-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NR7w6lVyAjQBsy2/00Ik7OYIusozCZnRbA8raWsgIzcIueEMtyEQ4RR1re6mYGU+ UDfhqQCeZEjml+hULlPPqw== 0000945764-99-000045.txt : 19990512 0000945764-99-000045.hdr.sgml : 19990512 ACCESSION NUMBER: 0000945764-99-000045 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DENBURY RESOURCES INC CENTRAL INDEX KEY: 0000945764 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12935 FILM NUMBER: 99616978 BUSINESS ADDRESS: STREET 1: 17304 PRESTON RD STREET 2: STE 200 CITY: DALLAS STATE: TX ZIP: 75252 BUSINESS PHONE: 9726732000 MAIL ADDRESS: STREET 1: 17304 PRESTON RD STREET 2: STE 200 CITY: DALLAS STATE: TX ZIP: 75252 FORMER COMPANY: FORMER CONFORMED NAME: NEWSCOPE RESOURCES LTD DATE OF NAME CHANGE: 19950627 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ---------------------- (Mark One) X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1999 Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 33-93722 --------------------------- DENBURY RESOURCES INC. (Exact name of Registrant as specified in its charter) Delaware 75-2815171 (State or other (I.R.S. Employer jurisdiction of Identification No.) incorporation or organization) 5100 Tennyson Parkway Suite 3000 75024 Plano, TX (Zip code) (Address of principal executive offices) Registrant's telephone number, including area code: (972) 673-2000 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at April 30, 1999 Common Stock, $.001 par value 45,434,926 DENBURY RESOURCES INC. INDEX Part I. Financial Information Page Item 1. Financial Statements Condensed Consolidated Balance Sheets at March 31, 1999 (Unaudited) and December 31, 1998 3 Condensed Consolidated Statements of Operations for the three months ended March 31, 1999 and 1998 (Unaudited) 4 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 1999 and 1998 (Unaudited) 5 Notes to Condensed Consolidated Financial Statements 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-20 Item 3. Quantitative and Qualitative Disclosures about Market Risk 20 Part II. Other Information Item 2. Change in Securities and Use of Proceeds 21 Item 4. Submission of Matters to a Vote of Security Holders 21 Item 6. Exhibits and Reports on Form 8-K 22 Signatures 23 2 DENBURY RESOURCES INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands of U.S. Dollars and in U.S. GAAP)
March 31, December 31, 1999 1998 --------- --------- (Unaudited) Assets Current assets Cash and cash equivalents $ 7,063 $ 2,049 Accrued production receivable 7,155 5,495 Trade and other receivables 11,294 16,390 --------- ---------- Total current assets 25,512 23,934 --------- ---------- Property and equipment (using full cost accounting) Oil and gas properties 531,654 508,571 Unevaluated oil and gas properties 49,040 65,645 Less accumulated depreciation and depletion (398,660) (393,552) --------- ---------- Net property and equipment 182,034 180,664 --------- ---------- Other assets 8,835 8,261 --------- ---------- Total assets $ 216,381 $ 212,859 ========= ========== Liabilities and Stockholders' Deficit Current liabilities Accounts payable and accrued liabilities $ 9,503 $ 13,570 Oil and gas production payable 6,028 5,118 --------- ---------- Total current liabilities 15,531 18,688 --------- ---------- Long-term liabilities Long-term debt 234,630 225,000 Provision for site reclamation costs 1,513 1,436 --------- ---------- Total long-term liabilities 236,143 226,436 --------- ---------- Stockholders' deficit Preferred stock, $.001 par value, 25,000,000 shares authorized; none issued and outstanding - - Common stock, $.001 par value, 100,000,000 shares authorized; 26,801,680 shares issued and outstanding at March 31, 1999 and December 31, 1998 27 27 Paid-in capital in excess of par 227,769 227,769 Accumulated deficit (263,089) (260,061) --------- ---------- Total stockholders' deficit (35,293) (32,265) --------- ---------- Total liabilities and stockholders' deficit $ 216,381 $ 212,859 ========= ==========
(See accompanying notes to Condensed Consolidated Financial Statements) 3 DENBURY RESOURCES INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands except per share amounts) (Unaudited - U.S. dollars and in U.S. GAAP)
Three Months Ended March 31, ------------------------- 1999 1998 --------- --------- Revenues Oil, gas and related product sales $ 14,703 $ 25,188 Interest and other income 361 367 --------- --------- Total revenues 15,064 25,555 --------- --------- Expenses Production 5,855 7,854 General and administrative 1,890 1,776 Interest 4,858 4,391 Depletion and depreciation 5,335 12,387 Franchise taxes 154 200 --------- --------- Total expenses 18,092 26,608 --------- --------- Loss before income taxes (3,028) (1,053) Income tax benefit - 373 --------- --------- Net loss $ (3,028) $ (680) ========= ========= Net loss per common share Basic $ (0.11) $ (0.03) Diluted (0.11) (0.03) Average number of common shares outstanding 26,802 23,425 ========= =========
(See accompanying notes to Condensed Consolidated Financial Statements) 4 DENBURY RESOURCES INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Amounts in thousands of U.S. dollars and in U.S. GAAP) (Unaudited)
Three Months Ended March 31, ---------------------- 1999 1998 --------- --------- Cash flow from operating activities: Net loss $ (3,028) $ (680) Adjustments needed to reconcile to net cash flow provided by operations: Depreciation, depletion and amortization 5,335 12,387 Deferred income taxes - (373) Other 190 121 --------- --------- 2,497 11,455 Changes in working capital items relating to operations: Accrued production receivable (1,660) (1,593) Trade and other receivables 5,096 2,077 Accounts payable and accrued liabilities (4,067) (6,965) Oil and gas production payable 910 1,371 --------- --------- Net cash flow provided by operations 2,776 6,345 --------- --------- Cash flow from investing activities: Oil and natural gas expenditures (4,678) (26,163) Acquisition of oil and natural gas properties (1,800) (247) Net purchases of other assets (439) (279) --------- -------- Net cash used for investing activities (6,917) (26,689) --------- --------- Cash flow from financing activities: Bank repayments - (200,000) Bank borrowings 9,630 - Issuance of senior subordinated debt - 125,000 Issuance of common stock - 93,345 Costs of debt financing (475) (3,518) Other - (1) --------- --------- Net cash provided by financing activities 9,155 14,826 --------- --------- Net increase (decrease) in cash and cash equivalents 5,014 (5,518) Cash and cash equivalents at beginning of period 2,049 9,326 --------- --------- Cash and cash equivalents at end of period $ 7,063 $ 3,808 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the quarter for interest $ 8,183 $ 3,225
(See accompanying notes to Condensed Consolidated Financial Statements) 5 DENBURY RESOURCES INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. ACCOUNTING POLICIES Interim Financial Statements These financial statements and the notes thereto should be read in conjunction with the Company's annual report on Form 10-K for the year ended December 31, 1998. Any capitalized terms used but not defined in these Notes to Consolidated Financial Statements have the same meaning given to them in the Form 10-K. Accounting measurements at interim dates inherently involve greater reliance on estimates then at year end and the results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the fiscal year. In the opinion of management of Denbury Resources Inc. (the "Company" or "Denbury"), the accompanying unaudited condensed consolidated financial statements include all adjustments (of a normal recurring nature) necessary to present fairly the consolidated financial position of the Company as of March 31, 1999 and the consolidated results of its operations and cash flow for the three months ended March 31, 1999 and 1998. Net Income and Loss per Common Share Basic net income or loss per common share is computed by dividing the net income or loss by the weighted average number of shares of common stock outstanding. In accordance with generally accepted accounting principles ("GAAP"), the stock options and warrants would be included in the calculation of diluted earnings per share but were anti-dilutive to the calculations of diluted losses per share. 2. NOTES PAYABLE AND LONG-TERM INDEBTEDNESS
March 31, December 31, 1999 1998 -------- --------- (Amounts in thousands) (Unaudited) Senior bank loan $109,630 $ 100,000 9% Senior Subordinated Notes due 2008 125,000 125,000 -------- --------- Total long-term debt $234,630 $ 225,000 ======== =========
3. CHANGE TO UNITED STATES GAAP; DIFFERENCES IN GAAP BETWEEN UNITED STATES AND CANADA In April 1999, the Company moved its corporate domicile from Canada to the United States as a Delaware corporation (see Note 4). As a result of this move, the consolidated financial statements have been prepared in accordance with United States GAAP rather than Canadian GAAP. For the periods presented herein, there are not any differences between United States and Canadian GAAP. Historically, the Company has had differences between the two accounting methods in the areas of diluted earnings per share, the handling of losses on the early extinguishment of debt and the guidelines regarding full cost ceiling tests. 6 DENBURY RESOURCES INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 4. 1999 SALE OF EQUITY AND MOVE OF DOMICILE At a special meeting of the stockholders held on April 20, 1999, the stockholders approved (i) a move of the Corporate's domicile from Canada to the United States as a Delaware corporation, (ii) the sale of 18,552,876 common shares to an affiliate of the Texas Pacific Group ("TPG") for $100 million or $5.39 per share, and (iii) increases in the number of shares available for issuance under the Company's stock purchase and stock option plans. The move of domicile was completed on April 21, 1999 and along with the move, the Company's wholly-owned subsidiary, Denbury Management Inc. ("DMI"), was merged into the new Delaware parent company, Denbury Resources Inc. This move of domicile did not have any effect on the operations and assets of the Company and as part of the move and merger, Denbury Resources Inc. expressly assumed any and all liabilities of its subsidiary, DMI, including the obligation for the 9% Senior Subordinated Notes due 2008 and the outstanding bank credit facility. The financial statements and notes herein have been modified to reflect the capital structure of the Company after the move of domicile even though this transaction occurred after the balance sheet date. The transaction with TPG was also completed on April 21, 1999. As a result of the equity transaction, TPG's ownership of the outstanding common stock of the Company increased from 32% to 60%. The Company intends to use the proceeds from the equity sale for acquisitions, although in the interim, the funds were used to reduce the outstanding bank debt to $9.6 million. The following table sets forth as of March 31, 1999 the actual capitalization of Denbury, and the pro forma capitalization of Denbury as adjusted to give effect to the TPG purchase transaction and the use of the net proceeds from that sale (estimated at $98.5 million after expenses) to reduce bank debt. This table excludes 3,526,163 outstanding stock options as of March 31, 1999 exercisable at various prices ranging from $4.24 to $22.24 per share with a weighted average price of approximately $8.93, of which 604,488 were currently exercisable, and 75,000 common shares reserved for issuance upon exercise of common share purchase warrants.
