of Control, the Optionee or his legal
representative will be given written notice by the Corporation of the Change of
Control in accordance with the provisions of this Plan and the period set out in
this Clause 10 will commence on the date notice is given.
4
11. Vesting on Retirement
Notwithstanding the Vesting Date but subject to the Expiry Date, if an
Optionee retires pursuant to a retirement policy approved by the Board of
Directors, all of the Stock Options granted to the Optionee will vest on the day
immediately preceding the date of his retirement and the Optionee will have the
right, for a period of 90 days thereafter, to exercise all of the Stock Options
unexercised. Stock Options not exercised within the said 90-day period will
automatically terminate.
12. Vesting on Resignation or Termination
If an Optionee resigns from the Corporation or is terminated by the
Corporation (with or without cause), his Stock Options that were not vested will
immediately terminate and be of no further force and effect; provided, however,
the resigning or terminated Optionee may, subject to the Expiry Date, for a
period of 90 days from the date of resignation or termination, exercise the
Stock Options that were vested and not previously exercised on the date of
resignation or termination.
13. Non-assignability
All Stock Options granted pursuant to this Plan will be personal to the
Optionee and will not be assignable or transferable other than by will or the
laws of descent and distribution.
14. Exercise of Option
Subject to the provisions of this Plan and the Optionee's Agreement, Stock
Options may be exercised from time to time by delivery to the Corporation at its
head office in Plano, Texas, or such other place as may be specified by the
Corporation, of a written notice of exercise specifying the number of Common
Shares with respect to which the Stock Option is being exercised and accompanied
by payment in full (in such manner as determined by the Committee) of the
purchase price of Common Shares then being purchased. As soon as practicable
thereafter, and in any event within ten (10) days following the receipt of such
notice, the Corporation shall provide written notice to the Optionee of the
amount, if any, required by the Corporation to be withheld (the "Withholding
Notice") in accordance with applicable law with regard to the Stock Options
being exercised. The Optionee shall, as soon as practicable and in any event
within ten (10) days following receipt of the Withholding Notice, make payment
to the Corporation for the amount specified in such Withholding Notice. Upon the
exercise of the Stock Options, payment being made in the manner specified
herein, and receipt by the Corporation of the amount specified in the
Withholding Notice, if any, the Corporation will cause to be delivered to the
Optionee a certificate or certificates, representing such Common Shares in the
name of the Optionee or his legal personal representatives or otherwise as he
may or they may in writing direct.
The Corporation shall use its best efforts to effectuate following the
Effective Date the registration of the shares underlying the Stock Options under
the Securities Act of 1933, as amended, on Form S-8 and qualification of such
shares under applicable state securities laws where such qualification is
required. Notwithstanding the foregoing, nothing in the Plan or in any Stock
Option granted under the Plan shall require the Corporation to issue any shares
upon exercise of any Option if such issuance would, in the opinion of counsel
for the Corporation, constitute a violation of any securities law or any other
applicable statute or regulations, as then in effect. The Corporation shall not
in any case be required to sell, issue or deliver a fractional share pursuant to
any Stock Option.
Notwithstanding the foregoing payment provisions, the Committee, in
processing a purported exercise of a Stock Option, granted pursuant to the Plan,
may refuse to recognize the exercise of an Option if, in the opinion of counsel
to the Company, (i) the Participant is, or within the six months preceding such
exercise was, subject to reporting under Section 16 (a) of the Exchange Act and
(ii) there is a substantial likelihood that the method of exercise selected by
the participant would subject the Participant to substantial risk of liability
under Section 16 of the Exchange Act.
5
15. Alterations in Common Shares
The Exercise Price will be subject to adjustment from time to time as
follows:
a. For NQs, if the Corporation:
(i) declares a dividend or makes a distribution on its Common Shares
in Common Shares;
(ii) subdivides its outstanding Common Shares into a greater number of
Common Shares; or
(iii) consolidates its outstanding Common Shares into a smaller number
of Common Shares;
the Exercise Price in effect at the time of the record date for such
dividend or distribution or the effective date of such subdivision or
consolidation will be, in the case of the events referred to in
subclauses (i) and (ii) above, decreased in proportion to the number
of outstanding Common Shares resulting from such subdivision or
dividend, or, in the case of the event referred to in subclause (iii)
above, increased in proportion to the number of outstanding Common
Shares resulting from such consolidation. Upon any adjustment of the
Exercise Price pursuant to subclause (ii) or (iii) above, the number
of Common Shares subject to the right of purchase under any Stock
Option will be contemporaneously adjusted by multiplying the number of
Common Shares which theretofore may have been purchased under such
Stock Option by a fraction of which the numerator will be the
respective Exercise Price in effect immediately prior to such
adjustment and the denominator will be the respective Exercise Price
resulting from such adjustment. Such adjustments will be made
successively whenever any event listed above occurs such that the
excess of the aggregate Current Market Value over the Stock Option
Exercise Price immediately after such dividend, distribution or
consolidation is not more than it was immediately before such
dividend, distribution or consolidation. Any dividend or distribution
on the Common Shares in Common Shares will be deemed to have been
issued or made immediately prior to the time of the record date for
such dividend or distribution for purposes of calculating the number
of outstanding Common Shares under subclauses 15 (b) and (c) below:
b. In the case the Corporation fixes a record date for the issuance of
rights or warrants to all holders of its Common Shares entitling them
(for a period expiring within 45 days after such record date) to
subscribe for or purchase Common Shares (or Convertible Securities) at
a price per Common Share (or having a conversion price per Common
Share) less than the Current Market Value of a Common Share on such
record date, the Exercise Price for Non-qualified Options will be
adjusted immediately thereafter so that it will equal the price
determined by multiplying the Exercise Price in effect immediately
prior thereto by a fraction, of which the numerator will be the total
number of Common Shares outstanding on such record date plus a number
of Common Shares equal to the number arrived at by dividing the
aggregate price of the total number of additional Common Shares so
offered (or the aggregate conversion price of the Convertible
Securities to offered) by such Current Market Value per Common Share
and of which the denominator will be the total number of Common Shares
outstanding on such record date plus the total number of additional
Common Shares offered for subscription or purchase (or into which the
Convertible Securities so offered are convertible). Common Shares
owned by or held for the account of the Corporation will be deemed not
to be outstanding for the purpose of any such computation. Such
adjustment will be made successively whenever such a record date is
fixed. To the extent that such rights or warrants are not so issued or
such rights or warrants are not exercised prior to the expiration
thereof, the Exercise Price will be readjusted to the Exercise Price
which would then be in effect if such record date had not been fixed,
or to the Exercise Price which would then be in effect based upon the
number of Common Shares (or Convertible Securities) actually delivered
upon the exercise of such rights or warrants, as the case may be. No
adjustment will be made to the Exercise Price of ISOs:
6
c. If the Corporation fixes a record date for the making of a
distribution to all holders of its Common Shares:
(i) of shares of any class not included in the definition of Common
Shares; or
(ii) of evidences of its indebtedness; or
(iii) of assets (excluding cash dividends or distributions, and
dividends or distributions referred to in clause (a) above); or
(iv) of rights or warrants (excluding those referred to in clause (b)
above),
then in each such case the Exercise Price for Non-qualified Options
will be adjusted immediately thereafter so that it will equal the
price determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction, of which the numerator will
be the total number of Common Shares outstanding multiplied by the
Current Market Value per Common Share on such record date, less the
fair market value (as determined by the Board of Directors whose
determination will be final) of said shares or evidences of
indebtedness or assets or right or warrants so distributed, and of
which the denominator will be the total number of Common Shares
outstanding multiplied by such Current Market Value per Common Share.
Common Shares owned or held for the account of the Corporation will be
deemed not to be outstanding for the purpose of any such computation.
Such adjustment will be made successively whenever such a record date
is fixed. To the extent that such distribution is not so made, the
Exercise Price will be readjusted to the Exercise Price which would
then be in effect based upon the said Common Shares or evidences of
indebtedness or assets or rights or warrants actually distributed. No
adjustment will be made to the Exercise Price of ISOs;
d. In any case in which this clause requires that an adjustment will
become effective immediately after a record date for an event, the
Corporation may defer until the occurrence of such event issuing to
the Optionee exercising his Stock Options after such record date and
before the occurrence of such event the additional Common Shares
issuable upon such exercise by reason of the adjustment required by
such event over and above the Common Shares issuable upon such
exercise before giving effect to such adjustment; provided, however,
that the Corporation will deliver to such Optionee an appropriate
instrument evidencing such Optionee's rights to receive such
additional Common Shares, upon the occurrence of the event requiring
such adjustment; and
e. No adjustment in the Exercise Price will be required unless such
adjustment would require an increase or decrease of at least five
percent in such price.