As of March 31, 1999 ----------------------- As Adjusted Company for the TPG Historical Purchase ---------- --------- (in thousands) Cash and cash equivalents............................. $ 7,063 $ 5,563 ========== ========= Short-term debt: Credit Facility.................................... $ - $ - ---------- --------- Long-term debt: Credit Facility.................................... 109,630 9,630 9% Senior Subordinated Notes due 2008.............. 125,000 125,000 ---------- --------- Total long-term debt......................... 234,630 134,630 ---------- --------- Stockholders' equity (deficit): Common stock, $.001 par value; 100,000,000 shares authorized; 26,801,680 issued and outstanding; 45,354,556 issued and outstanding as adjusted for the TPG purchase.................... 27 45 Paid-in capital in excess of par................... 227,769 326,251 Accumulated deficit................................ (263,089) (263,089) ---------- --------- Total stockholders' equity (deficit)............ (35,293) 63,207 ---------- --------- Total capitalization........................ $ 199,337 $ 197,837 ========== =========
7 DENBURY RESOURCES INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 5. PRODUCT PRICE HEDGING CONTRACTS During June and July 1998, the Company entered into two no-cost financial contracts ("collars") to hedge a total of 40 million cubic feet of natural gas per day ("MMcf/d"). The first natural gas contract for 35 MMcf/d covers the period from July 1998 to June 1999 and has a floor price of $1.90 per million British Thermal Units ("MMBtu") and a ceiling price of $2.96 per MMBtu. The second natural gas contract for five MMcf/d covers the period from September 1998 to August 1999 and has a floor price of $1.90 per MMBtu and a ceiling price of $2.89 per MMBtu. During December 1998, the Company extended these natural gas hedges through December 2000 by entering into an additional no-cost collar with a floor price of $1.90 per MMBtu and a ceiling price of $2.58 per MMBtu for the period of July 1999 through December 2000. This contract hedges 25 MMcf/d for the months of July and August 1999 and 30 MMcf/d for each month thereafter. The Company collected $539,000 on these financial contracts during the first quarter of 1999. These three contracts cover over 100% of the Company's current net natural gas production. Based on the futures market prices at March 31, 1999, the Company would not receive or pay any material amounts under these commodity contracts even though they covered more than the Company's production because the futures market prices at March 31, 1999 were within the contract collars. During the fourth quarter of 1998, the Company also modified certain of its oil sales contracts. The new contracts, which are generally for a period of eighteen months, provide that approximately 45% of the Company's oil production as of January 31, 1999, has a price floor of between $8.00 and $10.00 per Bbl. This equates to a NYMEX oil price of between $15.00 and $16.00 per Bbl. As compensation for the price floors, the contracts provide that the premiums received on the posted prices decrease as oil prices rise. During March and April, 1999, the Company entered into two no-cost financial contracts to hedge a portion of its oil production. The first contract was a fixed price swap for 3,000 Bbls/d for the period of April through December, 1999 at a price of $14.24 per Bbl. The second contract was a collar to hedge 3,000 Bbls/d for the period of May, 1999 through December, 2000 with a floor price of $14.00 per Bbl and a ceiling price of $18.05 per Bbl. No funds were paid or received on these contracts during the first quarter of 1999. These two oil financial contracts hedge approximately 60% of the Company's current oil production. For further discussion regarding the Company's derivative financial instruments, see "Market Risk Management" in Management's Discussion and Analysis of Financial Condition and Results of Operations. 8 DENBURY RESOURCES INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following should be read in conjunction with the Company's financial statements contained herein and in Form 10-K for the year ended December 31, 1998, along with Management's Discussion and Analysis contained in such Form 10-K. Any capitalized terms used but not defined in the following discussion have the same meaning given to them in the Form 10-K. Denbury is an independent energy company engaged in acquisition, development and exploration activities in the U.S. Gulf Coast region, primarily onshore in Louisiana and Mississippi. The Company's growth in proved reserves, production and cash flow over the years has been achieved by concentrating on the acquisition of properties which it believes have significant upside potential and through the efficient development, enhancement and operation of those properties. 1999 SALE OF EQUITY AND MOVE OF DOMICILE. At a special meeting of the stockholders held on April 20, 1999, the stockholders approved (i) a move of the Corporate's domicile from Canada to the United States as a Delaware corporation, (ii) the sale of 18,552,876 common shares to an affiliate of the Texas Pacific Group ("TPG") for $100 million or $5.39 per share, and (iii) increases in the number of shares available for issuance under the Company's stock purchase and stock option plans. The move of domicile was completed April 21, 1999 and along with the move, the Company's wholly-owned subsidiary, Denbury Management Inc. ("DMI"), was merged into the new Delaware parent company, Denbury Resources Inc. This move of domicile did not have any effect on the operations and assets of the Company and as part of the move and merger, Denbury Resources Inc. expressly assumed any and all liabilities of its subsidiary, DMI, including the obligation for the 9% Senior Subordinated Notes due 2008 and the outstanding bank credit facility. The sale of equity to TPG was also completed on April 21, 1999. As a result of this transaction, TPG's ownership of the outstanding common stock of the Company increased from 32% to 60%. The Company has approximately 45.4 million common shares outstanding after this transaction. The Company intends to use the proceeds from the equity sale for acquisitions, although in the interim, the funds were used to reduce its outstanding bank debt. The following table sets forth as of March 31, 1999 the actual capitalization of Denbury, and the pro forma capitalization of Denbury as adjusted to give effect to the TPG purchase transaction and the use of the net proceeds from that sale (estimated at $98.5 million after expenses) to reduce bank debt. This table excludes 3,526,163 outstanding stock options as of March 31, 1999 exercisable at various prices ranging from $4.24 to $22.24 per share with a weighted average price of approximately $8.93, of which 604,488 were currently exercisable, and 75,000 common shares reserved for issuance upon exercise of common share purchase warrants. 9 DENBURY RESOURCES INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As of March 31, 1999 ----------------------- As Adjusted Company for the TPG Historical Purchase ---------- --------- (in thousands) Cash and cash equivalents............................. $ 7,063 $ 5,563 ========== ========= Short-term debt: Credit Facility.................................... $ - $ - ---------- --------- Long-term debt: Credit Facility.................................... 109,630 9,630 9% Senior Subordinated Notes due 2008.............. 125,000 125,000 ---------- --------- Total long-term debt......................... 234,630 134,630 ---------- --------- Stockholders' equity (deficit): Common stock, $.001 par value; 100,000,000 shares authorized; 26,801,680 issued and outstanding; 45,354,556 issued and outstanding as adjusted for the TPG purchase............................ 27 45 Paid-in capital in excess of par................... 227,769 326,251 Accumulated deficit................................ (263,089) (263,089) ---------- --------- Total stockholders' equity (deficit)............ (35,293) 63,207 ---------- --------- Total capitalization........................ $ 199,337 $ 197,837 ========== =========
FEBRUARY 1999 AMENDMENT TO BANK CREDIT FACILITY. On February 19, 1999, the Company completed an amendment to its credit facility with Bank of America, as agent for a group of eight other banks. This amendment set the borrowing base at $110 million, of which $60 million was considered by the banks to be within their normal credit guidelines. The credit facility continues with its other restrictions such as a prohibition on the payment of dividends and a prohibition on most debt, liens and corporate guarantees. This amendment: o provided certain relief on the minimum equity and interest coverage tests; o changed the facility to one secured by substantially all of the Company's oil and natural gas properties; o requires that as long as the borrowing base is larger than a borrowing base that conforms to normal credit guidelines (currently $60 million), that at least 75% of the funds borrowed subsequent to the closing of the TPG purchase must be used for either qualifying acquisitions or capital expenditures made to maintain, enhance or develop its proved reserves; and o increased the interest rate to a range from LIBOR plus 1.0% to LIBOR plus 1.75% (depending on the amounts outstanding) and LIBOR plus 2.125% if the outstanding debt exceeds the borrowing base under normal credit guidelines, currently set at $60 million. After the repayment in April, 1999 with the proceeds from the sale of equity to TPG, there was approximately $9.6 million outstanding on the facility, leaving a total borrowing capacity of approximately $100 million. The next scheduled re-determination of the borrowing base will be as of October 1, 1999, based on June 30, 1999 assets and proved reserves. There can be no assurance that the banks will not reduce the borrowing base at that time, as such 10 DENBURY RESOURCES INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS redetermination will depend on current and expected oil and natural gas prices at that time, the Company's development and acquisition results during 1999, the current level of debt and several other factors, some of which are beyond the Company's control. CAPITAL RESOURCES AND LIQUIDITY As more fully described under "Results of Operations" below, through 1998 and continuing into the first quarter of 1999, the Company's average net oil product prices were from 24% to 40% lower than during the prior comparable period. Due to this drop in oil prices, the Company's cash flow and results of operations were significantly reduced during 1998 and the first quarter of 1999. This reduction in cash flow has also contributed to an increase in the Company's debt levels, which as a multiple of cash flow, are at historic highs as of March 31, 1999. Because of the downturn in the oil and gas industry during 1998, resulting from the decreases in oil and natural gas prices, the Company sought additional capital in order to have funds to pursue acquisitions and in December 1998 entered into an agreement to sell $100 million of common shares to TPG. This sale of equity was approved by stockholders on April 20, 1999 and closed on April 21, 1999 (see "1999 Sale of Equity and Move of Domicile" above). As a result of the equity infusion, the Company's bank debt was reduced to $9.6 million outstanding as of April 30, 1999 and the Company's stockholders' deficit was eliminated with a pro forma March 31, 1999 positive balance of $63.2 million. In addition, oil prices have climbed from a first quarter average NYMEX price of approximately $13.00 per Bbl to current levels above $18.00 per Bbl. Both the improved product prices and the reduction of debt will have a significant positive impact on the Company's earnings and cash flow for future periods and will allow the Company to pursue oil development opportunities that were uneconomical at low oil prices which prevailed in the second half of 1998 and first quarter of 1999. However, there can be no assurance that the recent increase in oil prices will be sustained. In addition, the Company intends to pursue oil and gas acquisitions with the funds from the equity sale to TPG which, if accomplished, should also be accretive to the Company's operating results. However, there can be no assurance that suitable acquisitions will be identified in the future or that any such acquisitions will be successful in achieving desired profitability objectives. Without suitable acquisitions or the capital to fund such acquisitions, the Company's future growth could be limited or even eliminated. The Company plans to keep its development budget for 1999 at approximately $35 million, the upper end of the previously announced range, as the intent is to minimize the use of the bank credit facility for anything other than acquisitions. Although the level of the Company's projected cash flow is highly variable and difficult to predict due to volatility in product prices, the success of its drilling and other developmental work and other factors, the Company does not expect its 1999 development spending to cause debt to increase substantially. The Company also expects that this spending level should be sufficient to cause a slight increase in production levels throughout the year. Furthermore, if acquisitions are unavailable at attractive rates, the Company does have an inventory of potential development projects that it could commence, subject to the availability and allocation of capital resources. SOURCES AND USES OF FUNDS During the first quarter of 1999, the Company spent approximately $4.7 million on exploration and development expenditures and approximately $1.8 million on acquisitions. The exploration and development expenditures included approximately $1.0 million spent on drilling, $1.5 million on geological, geophysical and acreage expenditures and $2.2 million on workover costs. These expenditures were funded by bank debt and cash flow from operations. 11 DENBURY RESOURCES INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS During the first quarter of 1998, the Company spent approximately $26.2 million on oil and natural gas development expenditures and approximately $247,000 on acquisitions. The development expenditures included approximately $17.6 million spent on drilling, $4.1 million on geological, geophysical and acreage expenditures and the balance of $4.5 million was spent on workover costs. These expenditures were funded by cash flow from operations and bank debt. RESULTS OF OPERATIONS Operating Income Operating income dropped 49% for the first quarter of 1999 as compared to the first quarter of 1998 comprised of a 28% drop in production and a 19% drop in prices on a BOE basis, as further set forth below.
Three Months Ended March 31, - -------------------------------------------------------------- 1999 1998 - -------------------------------------------------------------- OPERATING INCOME (THOUSANDS) Oil sales $ 8,532 $ 16,173 Natural gas sales 6,171 9,015 Less production expenses (5,855) (7,854) -------------------- Operating income $ 8,848 $ 17,334 -------------------- UNIT PRICES Oil price per barrel ("Bbl") $ 9.22 $ 12.20 Gas price per thousand cubic feet ("Mcf") 2.23 2.49 NETBACK PER BOE (1): Sales price $ 10.60 $ 13.05 Production expenses (4.22) (4.07) -------------------- Production netback $ 6.38 $ 8.98 -------------------- AVERAGE DAILY PRODUCTION VOLUME: Bbls 10,281 14,728 Mcf 30,818 40,275 BOE 15,417 21,441 - -------------------------------------------------------------- (1) Barrel of oil equivalent using the ratio of one barrel of oil to 6 Mcf of natural gas ("BOE").
Production for the first quarter of 1999 averaged 15,417 BOE/d, a drop of 28% from the first quarter of 1998 but only a 4% decrease from the fourth quarter of 1998 average of 16,108 BOE/d despite a sharply reduced development program since July, 1998. Production peaked in the second quarter of 1998 at 21,927 BOE/d before the Company curtailed its horizontal drilling program and sharply reduced all its development expenditures, causing a decrease in production each subsequent quarter. However, with the recent response from the Company's East waterflood unit at Heidelberg, the production in recent months has began to increase even though development spending for the first quarter of 1999 was only $4.7 million, the lowest level of development spending per quarter in several years. The Company plans to increase spending during the second quarter and the remainder of 1999 with a total budget of $35 million for the year, which should result in production increases later this year. Production during the first quarter of 1999 from the Company's two key prior acquisitions, the properties acquired from Amerada Hess in 1996 and from Chevron in 1997, averaged 4,544 and 4,541 BOE/d respectively. This compares to 9,393 and 2,992 BOE/d for the first quarter of 1998 on these properties and 5,736 and 4,255 BOE/d for the fourth 12 DENBURY RESOURCES INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS quarter of 1998. The production from the Chevron properties (Heidelberg Field) represents the fifth consecutive quarterly increase since its purchase in late 1997. However, the Amerada Hess properties peaked in the second quarter of 1998 at 9,730 BOE/d and have declined since that time due to production declines on horizontal oil wells drilled at Eucutta Field in late 1997 and early 1998 and the lack of subsequent development work to replace this production. Oil and gas revenue decreased as a result of the decrease in production and also due to a decline in both oil and natural gas product prices. Between the first quarter of 1998 and 1999, oil product prices decreased 24% ($2.98 per Bbl) and natural gas product prices declined by 10% ($0.26 per Mcf). Included in the gas revenue for the first quarter of 1999 was $523,000 related to a settlement of a gas imbalance and $539,000 relating to a gain on the Company's natural gas hedge contracts. These two items caused the average natural gas price per Mcf to increase by $0.38 per Mcf. Without these two items, natural gas product prices would have decreased by 26% ($0.64 per Mcf) from the comparable period in 1998. Production and operating expenses decreased 25% between the first quarter of 1998 and 1999 as a result of cost savings measures, shut-in wells and a decline in production. On a BOE basis, operating expenses increased slightly (4%) due to the declines in production. For the properties acquired from Amerada Hess, the operating expenses declined from the 1996 level of $5.35 per BOE to $3.39 per BOE for 1998, but had a slight increase to $3.81 for the first quarter of 1999 as a result of the production declines. Operating expense per BOE on the properties acquired from Chevron continued to decrease from their initial level of $6.38 per BOE when acquired in late 1997 to an average of $5.04 per BOE during 1998 and further reduced to an average of $4.79 per BOE for the first quarter of 1999. These reductions result from general cost saving measures and increased productivity per well through overall production increases at Heidelberg. General and Administrative Expenses The net general and administrative ("G&A") expenses increased as set forth below.
Three Months Ended March 31, - ------------------------------------------------------------ 1999 1998 - ------------------------------------------------------------ NET G&A EXPENSES (THOUSANDS) Gross expenses $ 4,788 $ 4,902 State franchise taxes 154 200 Operator overhead charges (2,167) (2,475) Capitalized exploration expenses (731) (651) -------------------- Net expenses $ 2,044 $ 1,976 -------------------- Average G&A cost per BOE $ 1.47 $ 1.02 Employees as of March 31 197 199 - ------------------------------------------------------------
Gross G&A expenses decreased 2% between the first quarter of 1998 and 1999 as a result of general cost saving measures, even though the Company incurred approximately $175,000 of additional non-recurring expenses during the first quarter of 1999 as part of the cost of the move of domicile from Canada to the United States (see "1999 Sale of Equity and Move of Domicile"). However, the respective well operating agreements allow the Company, when it is the operator, to charge a well with a specified overhead rate during the drilling phase and to also charge a monthly fixed overhead rate for each producing well. As a result of the decreased drilling activity in the first quarter of 1999, the 13 DENBURY RESOURCES INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS percentage of gross G&A recovered through these types of allocations (listed in the above table as "Operator overhead charges") decreased when compared to the corresponding period in 1998. During the first quarter of 1998, approximately 50% of gross G&A was recovered by operator overhead charges, while during the first quarter of 1999 this recovery was reduced to 45%. The net effect was a slight increase (3%) in net G&A expense during the first quarter of 1999. On a BOE basis, G&A costs increased 44% from the first quarter of 1998 to the comparable quarter in 1999 primarily because of decreased production on both an absolute and per well basis. Interest and Financing Expenses
Three Months Ended March 31, - --------------------------------------------------------------- AMOUNTS IN THOUSANDS EXCEPT PER UNIT AMOUNTS 1999 1998 - --------------------------------------------------------------- Interest expense $ 4,858 $ 4,391 Non-cash interest expense (191) (121) ------------------ Cash interest expense 4,667 4,270 Interest and other income (361) (367) ------------------ Net interest expense $ 4,306 $ 3,903 - --------------------------------------------------------------- Average interest expense per BOE $ 3.10 $ 2.02 Average debt outstanding 229,932 211,685 - ---------------------------------------------------------------
In December 1997, the Company borrowed $202 million to fund the Chevron Acquisition resulting in $240 million of outstanding bank debt during January and most of February 1998. On February 26, 1998 this debt was refinanced with proceeds from the issuance of equity and subordinated notes, leaving a bank balance of $40 million for the rest of the first quarter of 1998, plus $125 million of debt from the issuance of the subordinated notes. During the first quarter of 1999, the Company began the year with $225 million of total debt and further increased this to $234.6 million by the end of the period. Furthermore, the bank amendment in February 1999 (see "February 1999 Amendment to Bank Credit Facility") resulted in higher bank interest rates as the margins over LIBOR rates were increased at that time. The cumulative effect of an overall higher level of average debt plus the increased interest rates from the bank amendment resulted in an increase of $467,000 (11%) in interest expense during the first quarter of 1999 as compared to the first quarter of 1998. The 53% increase in interest expense on a BOE basis was due to the overall increase in costs and was further compounded by the decrease in production. The overall debt level was decreased by approximately $100 million in April 1999 with the proceeds from the sale of equity to TPG (see "1999 Sale of Equity and Move of Domicile"). Depletion, Depreciation and Site Restoration The Company's depletion, depreciation and amortization ("DD&A") rate dropped from $6.42 per BOE for the first quarter of 1998 (an average of $7.26 for 1998) to $3.85 per BOE for the comparable period in 1999. This resulted from an increase in the proved reserve quantities since December 31, 1998 related to improved oil prices at the end of the first quarter of 1999 and the reduced oil and gas property basis after the 1998 full cost pool writedowns. Under full cost accounting rules, each quarter the Company is required to perform a ceiling test calculation. In determining the limitation on property carrying values, U.S. accounting rules require the discounting of estimated future net revenues from its proved reserves at 10% using constant current prices following the guidelines of the Securities and Exchange Commission ("SEC"). The accounting guidelines also allow Company to exclude acquired properties 14 DENBURY RESOURCES INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS from a ceiling test calculation in certain circumstances. Due to the higher product prices as of March 31, 1999, the Company did not have any ceiling test limitation at that date. However, for the first quarter of 1998, the Company excluded the value of the properties acquired from Chevron in December 1997 from the ceiling test calculation. Had these properties been included, the Company would have had a write-down of the property carrying costs as of March 31, 1998 of approximately $35 million. The Company also provides for the estimated future costs of well abandonment and site reclamation, net of any anticipated salvage, on a unit-of-production basis. This provision is included in the DD&A expense.