f. Notwithstanding any other provision in the Plan to the contrary, in
the event of any change in the number of outstanding Common Shares
(i) by reason of a share dividend, split, combination, exchange of
shares or other recapitalization, merger, or otherwise, in which
the Corporation is the surviving corporation, or
(ii) by reason of a spin-off of a part of the Corporation into a
separate entity, or assumptions and conversions of outstanding
grants due to an acquisition by the Corporation of a separate
entity,
the number and class of Common Shares subject to each outstanding ISO,
and the exercise price of each outstanding ISO shall be automatically
adjusted to accurately and equitably reflect the effect of such
change. Such adjustment shall in no event give any Optionee any
additional benefits nor increase the aggregate ratio of the Exercise
Price to the Current Market Value of the Common Shares subject to the
Stock Option. In the event of a dispute concerning such adjustment,
the Committee has full discretion to determine the resolution of the
dispute. Such determination shall be final, binding and conclusive.
The number of reserved Common Shares or the number of Common Shares
subject to any outstanding ISO shall be automatically reduced by any
fraction which results from any adjustment made pursuant to this
Section.
7
16. Option Agreement
A written agreement will be entered into between the Corporation and each
Optionee to whom a Stock Option is granted hereunder, which agreement will set
out the number of Common Shares subject to option, the Exercise Price, the
Vesting Dates, the Expiry Date and any other terms approved by the Committee,
all in accordance with the provisions of this Plan. The agreement will be in the
form of agreements attached hereto or in such other form as the Committee may
from time to time approve or authorize the officers of the Corporation to enter
into and may contain such terms as may be considered necessary in order that the
Stock Option will comply with any provisions respecting Stock Options in the
income tax or other laws in force in any country or jurisdiction of which the
person to whom the Stock Option is granted from time to time is a resident or
citizen of, or the rules of any regulatory body having jurisdiction over the
Corporation. More than one Option may be granted to the same employee, officer,
director, or service provider and be outstanding concurrently. In the event an
eligible individual is granted both one or more Incentive Stock Options and one
or more Non-qualified Options, such grants shall be evidenced by separate
Agreements, one for each of the Incentive Stock Option grants and one for each
of the Non-qualified Option grants.
17. Amendment or Discontinuance of Plan
The Board of Directors of the Corporation may amend or discontinue this
Plan at any time; provided, however, that no such amendment may, without the
consent of the Optionee, alter or impair any Stock Option previously granted to
an Optionee under this Plan except as may be necessary for any ISO to comply
with the requirements of Section 422 of the Code or with respect to any Stock
Option to cause the Plan to qualify for the exemption provided by Rule 16b-3 of
the Securities Exchange Act of 1934, as amended. For purposes of complying with
changes in the Code or ERISA, the Board of Directors may amend, modify, suspend
or terminate the Plan at any time. For purposes of meeting or addressing any
other changes in legal requirements or any other purpose, the Board of Directors
may amend, modify, suspend or terminate the Plan only once every six (6) months.
Subject to changes in law or other legal requirements, including any changes in
the provisions of Rule 16b-3 promulgated under the Securities Exchange Act of
1934, as amended, that would permit otherwise, the Plan may not be amended
without approval of the shareholders of the Corporation (as provided in Rule
16b-3) to (a) increase the aggregate number of shares as to which Options may be
granted under the Plan; (b) increase the maximum period during which Options may
be exercised; (c) amend the Plan more frequently than once every six (6) months
other than to conform with changes in the Code; (d) materially modify the
requirements as to eligibility for participation in the Plan; or (e) materially
increase the benefits accruing to Optionees under the Plan. No Stock Option may
be granted during any suspension of the Plan or after the Plan has been
terminated, and no amendment, suspension or termination shall, without an
Optionee's consent, alter or impair, other than as provided in the Plan and the
Optionee's Agreement, any of the rights of obligations under any Stock Option
previously granted to such Optionee under the Plan.