Three Months Ended March 31, - -------------------------------------------------------------- AMOUNTS IN THOUSANDS EXCEPT PER UNIT AMOUNTS 1999 1998 - -------------------------------------------------------------- Depletion and depreciation $ 5,258 $12,298 Site restoration provision 77 89 ----------------- Total amortization $ 5,335 $12,387 ----------------- Average DD&A cost per BOE $ 3.85 $ 6.42 - --------------------------------------------------------------
Income Taxes Due to a net operating loss of the Company for tax purposes, the Company does not have any current tax provision. The deferred income tax provision as a percentage of net income varies slightly depending on the mix of Canadian and U.S. expenses. In addition, as a result of the net pre-tax loss of $3.0 million for the quarter ended March 31, 1999, an income tax provision for that quarter using the effective tax rate of 37% would have resulted in a $1.1 million income tax benefit and an increase to the deferred tax asset. Since the Company currently has a large tax net operating loss and it was uncertain whether this total tax asset will ultimately be realized, the Company has impaired the tax benefit generated in the first quarter of 1999, resulting in no effective income tax provision.
Three Months Ended March 31, - -------------------------------------------------------------- 1999 1998 - -------------------------------------------------------------- Deferred income tax benefit (thousands) $ - $ (373) Average income tax costs per BOE $ - $ (0.19) Effective tax rate - 35% - --------------------------------------------------------------
Results of Operations Primarily as a result of the decreased production and product prices between the quarters, net income and cash flow from operations decreased on both a gross and per share basis between the first quarter of 1998 and the first quarter of 1999 as set forth below. 15 DENBURY RESOURCES INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended March 31, - -------------------------------------------------------------- AMOUNTS IN THOUSAND EXCEPT PER SHARE AMOUNTS 1999 1998 - -------------------------------------------------------------- Net loss $(3,028) $ (680) Net loss per common share: Basic $ (0.11) $ (0.03) Diluted (0.11) (0.03) Cash flow from operations (1) $ 2,497 $11,455 - -------------------------------------------------------------- (1) Represents cash flow provided by operations, exclusive of the net change in non-cash working capital balances.
The following table summarizes the cash flow, DD&A and results of operations on a BOE basis for the comparative periods. Each of the individual components are discussed above.
Three Months Ended March 31, - --------------------------------------------------------- Per BOE Data 1999 1998 - --------------------------------------------------------- Revenue $ 10.60 $ 13.05 Production expenses (4.22) (4.07) - --------------------------------------------------------- Production netback 6.38 8.98 General and administrative (1.47) (1.02) Interest and other income (3.10) (2.02) - --------------------------------------------------------- Cash flow from operations (a) 1.81 5.94 DD&A (3.85) (6.42) Deferred income taxes - 0.19 Other non-cash items (0.14) (0.06) - --------------------------------------------------------- Net loss $ (2.18) $ (0.35) - --------------------------------------------------------- (a) Represents cash flow provided by operations, exclusive of the net change in non-cash working capital balances.
Market Risk Management The Company uses fixed and variable rate debt to partially finance budgeted expenditures. These agreements expose the Company to market risk related to changes in interest rates. The Company does not hold or issue derivative financial instruments for trading purposes. The carrying and fair value of these debt instruments have not changed materially since year-end. The Company also enters into various financial contracts to hedge its exposure to commodity price risk associated with anticipated future gas production. These contracts consist of price ceilings and floors (no-cost collars). During June and July 1998, the Company entered into two no-cost financial contracts ("collars") to hedge a total of 40 million cubic feet of natural gas per day ("MMcf/d"). The first natural gas contract for 35 MMcf/d covers the period from July 1998 16 DENBURY RESOURCES INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS to June 1999 and has a floor price of $1.90 per million British Thermal Units ("MMBtu") and a ceiling price of $2.96 per MMBtu. The second natural gas contract for five MMcf/d covers the period from September 1998 to August 1999 and has a floor price of $1.90 per MMBtu and a ceiling price of $2.89 per MMBtu. During December 1998, the Company extended these natural gas hedges through December 2000 by entering into an additional no-cost collar with a floor price of $1.90 per MMBtu and a ceiling price of $2.58 per MMBtu for the period of July 1999 through December 2000. This contract hedges 25 MMcf/d for the months of July and August 1999 and 30 MMcf/d for each month thereafter. The Company collected $539,000 on these financial contracts during the first quarter of 1999. These three contracts cover over 100% of the Company's current net natural gas production. Based on the futures market prices at March 31, 1999, the Company would not receive or pay any material amounts under these commodity contracts even though they covered more than the Company's production because prices at March 31, 1999 were within the contract collars. During the fourth quarter of 1998, the Company also modified certain of its oil sales contracts. The new contracts which are generally for a period of eighteen months, provide that approximately 45% of the Company's oil production as of January 31, 1999, has a price floor of between $8.00 and $10.00 per Bbl. This equates to a NYMEX oil price of between $15.00 and $16.00 per Bbl. As compensation for the price floors, the contracts provide that the premiums received on the posted prices decrease as oil prices rise. During March and April, 1999, the Company entered into two no-cost financial contracts to hedge a portion of its oil production. The first contract was a fixed price swap for 3,000 Bbls/d for the period of April through December, 1999 at a price of $14.24 per Bbl. The second contract was a collar to hedge 3,000 Bbls/d for the period of May, 1999 through December, 2000 with a floor price of $14.00 per Bbl and a ceiling price of $18.05 per Bbl. No funds were paid or received on these contracts during the first quarter of 1999. These two oil financial contracts hedge approximately 60% of the Company's current oil production. These contracts in effect at March 31, 1999 expire at various dates with the latest being December 2000. Gain or loss on these derivative commodity contracts would be offset by a corresponding gain or loss on the hedged commodity positions. Based on future market prices at March 31, 1999, the Company would expect to pay approximately $1.78 million on the oil hedge contracts and neither pay or receive anything on the natural gas hedge contracts. If the futures market prices were to increase 10% from those in effect at March 31, 1999, the Company would be required to make additional cash payments under the commodity contracts of approximately $1.95 million. If the futures market prices were to decline 10% from those in effect as March 31, 1999, the Company would receive cash payments under the natural gas commodity contacts of approximately $270,000 and reduce the payments due under the oil contracts by $1.36 million. Year 2000 Modifications Year 2000 issues relate to the ability of computer programs or equipment to accurately calculate, store or use dates after December 31, 1999. These dates can be handled or interpreted in a number of different ways, but the most common error is for the system to contain a two digit year which may cause the system to interpret the year 2000 as 1900. Errors of this type can result in system failures, miscalculations and the disruption of operations, including, among other things, a temporary inability to process transactions, send invoices or engage in similar normal business. In response to the Year 2000 issues, the Company has developed a strategic plan divided into the following phases: inventory, product compliance based on vendor representations and in-house testing, third party integration and development of a contingency plan. 17 DENBURY RESOURCES INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS All of the Company's processing needs are handled by third party systems, none of which have been substantially modified and all of which have been purchased within the last few years. Therefore, the Company's initial review of its in-house systems with regard to Year 2000 issues required an inventory of its systems and a review of the vendor representations. The Company has completed this initial review of its information systems. The licensor of the Company's core financial software system has certified that such software is Year 2000 compliant. Additionally, most other less critical software systems, various types of equipment and non-information technology have been reviewed, and based on vendor representations, are either compliant, will be compliant with the next forthcoming software release or are systems that are not date specific. The Company's non-information technology consists primarily of various oil and gas exploration and production equipment. The initial review has established that the primary non-information technology systems functions are either not date sensitive or are Year 2000 compliant based on vendor representations, and are therefore predicted to operate in customary manners when faced with Year 2000 issues. However, the Company has determined that in the event such systems are unable to address the Year 2000, employees can manually perform most, if not all, functions. In anticipation of Year 2000 issues, the Company is also evaluating the Year 2000 readiness status of its third party service suppliers. In addition to reviewing Year 2000 readiness statements issued by the third parties handling the Company's processing needs, to date the Company has received, and is relying upon, Year 2000 readiness reports periodically issued by its financial services and electrical service providers, vendors and purchasers of the Company's oil and natural gas products. The Company is continuing to review Year 2000 readiness of third party service suppliers and, based on their representations, does not currently foresee material disruptions in the Company's business as a result of Year 2000 issues. Unanticipated prolonged losses of certain services, such as electrical power, could cause material disruptions for which no economically feasible contingency plan has been developed. The Company is continuing to conduct in-house testing of the core systems and non-information technology, and to date either all systems tested have adequately addressed possible Year 2000 scenarios or the Company has a plan in place to remedy the deficiency. The Company expects testing to be completed during the second quarter of 1999. After the completion of its Year 2000 review and testing, the Company will further develop a contingency plan as required, including replacing or upgrading by December 31, 1999 any system incapable of addressing the Year 2000. This final step is expected to be completed during the third quarter of 1999. Although the effects of Year 2000 issues cannot be predicted with certainty, the Company believes that the potential impact, if any, of such events will, at most, require employees to manually complete otherwise automated tasks or calculations, other than those which might occur in a "worst case" scenario as described below, which the Company does not anticipate will occur. After considering Year 2000 effects on in-house operations, the Company does not expect that any additional training would be required to perform these tasks on a manual basis due to the level of experience of its personnel and the routine nature of the tasks being performed. If, based on the results of its in-house testing, the Company should determine that certain systems are not Year 2000 compliant and it appears as though the system is not likely to be compliant within a reasonable time period, the Company will either elect to perform the task manually or will attempt to purchase a different system for that particular task and convert before December 31, 1999. The Company does not believe that either option would impact the Company's ability to continue exploration, drilling, production or sales activities, although the tasks may require additional time and personnel to complete the same function or may require incremental time and personnel during 1999 for a conversion to a new system. 18 DENBURY RESOURCES INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company's core business consists primarily of oil and gas acquisition, development and exploration activities. The equipment which is deemed "mission critical" to the Company's activities requires external power sources such as electricity supplied by third parties. Although the Company maintains limited on-site secondary power sources such as generators, it is not economically feasible to maintain secondary power supplies for any major component of its "mission critical" equipment. Therefore, the most reasonably likely worst case Year 2000 scenario for the Company would involve a disruption of third party supplied electrical power, which would result in a substantial decrease in the Company's oil production. Such event could result in a business interruption that could materially affect the Company's operations, liquidity or capital resources. The Company has initiated the third party integration phase and will continue to have formal communications with its significant suppliers, business partners and key customers to determine the extent to which the Company is vulnerable to either the third parties' or its own failure to correct their Year 2000 issues. The Company has been communicating with such third parties to keep them informed of the Company's internal assessment of its Year 2000 review and plans. This portion of the review and discussions with third parties is expected to be completed during the second quarter of 1999. To date, approximately one-half of these third parties have provided certain favorable representations as to their Year 2000 readiness and received similar representations from the Company. There can be no guarantee that the systems of other companies on which the Company relies will be timely converted or that the conversion will be compatible with the Company's systems. However, after reviewing and estimating the effects of such events, the Company's contingency plan involves identifying and arranging for other vendors, purchasers and third party contractors to provide such services, if necessary, in order to maintain its normal operations. The Company has, and will continue to, utilize both internal and external resources to complete tasks and perform testing necessary to address the Year 2000 issue. The Company has not incurred, and does not anticipate that it will incur, any significant costs relating to the assessment and remediation of Year 2000 issues. Forward-Looking Information The statements contained in this Quarterly Report on Form 10-Q ("Quarterly Report") that are not historical facts, including, but not limited to, statements found in this Management's Discussion and Analysis of Financial Condition and Results of Operations, are forward-looking statements, as that term is defined in Section 21E of the Securities and Exchange Act of 1934, as amended, that involve a number of risks and uncertainties. Such forward-looking statements may be or may concern, among other things, capital expenditures, drilling activity, acquisition plans and proposals and dispositions, development activities, cost savings, production efforts and volumes, hydrocarbon reserves, hydrocarbon prices, liquidity, regulatory matters and competition. Such forward-looking statements generally are accompanied by words such as "plan," "estimate," "budgeted," "expect," "predict," "anticipate," "projected," "should," "assume," "believe" or other words that convey the uncertainty of future events or outcomes. Such forward-looking information is based upon management's current plans, expectations, estimates and assumptions and is subject to a number of risks and uncertainties that could significantly affect current plans, anticipated actions, the timing of such actions and the Company's financial condition and results of operations. As a consequence, actual results may differ materially from expectations, estimates or assumptions expressed in or implied by any forward-looking statements made by or on behalf of the Company. Among the factors that could cause actual results to differ materially are: fluctuations of the prices received or demand for the Company's oil and natural gas, the uncertainty of drilling results and reserve estimates, operating hazards, acquisition risks, requirements for capital, general economic conditions, competition and government regulations, as well as the risks and uncertainties discussed in this Quarterly Report, including, without limitation, the portions referenced above, and the uncertainties set forth from time to time in the Company's other public reports, filings and public statements. 19 DENBURY RESOURCES INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In assessing Year 2000 issues, the Company has relied on certain representations of third parties and has attempted to predict and address all possible scenarios which could arise. However, uncertainties exist which could cause Year 2000 effects to be more significant than the Company anticipates. Such uncertainties include the success of the Company in identifying systems and programs that are not Year 2000 compliant, the nature and amount of programming required to up-grade or replace each of the affected programs, the availability, rate and magnitude of related labor and consulting costs and the success of the Company's vendors in addressing the Year 2000 issue. Item 3. Quantitative and Qualitative Disclosures about Market Risk The information required by Item 3 is set forth under "Market Risk Management" in Management's Discussion and Analysis of Financial Condition and Results of Operations. 20 Part II. Other Information Item 2. Changes in Securities and Use of Proceeds. (a) In connection with the move of corporate domicile of the Company from Canada to Delaware, the Delaware Certificate of Incorporation and Bylaws of the Company which are included in this report as Exhibits 3(a) and 3(b) now define the rights of the holders of the Company's shares of common stock, par value $.001 per share. The effects of the modification of the rights of the Company's common stockholders resulting from the move of domicile are described in detail in the Company's Registration Statement No. 333-69577 on Form S-4, specifically the sections of the Proxy Statement/Prospectus dated March 19, 1999 contained therein under the captions "Moving the Corporate Domicile--Effects of the Move of Corporate Domicile and Merger" and "--Comparison of Shareholders' Rights," and under "Description of Capital Stock", which are incorporated herein by reference and made a part hereof. By means of a Supplemental Indenture dated April 21, 1999, which is included in this report as Exhibit 4(a), Denbury Resources Inc., a Delaware corporation, has become directly liable for the 9% Senior Subordinated Notes Due 2008 originally issued in February 1998 by its former wholly-owned subsidiary Denbury Management, Inc., a Texas corporation. Denbury Management, Inc. was merged into the Delaware corporation in connection with the Company's move of corporate domicile, all effective April 21, 1999. Accordingly, Denbury Resources Inc., a Delaware corporation, has succeeded to and assumed all of the obligations relating to these Notes pursuant to the Supplemental Indenture. (c) On April 21, 1999, the Company closed the sale of 18,552,876 shares of common stock, par value $.001 per share, of Denbury Resources Inc., a Delaware corporation, to affiliates of the Texas Pacific Group, the Company's largest shareholder, for U.S. $100 million, or $5.39 per share. The transaction was described in detail in the Company's Proxy Statement/Prospectus dated March 19, 1999 contained as part of Registration Statement No. 333-69577 on Form S-4 first filed with the Securities and Exchange Commission ("SEC") on December 23, 1998. There was no underwriter engaged in connection with such sale. This sale was made in reliance upon an exemption from the registration provisions of the Securities Act of 1933, as amended, provided in Section 4(2) thereof, based on the sophistication of the purchasers and their extensive knowledge of the Company. This sale was approved by the stockholders of the Company at a special meeting of stockholders held on April 20, 1999. Item 4. Submission of Matters to a Vote of Security Holders. On April 20, 1999, the Company held a special meeting of stockholders to (i) approve the move of the Company's corporate domicile from Canada to Delaware, (ii) approve the sale of 18,552,876 of Denbury's common shares to affiliates of the Texas Pacific Group and (iii) increase the number of common shares available for issuance under the Company's employee stock purchase and stock option plans. All of these matters are described in detail in the Company's Proxy Statement/Prospectus dated March 19, 1999 contained in Registration Statement No. 333-69577 on Form S-4. All of the proposals before the special meeting were approved by stockholders of the Company as follows:
Absentions or Votes Votes Broker For Against Non-Votes ---------- --------- ----------- Move of corporate domicile 18,128,069 1,413,929 2,540 Sale of shares to TPG affiliates (1) 10,781,517 41,383 200 Additional shares under employee stock purchase plan 19,339,214 198,453 6,871 Additional shares under stock option 15,488,648 4,014,664 41,226 plan (1) Excludes 8,721,438 shares held by TPG.
21 Item 6. Exhibits and Reports on Form 8-K during the First Quarter of 1999 Exhibits: 3(a)* Certificate of Incorporation of Denbury Resources Inc. filed with the Delaware Secretary of State April 20, 1999. 3(b)* Bylaws of Denbury Resources Inc., a Delaware corporation, adopted April 20, 1999. 4(a)* First Supplemental Indenture dated as of April 21, 1999, between Denbury Resources Inc., a Delaware corporation, and Chase Bank of Texas, National Association, as Trustee, relating to Denbury Management, Inc.'s 9% Senior Subordinated Notes due 2008. 10(a) Fourth Amendment to First Restated Credit Agreement, by and among Denbury Management, as borrower, Denbury Resources Inc., as guarantor, NationsBank of Texas, N.A., as administrative agent, and NationsBank of Texas, N.A., as bank, entered into as of February 19, 1999 (incorporated by reference to Exhibit 10(m) of the Registrant's Form 10-K for the year ended December 31, 1998). 10(b)* Fifth amendment to First Restated Credit Agreement dated April 21, 1999 between the Company and NationsBank of Texas, N.A., as agent, and each of the financial institutions described on the signature page therein. 27* Financial Data Schedule (EDGAR version only). *Filed herewith. Reports on Form 8-K: None 22 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DENBURY RESOURCES INC. (Registrant) By: /s/ Phil Rykhoek ------------------------------- Phil Rykhoek Chief Financial Officer By: /s/ Mark Allen ------------------------------- Mark Allen Chief Accounting Officer & Controller Date: May 11, 1999 23 EX-3.(I) 2 CERTIFICATE OF INCORPORATION EXHIBIT 3(a) Certificate of Incorporation CERTIFICATE OF INCORPORATION OF DENBURY RESOURCES INC. The undersigned, a natural person acting as incorporator of a corporation under the General Corporation Law of the State of Delaware, as the same exists or may hereafter from time to time be amended (the "DGCL"), hereby makes this Certificate of Incorporation for such corporation. ARTICLE I NAME The name of the corporation is Denbury Resources Inc. (the "Corporation"). ARTICLE II REGISTERED OFFICE AND AGENT The address of its registered office in the State of Delaware is 1209 Orange Street, Wilmington, Delaware 19801, County of New Castle. The name of the registered agent of the Corporation at such address is The Corporation Trust Company. ARTICLE III PURPOSES AND STOCKHOLDER LIABILITY (a) Purposes. The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful business, act or activity for which corporations may be organized under the DGCL. (b) Stockholder Liability. The private property of the stockholders shall not be subject to the payment of corporate debts to any extent whatsoever. ARTICLE IV AUTHORIZED CAPITAL STOCK The aggregate number of shares of all classes of stock which the Corporation shall have authority to issue is 125,000,000 shares, consisting of: (i) 100,000,000 shares of common stock, par value $.001 per share (the "Common Stock"), and (ii) 25,000,000 shares of preferred stock, par value $.001 per share (the "Preferred Stock"). Shares of any class of capital stock of the Corporation may be issued for such consideration and for such corporate purposes as the Board of Directors of the Corporation (the "Board of Directors") may from time to time determine. Each share of Common Stock shall be entitled to one vote. A. Preferred Stock. The Preferred Stock may be divided into and issued from time to time in one or more series as may be fixed and determined by the Board of Directors. The relative rights and preferences of the Preferred Stock of each series shall be such as shall be stated in any resolution or resolutions adopted by the Board of Directors setting 3(a) - 1 forth the designation of the series and fixing and determining the relative rights and preferences thereof (a "Directors' Resolution"). The Board of Directors is hereby authorized to fix and determine the powers, designations, preferences and relative, participating, optional or other rights, including, without limitation, voting powers, full or limited, preferential rights to receive dividends or assets upon liquidation, rights of conversion or exchange into Common Stock, Preferred Stock of any series or other securities, any right of the Corporation to exchange or convert shares into Common Stock, Preferred Stock of any series or other securities, or redemption provision or sinking fund provisions, as between series and as between the Preferred Stock or any series thereof and the Common Stock, and the qualifications, limitations or restrictions thereof, if any, all as shall be stated in a Directors' Resolution, and the shares of Preferred Stock or any series thereof may have full or limited voting powers, or be without voting powers, all as shall be stated in the Directors' Resolution. Except where otherwise set forth in the Directors' Resolution providing for the issuance of any series of Preferred Stock, the number of shares comprising such series may be increased or decreased (but not below the number of shares then outstanding) from time to time by like action of the Board of Directors. The shares of Preferred Stock of any one series shall be identical with the other shares in the same series in all respects except as to the dates from and after which dividends thereon shall cumulate, if cumulative. B. Reacquired Shares of Preferred Stock. Shares of any series of any Preferred Stock that have been redeemed (whether through the operation of a sinking fund or otherwise), purchased by the Corporation, or which, if convertible or exchangeable, have been converted into, or exchanged for, shares of stock of any other class or classes or any evidences of indebtedness shall have the status of authorized and unissued shares of Preferred Stock and may be reissued as a part of the series of which they were originally a part or may be reclassified and reissued as part of a new series of Preferred Stock or as part of any other series of Preferred Stock, all subject to the conditions or restrictions on issuance set forth in the Directors' Resolution providing for the issuance of any series of Preferred Stock and to any filing required by law. C. Increase in Authorized Preferred Stock. The number of authorized shares of Preferred Stock may be increased or decreased by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote without the separate vote of holders of Preferred Stock as a class. ARTICLE V EXISTENCE The existence of the Corporation is to be perpetual. ARTICLE VI NO PREEMPTIVE RIGHTS No stockholder shall be entitled, as a matter of right, to subscribe for or acquire additional, unissued or treasury shares of any class of capital stock of the Corporation whether now or hereafter authorized, or any bonds, debentures or other securities convertible into, or carrying a right to subscribe to or acquire such shares, but any shares or other securities convertible into, or carrying a right to subscribe to or acquire such shares may be issued or disposed of by the Board of Directors to such persons and on such terms as in its discretion it shall deem advisable. 