18. Common Shares Duly Issued
Common Shares issued upon the exercise of a Stock Option granted hereunder
will be validly issued and allotted as fully paid and non-assessable upon
payment thereof in accordance with the terms of the particular agreement and
this Plan and the issuance of Common Shares thereunder will not require a
resolution or approval of the Board of Directors of the Corporation. No Common
Shares shall be issued under the Plan unless counsel for the Corporation shall
be satisfied that such issuance will be in compliance with applicable United
States federal and state securities laws. Certificates for Common Shares
delivered under the Plan may be subject to such stock transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations,
and other requirements of the United States Securities and Exchange Commission,
any stock exchange upon which the Common Shares are then listed, and any
applicable United States federal or state securities law. The Committee may
cause a legend or legends to be put on any such certificates to refer to those
restrictions.
8
19. Prior Plans
This Plan shall entirely replace and supersede all prior share option
plans, if any, enacted by the Board of Directors of the Corporation or its
predecessor corporation including, without limitation, the share option plan
(the "Previous Plan") approved by the Board of Directors as of May 25, 1992 and
approved by the shareholders of the Corporation as of June 30, 1992.
Notwithstanding the foregoing, all agreements entered into pursuant to the
Previous Plan and remaining outstanding on the effective date of this Plan
continue with full force and effect under this Plan.
20. Right to Terminate Employment
Nothing contained in the Plan, or in any Agreement, shall confer upon any
Optionee the right to continue in the employ of the Corporation or a Subsidiary,
or interfere in any way with the rights of the Corporation or Subsidiary to
terminate his employment any time.
21. Liability of Corporation
Neither the Corporation, its Subsidiaries, its directors, officers or
employees nor any member of the Committee shall be liable for any act, omission,
or determination taken or made in good faith with respect to the Plan or any
Stock Option granted under it, and members of the Board of Directors and the
Committee shall be entitled to indemnification and reimbursement by the
Corporation in respect of (1) any claim, loss, damage, or expense (including
attorneys' fees), (2) the costs of settling any suit (provided such settlement
is approved by independent legal counsel selected by the Corporation), (3)
amounts paid in satisfaction of a judgment (except that no indemnification shall
be allowed under this Section for a judgment based on a finding of bad faith)
arising from such claim, loss, etc. to the full extent permitted by law. In
addition neither the Corporation, its directors, officers, or employees, nor any
of the Corporation's Subsidiaries shall be liable to any Optionee or other
person if it is determined for any reason by the Internal Revenue Service or any
court having jurisdiction that any Incentive Stock Options granted hereunder do
not qualify for tax treatment as incentive stock options under Section 422 of
the Code.
22. Severability
If any provision of this Plan is held to be illegal or invalid for any
reason, the illegality or invalidity shall not affect the remaining provisions
of the Plan, but such provision shall be fully severable, and the Plan shall be
construed and enforced as if the illegal or invalid provision had never been
included in the Plan.
23. Notice
Whenever any notice is required or permitted under the Plan, such notice
must be in writing and personally delivered, telecopied (if confirmed), or sent
by mail or by a courier service. Any notice required or permitted to be
delivered under this Plan shall be deemed to be delivered on the date on which
it is personally delivered, or, if mailed, whether actually received or not, on
the third business day after it is deposited in the mail, certified or
registered, postage prepaid, addressed to the person who is to receive it at the
address which such person has previously specified by written notice delivered
in accordance with this Section, or if by courier, twenty-four (24) hours after
it is sent, addressed as described in this Section. The Corporation or an
Optionee may change, at any time and from time to time, by written notice to the
other, the address which it or he had previously specified for receiving
notices. Until changed in accordance with the Plan, the Corporation and each
Optionee shall specify as its and his address for receiving notices the address
set forth in the Agreement pertaining to the Shares to which such notice
relates.
24. Effective Date and Termination Date
This Plan is effective from August 9, 1995 subject to confirmation by all
necessary shareholder and regulatory approvals. If this Plan is not approved by
the holders of a majority of the votes entitled to be voted at a meeting of
holders of outstanding shares of equity securities of the Corporation no later
than August 9, 1996, this Plan and the Option (s) granted under the Plan shall
be null and void. This Plan shall terminate on August 9, 2005, after which
options may no longer be granted pursuant hereto.
9