3(a) - 2 ARTICLE VII NO CUMULATIVE VOTING At each election of directors, every stockholder entitled to vote at such election shall have the right to vote in person or by proxy the number of shares owned by him for as many persons as there are directors to be elected and for whose election he has a right to vote. No stockholder shall have the right to cumulate his votes in any election of directors. ARTICLE VIII BOARD OF DIRECTORS A. Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the authority and powers conferred upon the Board of Directors by the DGCL or by the other provisions of this Certificate of Incorporation (this "Certificate of Incorporation"), the Board of Directors is hereby authorized and empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject to the provisions of the DGCL, this Certificate of Incorporation and the Bylaws of the Corporation (the "Bylaws"); provided, however, that no Bylaws hereafter adopted by the stockholders of the Corporation, or any amendments thereto, shall invalidate any prior act of the Board of Directors that would have been valid if such Bylaws or amendment had not been adopted. B. Number, Election and Terms. The number of directors which shall constitute the whole Board of Directors shall be fixed from time to time by the members of the Board of Directors then in office subject to Section D(2) of this Article VIII. Each director shall hold office until the next annual meeting of stockholders and shall serve until his successor shall have been duly elected and qualified or until his earlier death, resignation or removal. Election of directors need not be by written ballot. C. Bylaws. Subject to Section D(3) of this Article VIII, the Board of Directors is expressly authorized to adopt, amend or repeal the Bylaws, or adopt new Bylaws, without any action on the part of the stockholders, except as may be otherwise provided by applicable law or the Bylaws. D. Special Voting Requirements. The following matters shall be decided by a majority of not less than 2/3 of the members of the Board of Directors of the Corporation voting in favor of a resolution in respect of any of the following matters: (1) an acquisition having a purchase price in excess of 20% of the Assets (as herein defined) of the Corporation or a disposition having a sale price in excess of 20% of the Assets of the Corporation; (2) any increase or decrease in the total number of members of the Board of Directors of the Corporation; (3) any amendment to the Certificate of Incorporation or Bylaws of the Corporation; (4) any issuance of equity securities or securities convertible into equity securities of the Corporation (other than pursuant to any rights, options, warrants or convertible or exchangeable securities outstanding prior to the date of this Certificate of Incorporation is made effective, and other than pursuant to any stock option plan or 3(a) - 3 employee benefit plans of the Corporation existing from time to time); (5) the creation of any series of Preferred Stock and the powers, designations, preferences and relative, participating, optional or other rights, and qualifications, limitations or restrictions thereof attached thereto; any change in the powers, designations, preferences and relative, participating, optional or other rights, and qualifications, limitations or restrictions thereof attached to unissued shares of any series; or (6) the issuance of any debt securities in excess of 10% of the Assets of the Corporation and (i) any borrowings by the Corporation, other than advances against existing credit lines and (ii) any increase in the existing credit lines of the Corporation, in each case, in excess of 10% of the Assets of the Corporation in respect of which the Corporation is required to grant security for the debt obligations or any borrowed money. For the purposes of subsections (1) and (6) above, "Assets" shall mean the total assets of the Corporation as reported on the consolidated balance sheet at the end of the last fiscal quarter of the Corporation, prepared in accordance with generally accepted accounting principles. ARTICLE IX INDEMNIFICATION A. Mandatory Indemnification. Each person who at any time is or was a director or officer of the Corporation, and is threatened to be or is made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative (a "Proceeding"), by reason of the fact that such person is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, partner, venturer, proprietor, member, employee, trustee, agent or similar functionary of another domestic or foreign corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other for-profit or non-profit enterprise, whether the basis of a Proceeding is an alleged action in such person's official capacity or in another capacity while holding such office, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, or any other applicable law as may from time to time be in effect (but, in the case of any amendment to such law or enactment of new law, only to the extent that such amendment or enactment permits the Corporation to provide broader indemnification rights than such law prior to such amendment or enactment permitted the Corporation to provide), against all expense, liability and loss (including, without limitation, court costs and attorneys' fees, judgments, fines, excise taxes or penalties, and amounts paid or to be paid in settlement) actually and reasonably incurred or suffered by such person in connection with a Proceeding, and such indemnification shall continue as to a person who has ceased to be a director or officer of the Corporation or a director, officer, partner, venturer, proprietor, member, employee, trustee, agent or similar functionary of another domestic or foreign corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other for-profit or non-profit enterprise, and shall inure to the benefit of such person's heirs, executors and administrators. The Corporation's obligations under this Section A include, but are not limited to, the convening of any meeting, and the consideration of any matter thereby, required by statute in order to determine the eligibility of any person for indemnification. B. Advancement of Expenses. Expenses incurred by a director or officer of the Corporation in defending a Proceeding shall be paid by the Corporation in advance of the final disposition of such Proceeding to the fullest extent permitted by, and only in compliance with, the DGCL or any other applicable laws as may from time to time be in effect, including, without limitation, any provision of the DGCL which requires, as a condition precedent to such expense advancement, the delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all 3(a) - 4 amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under Section A of this Article IX or otherwise. Repayments of all amounts so advanced shall be upon such terms and conditions, if any, as the Corporation's Board of Directors deems appropriate. C. Vesting. The Corporation's obligation to indemnify and to prepay expenses under Sections A and B of this Article IX shall arise, and all rights granted to the Corporation's directors and officers hereunder shall vest, at the time of the occurrence of the transaction or event to which a Proceeding relates, or at the time that the action or conduct to which such Proceeding relates was first taken or engaged in (or omitted to be taken or engaged in), regardless of when such Proceeding is first threatened, commenced or completed. Notwithstanding any other provision of this Certificate of Incorporation or the Bylaws, no action taken by the Corporation, either by amendment of this Certificate of Incorporation or the Bylaws or otherwise, shall diminish or adversely affect any rights to indemnification or prepayment of expenses granted under Sections A and B of this Article IX which shall have become vested as aforesaid prior to the date that such amendment or other corporate action is effective or taken, whichever is later. D. Enforcement. If a claim under Section A or Section B or both Sections A and B of this Article IX is not paid in full by the Corporation within thirty (30) days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit in a court of competent jurisdiction against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall also be entitled to be paid the expense of prosecuting such claim, including attorneys' fees. It shall be a defense to any such suit (other than a suit brought to enforce a claim for expenses incurred in defending any Proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the DGCL or other applicable law to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. The failure of the Corporation (including its Board of Directors, independent legal counsel, or stockholders) to have made a determination prior to the commencement of such suit as to whether indemnification is proper in the circumstances based upon the applicable standard of conduct set forth in the DGCL or other applicable law shall neither be a defense to the action nor create a presumption that the claimant has not met the applicable standard of conduct. The termination of any Proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal Proceeding, had reasonable cause to believe that his conduct was unlawful. E. Nonexclusive. The indemnification provided by this Article IX shall not be deemed exclusive of any other rights to which a person seeking indemnification may be entitled under any statute, bylaw, other provisions of this Certificate of Incorporation, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office. F. Permissive Indemnification. The rights to indemnification and prepayment of expenses which are conferred to the Corporation's directors and officers by Sections A and B of this Article IX may be conferred upon any employee or agent of the Corporation if, and to the extent, authorized by the Board of Directors. G. Insurance. The Corporation shall have power to purchase and maintain insurance, at its expense, on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, partner, venturer, proprietor, member, employee, trustee, agent or similar functionary of another domestic or foreign corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other for-profit or non-profit enterprise against any expense, liability or loss asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the provisions of this Article IX, the Corporation's Bylaws, the DGCL or other applicable law. 3(a) - 5 H. Implementing Arrangements. Without limiting the power of the Corporation to procure or maintain insurance or other arrangement on behalf of any of the persons as described in Section G of this Article IX, the Corporation may, for the benefit of persons eligible for indemnification by the Corporation, (i) create a trust fund, (ii) establish any form of self-insurance, (iii) secure its indemnity obligation by grant of a security interest or other lien on the assets of the Corporation, or (iv) establish a letter of credit, guaranty or surety arrangement. ARTICLE X LIMITED DIRECTOR LIABILITY No director of the Corporation shall be personally liable to the Corporation or to its stockholders for monetary damages for breach of fiduciary duty as a director, provided that this Article X shall not eliminate or limit the liability of a director: (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, as it may hereafter be amended from time to time, or (iv) for any transaction from which the director derived an improper personal benefit. If the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended. No amendment to or repeal of this Article X will apply to, or have any effect on, the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of the director occurring prior to such amendment or repeal. ARTICLE XI BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS The Corporation shall not be governed by Section 203 of the DGCL. ARTICLE XII INSPECTION RIGHTS OF BONDHOLDERS The holders of any bonds, debentures or other obligations issued or to be issued by the Corporation shall have the same right of inspection of the Corporation's books, accounts and other records which the stockholders of Corporation have. 3(a) - 6 ARTICLE XIII INCORPORATOR The name and mailing address of the incorporator: Phil Rykhoek Denbury Resources Inc. 5100 Tennyson Parkway, Suite 3000 Plano, Texas 75024 ARTICLE XIV DOMESTICATION The Corporation was first incorporated in the Province of Manitoba (Canada) as a specially limited company on March 7, 1951. On February 16, 1968, by supplementary letters patent, the Corporation was converted to a limited company. On September 13, 1984, the Corporation was continued under the Canada Business Corporations Act. Simultaneously with the filing of this Certificate of Incorporation, the Corporation has filed its Certificate of Domestication with the Secretary of State of the State of Delaware in order to domesticate itself in the State of Delaware. This Certificate of Incorporation amends and supersedes in all respects the previously adopted Articles of Continuance, as amended to date, of the Corporation. Each common share of the Corporation outstanding on the effective date of this Certificate of Incorporation is hereby converted into one share of the Common Stock without any further action by the Corporation or any stockholder, and the currently outstanding share certificates representing such common shares outstanding on the effective date of this Certificate of Incorporation shall represent one share of the Common Stock until such share certificate is surrendered for transfer or reissue. I, the undersigned, being the incorporator, for the purpose of forming a corporation pursuant to the DGCL, do make this Certificate of Incorporation, hereby declaring under the penalties of perjury that this is my act and deed and that the facts stated herein are true, and accordingly have executed this Certificate of Incorporation effective as of April 20, 1999. Phil Rykhoek, Sole Incorporator 3(a) - 7 EX-3.(II) 3 BY-LAWS OF DENBURY RESOURCES INC. EXHIBIT 3(b) BY-LAWS OF DENBURY RESOURCES INC A DELAWARE CORPORATION DENBURY RESOURCES INC. BYLAWS ARTICLE I OFFICES Section 1.1. Registered Office. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 1.2. Other Offices. The corporation may also have offices at such other places, either within or without the State of Delaware, as the board of directors may from time to time to determine or as the business of the corporation may require. ARTICLE 2 MEETINGS OF STOCKHOLDERS Section 2.l. Place of Meetings. All meetings of the stockholders shall be held at the office of the corporation or at such other places as may be fixed from time to time by the board of directors, either within or without the State of Delaware, and stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2.2. Annual Meetings. Annual meetings of stockholders, commencing with the year 1999, shall be held at the time and place to be selected by the board of directors. At the meeting, the stockholders shall elect a board of directors and transact such other business as may properly be brought before the meeting. The board of directors acting by resolution may postpone and reschedule any previously scheduled annual meeting of stockholders. Nominations of persons for election to the board of directors of the corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (a) pursuant to the notice of meeting, (b) by or at the direction of the board of directors, or (c) by any stockholder of the corporation who was a stockholder of record at the record date for the meeting, who is entitled to vote at the meeting. Section 2.3. Notice of Annual Meeting. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. Section 2.4. Voting List. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 2.5. Special Meetings. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, shall be called by the board of directors or by 3(b) - 1 holders of capital stock representing at least twenty-five percent (25%) of the aggregate voting power of the issued and outstanding capital stock of the corporation. The board of directors acting by resolution may postpone and reschedule any previously scheduled special meeting of stockholders called by the board of directors, but shall have such right with respect to any special meeting called by stockholders of the corporation only with the consent of such shareholders calling the meeting. Section 2.6. Notice of Special Meetings. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting, to each stockholder entitled to vote at such meeting. Business transacted at any special meeting of the stockholders shall be limited to the purposes stated in the notice. Section 2.7. Quorum. The holders of one-third (1/3) of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business, except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 2.8. Order of Business. At each meeting of the stockholders, one of the following persons, in the order in which they are listed (and in the absence of the first, the next, and so on), shall serve as chairman of the meeting: chairman of the board, president, vice presidents (in the order of their seniority if more than one) and secretary. The order of business at each such meeting shall be as determined by the chairman of the meeting. The chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation, the establishment of procedures for the maintenance of order and safety, limitations on the time allotted to questions or comments on the affairs of the corporation, restrictions on entry to such meeting after the time prescribed for the commencement thereof, and the opening and closing of the voting polls. Section 2.9. Majority Vote. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provision of the statutes or of the certificate of incorporation, a different vote is required, in which case such express provision shall govern and control the decision of such question. Section 2.10. Method of Voting. Unless otherwise provided in the certificate of incorporation, each stockholder shall at every meeting of the stockholders be entitled to one (1) vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three (3) years from its date, unless the proxy provides for a longer period. Section 2.11. Action Without Meeting. Unless otherwise restricted by the certificate of incorporation, any action required or permitted to be taken at any meeting of the stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. The writing or writings shall be delivered to the corporation by delivery to its registered office in Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. 3(b) - 2 ARTICLE 3 DIRECTORS Section 3.1. General Powers. The business and affairs of the corporation shall be managed by or under the direction of the board of directors, which may exercise all such powers of the corporation and do all such lawful acts and things as are not by law or by the certificate of incorporation of the corporation or by these bylaws directed or required to be exercised or done by the stockholders. Section 3.2. Number of Directors. Except as otherwise fixed by the certificate of incorporation of the corporation, the board of directors shall have not less than three (3) nor more than fifteen (15) directors. The number of directors constituting the board shall be such number as from time to time shall be specified by resolution of the board of directors; provided, however, no director's term shall be shortened by reason of a resolution reducing the number of directors. Section 3.3. Election Qualification and Term of Office of Directors. Directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws, wherein other qualifications for directors may be prescribed. Each director, including a director elected to fill a vacancy, shall hold office until his successor is elected and qualified or until his earlier resignation or removal. Elections of directors need not be by written ballot. Section 3.4. Regular Meetings. Written notice of the regular meetings of the board of directors stating the place, date and hour of any of the regular meetings shall be given to each director not less than two (2) days before the date of any such meeting. Section 3.5. Special Meetings. Special meetings of the board may be called by the chairman of the board or the president, and shall be called by the president or secretary on the written request of two (2) directors unless the board consists of only a sole director, in which case special meetings shall be called by the president or secretary in like manner and on like notice on the written request of the sole director. Section 3.6. Quorum, Majority Vote. At all meetings of the board, a majority of the entire board of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum shall not be present at any meeting of the board of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 3.7. Action Without Meeting. Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the board or committee. Section 3.8. Telephone and Similar Meetings. Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of the board of directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. Section 3.9. Notice of Meetings. Notice of each meeting of the board shall be given to each director by telegraph, facsimile, electronic mail, overnight delivery or be given personally or by telephone, at least two (2) days before the 3(b) - 3 meeting is to be held. Notice need not be given to any director who shall, either before or after the meeting, submit a signed waiver of such notice or who shall attend such meeting without protesting, prior to or at its commencement, the lack of notice to such director. Every such notice shall state the time and place but need not state the purpose of the meeting. Section 3.10. Rules and Regulations. The board of directors may adopt such rules and regulations not inconsistent with the provisions of law, the certificate of incorporation of the corporation or these bylaws for the conduct of its meetings and management of the affairs of the corporation as the board may deem proper. Section 3.11. Resignations. Any director of the corporation may at any time resign by giving written notice to the board of directors, the chairman of the board, the president or the secretary of the corporation. Such resignation shall take effect at the time specified therein or, if the time be not specified, upon receipt thereof; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 3.12. Removal of Directors. Unless otherwise restricted by statute or by the certificate of incorporation, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. Section 3.13. Vacancies. Subject to the rights of the holders of any class or series of stock having a preference over the common stock of the corporation as to dividends or upon liquidation, any vacancies on the board of directors resulting from death, resignation, removal or other cause, shall only be filled by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the board of directors, or by a sole remaining director, and newly created directorships resulting from any increase in the number of directors shall be filled by the board of directors, or if not so filled, by the stockholders at the next annual meeting thereof or at a special meeting called for that purpose in accordance with Section 2.5 of these bylaws. Any director elected in accordance with the preceding sentence of this Section 3.13 shall hold office for the remainder of the full term of any class of directors in which the new directorship was created or the vacancy occurred and until such successor shall have been elected and qualified. Section 3.14. Compensation of Directors. Unless otherwise restricted by the certificate of incorporation or these bylaws, the board of directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. ARTICLE 4 EXECUTIVE AND OTHER COMMITTEES Section 4.1. Executive Committee. The board of directors may designate annually one (1) or more of its members to constitute members or alternate members of an executive committee, which committee shall have and may exercise, between meetings of the board, all the powers and authority of the board in the management of the business and affairs of the corporation, including, if such committee is so empowered and authorized by resolution adopted by a majority of the entire board, the power and authority to declare a dividend and to authorize the issuance of stock, and may authorize the seal of the corporation to be affixed to all papers which may require it, except that the executive committee shall not have such power or authority with reference to: (a) amending the certificate of incorporation of the corporation; (b) adopting an agreement of merger or consolidation involving the corporation; (c) recommending to the stockholders the sale, lease or exchange of all or substantially all of the property and 3(b) - 4 assets of the corporation; (d) recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution; (e) adopting, amending or repealing any Bylaw; (f) filling vacancies on the board or on any committee of the board, including the executive committee; (g) fixing the compensation of directors for serving on the board or on any committee of the board, including the executive committee; or (h) amending or repealing any resolution of the board which by its terms may be amended or repealed only by the board. Section 4.2. Other Committees. The board of directors may designate from among its members one or more other committees, each of which shall, except as otherwise prescribed by law, have such authority of the board as may be specified in the resolution of the board designating such committee. A majority of all the members of such committee may determine its action and fix the time and place of its meetings, unless the board shall otherwise provide. The board shall have the power at any time to change the membership of, to increase or decrease the membership of, to fill all vacancies in and to discharge any such committee, or any member thereof, either with or without cause. Section 4.3. Procedure; Meetings; Quorum. Regular meetings of the executive committee or any other committee of the board of directors may be held at such times and places as shall be fixed by resolution adopted by a majority of the members thereof. Special meetings of the executive committee or any other committee of the board shall be called at the request of any member thereof. Notice of each meeting of the executive committee or any other committee of the board shall be given to each member of such committee by mailing written notice, addressed to each member's residence, usual place of business or such other place as designated by the member in writing provided to the secretary of the corporation or shall be sent to such member at such place by telegraph, facsimile, electronic mail or overnight delivery or to be given personally or by telephone at least two (2) days before the meeting is to be held. Notice need not be given to any member who shall, either before or after the meeting, submit a signed waiver of such notice or who shall attend such meeting without protesting, prior to or at its commencement, the lack of such notice to such member. Every such notice shall state the time and place but need not state the purpose of the meeting. Any special meeting of the executive committee or any other committee of the board shall be a legal meeting without any notice thereof having been given, if all the members thereof shall be present thereat. Notice of any adjourned meeting of any committee of the board need not be given if scheduled at the original meeting. The executive committee or any other committee of the board may adopt such rules and regulations not inconsistent with the provisions of law, the certificate of incorporation of the corporation or these bylaws for the conduct of its meetings as the executive committee or any other committee of the board may deem proper. A majority of the executive committee or any other committee of the board shall constitute a quorum for the transaction of business at any meeting, and the vote of a majority of the members thereof present at any meeting at which a quorum is present shall be the act of such committee. The executive committee or any other committee of the board of directors shall keep written minutes of its proceedings, a copy of which is to be filed with the secretary of the corporation, and shall report on such proceedings to the board. ARTICLE 5 NOTICES Section 5.l. Method. Except as otherwise specifically provided herein or required by law, all notices required to be given to any director, officer or stockholder shall be given in writing, by hand delivery or mail, addressed to such director, officer or stockholder, at his or her address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be hand delivered or deposited in the United States mail. Except as otherwise required by law, notice to directors shall also be given in accordance with Section 3.9 of these bylaws. 3(b) - 5 Section 5.2. Waiver. Whenever any notice is required to be given under the provisions of the statutes or of the certificate of incorporation or of these bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE 6 OFFICERS Section 6.1. Election, Qualification. The officers of the corporation shall be chosen by the board of directors and shall be a president, one or more vice presidents, a secretary and a treasurer. The board of directors may also choose a chairman of the board, one or more assistant secretaries and assistant treasurers and such other officers and agents as it shall deem necessary. Any number of offices may be held by the same person, unless the certificate of incorporation or these bylaws otherwise provide. Section 6.2. Salary. The salaries of all officers and agents of the corporation shall be fixed by the board of directors. Section 6.3. Term, Removal. The officers of the corporation shall hold office until their successors are chosen and qualify. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the board of directors. Any vacancy occurring in any office of the corporation shall be filled by the board of directors. Section 6.4. Resignation. Subject at all times to the right of removal as provided in Section 6.3 of these bylaws, any officer may resign at any time by giving notice to the board of directors, the president or the secretary of the corporation. Any such resignation shall take effect at the date of receipt of such notice or at any later date specified therein; provided that the president or, in the event of the resignation of the president, the board of directors may designate an effective date for such resignation which is earlier than the date specified in such notice but which is not earlier than the date of receipt of such notice; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 6.5. Vacancies. A vacancy in any office because of death, resignation, removal or any other cause may be filled for the unexpired portion of the term in the manner prescribed in these bylaws for election to such office. Section 6.6. Chairman of the Board. The chairman of the board shall, if there be such an officer, preside at meetings of the board of directors and at meetings of the stockholders. The chairman of the board shall counsel with and advise the president and perform such other duties as the president or the board or the executive committee may from time to time determine. Except as otherwise provided by resolution of the board, the chairman of the board shall be ex-officio a member of all committees of the board. The chairman of the board may sign and execute in the name of the corporation deeds, mortgages, bonds, contracts or other instruments authorized by the board or any committee thereof empowered to authorize the same. Section 6.7. President. The president shall be the chief executive officer of the corporation, shall preside, if present, and in the absence of the chairman of the board, at all meetings of the board of directors and at all meetings of the stockholders, shall have general and active management of the business of the corporation and shall see that all orders and resolutions of the board of directors are carried into effect. He shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. Section 6.8. Vice Presidents. In the absence of the president and the chairman of the board or, in the event of their 3(b) - 6 inability or refusal to act, the vice president (or in the event there be more than one vice president, the vice presidents in the order designated by the directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. The vice presidents shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. Section 6.9. Secretary. The secretary shall attend all meetings of the board of directors and all meetings of the stockholders and record all the proceedings of the meetings of the corporation and of the board of directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of directors, and shall perform such other duties as may be prescribed by the board of directors or president, under whose supervision he shall be. He shall have custody of the corporate seal of the corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. Section 6.10. Assistant Secretary. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. Section 6.11. Treasurer. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors. He shall disburse the funds of the corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the president and the board of directors, at its regular meetings, or when the board of directors so requires, an account of all his transactions as treasurer and of the financial condition of the corporation. If required by the board of directors, he shall give the corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. Section 6.12. Assistant Treasurer. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. ARTICLE 7 INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS Section 7.1. Indemnification. The corporation shall indemnify any person who is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another entity, as provided in the certificate of incorporation. 3(b) - 7 Section 7.2. Definitions of Certain Terms. For purposes of indemnification pursuant to the certificate of incorporation or this Article 7, references to "the corporation shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article 7 with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article 7, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Article 7. ARTICLE 8 CERTIFICATES OF STOCK Section 8.1. Certificates. Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by, the chairman or vice chairman of the board of directors, or the president or a vice president and the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation, certifying the number of shares owned by him in the corporation. Section 8.2. Facsimile Signatures. Any of or all the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Section 8.3. Lost Certificates. The board of directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 8.4. Transfers of Stock. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 8.5. Fixing Record Date. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to any corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any changes, conversion or exchange of stock or for any other lawful purpose, the board of directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, more than ten days after the date of adoption of the Board resolution for actions 3(b) - 8 by written consent, or more than sixty days prior to any other action. In no event shall the record date precede the date of adoption of the applicable Board resolution. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting, provided, however, that the board of directors may fix a new record date for the adjourned meeting. Section 8.6. Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE 9 AFFILIATED TRANSACTIONS Section 9.1. Validity. Except as otherwise provided for in the certificate of incorporation, if Section 9.2 of these bylaws is satisfied, no contract or transaction between the corporation and any of its directors, officers or security holders, or any corporation, partnership, association or other organization in which any of such directors, officers or security holders are directly or indirectly financially interested, shall be void or voidable solely because of this relationship, or solely because of the presence of the director, officer or security holder at the meeting authorizing the contract or transaction, or solely because of his or their participation in the authorization of such contract or transaction or vote at the meeting therefor, whether or not such participation or vote was necessary for the authorization of such contract or transaction. Section 9.2. Disclosure, Approval; Fairness. Section 9.1 shall apply only if: (a) the material facts as to the relationship or interest and as to the contract or transaction are disclosed or are known: (i) to the board of directors (or committee thereof) and it nevertheless in good faith authorizes or ratifies the contract or transaction by a majority of the directors present, each such interested director to be counted in determining whether a quorum is present but not in calculating the number necessary to carry the vote; or (ii) to the stockholders and they nevertheless authorize or ratify the contract or transaction by a majority of the shares present at a meeting considering such contract or transaction, each such interested person (stockholder) to be counted in determining whether a quorum is present but not in calculating the number necessary to carry the vote; or (b) the contract or transaction is fair to the corporation as of the time it is authorized, approved or ratified by the board of directors (or committee thereof) or the stockholders. Section 9.3. Nonexclusive. This provision shall not be construed to invalidate a contract or transaction which would be valid in the absence of this provision. 3(b) - 9 ARTICLE 10 GENERAL PROVISIONS Section 10.1. Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Section 10.2. Reserves. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. Section 10.3. Checks. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. Section 10.4. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the board of directors. Section 10.5. Seal. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed, affixed, reproduced or otherwise. ARTICLE 11 AMENDMENTS Section 11.1. Amendments. These bylaws may be altered, amended or repealed or new bylaws may be adopted by a majority of not less than 2/3 of the members of the board of directors voting in favor thereof, at any meeting of the board of directors if notice of such alteration, amendment, repeal or adoption of new bylaws be contained in the notice of such meeting. The stockholders of the corporation shall have the power to adopt, amend or repeal any provisions of the bylaws. Phil Rykhoek, Secretary 3(b) - 10 EX-4 4 FIRST SUPPLEMENTAL INDENTURE EXHIBIT 4(a) FIRST SUPPLEMENTAL INDENTURE DENBURY MANAGEMENT, INC., Issuer DENBURY RESOURCES INC., Guarantor 9% Senior Subordinated Notes Due 2008 FIRST SUPPLEMENTAL INDENTURE Dated as of April 21, 1999 CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, As Trustee 4(a) - 1 THIS FIRST SUPPLEMENTAL INDENTURE, dated as of April 21, 1999, between DENBURY RESOURCES INC., a Delaware corporation (the "Company"), and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as Trustee (the "Trustee"), amends and supplements the Indenture (as defined below). RECITALS WHEREAS, Denbury Management, Inc.("DMI"), as Issuer, Denbury Resources Inc., a corporation formed under the Canadian Business Corporation Act ("Denbury Canada"), as Guarantor, and the Trustee entered into the Indenture, dated as of February 26, 1998 (the "Indenture"), relating to DMI's 9% Senior Subordinated Notes due 2008 (the "Notes"); and WHEREAS, Denbury Resources Inc. has moved its corporate domicile from Canada to the United States under the laws of the State of Delaware (the "Move"), and thereafter, DMI has merged with and into the Company (the "Merger"), with the Company being the surviving entity; and WHEREAS, the Company is required pursuant to the Indenture to succeed to and be substituted for, and exercise every right and power of DMI under the Indenture; and WHEREAS, the Company has assumed and does hereby assume the direct and primary obligation to pay the Notes and all DMI obligations under the Indenture, and by virtue of the Merger and by operation of law DMI and the Company have become the same entity, and thus, the Guaranty, if not otherwise eliminated by operation of law, is thereby extinguished; and WHEREAS, the Company has furnished to the Trustee an Officer's Certificate and Opinion of Counsel as required by Section 5.01(vi) of the Indenture; and WHEREAS, all conditions and requirements necessary to make this First Supplemental Indenture a valid, binding and legal instrument in accordance with its terms upon the Company and the Trustee have been fulfilled; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and intending to be legally binding, the parties hereto hereby agree as follows: ARTICLE ONE ASSUMPTION OF OBLIGATIONS Section 1.01. The Company hereby acknowledges and agrees that, by virtue of the Merger and by operation of law, it has become a party to the Indenture and has assumed and does hereby assume all of the liabilities and obligations of DMI under the Indenture and the Notes in accordance with Section 5.01(i)(B) of the Indenture. Section 1.02. Pursuant to Section 9.05 of the Indenture, the Company shall issue and the Trustee shall authenticate new Notes that reflect this First Supplemental Indenture to be used upon issuance or reissuance of Notes after the date hereof. Section 1.03. Pursuant to Section 9.06 of the Indenture, the Company hereby indemnifies and holds harmless the Trustee from all liability, claims and damages which the Trustee may sustain or incur by reason of entering into this First Supplemental Indenture. 4(a) - 2 ARTICLE TWO MISCELLANEOUS PROVISIONS Section 2.01. Capitalized terms used herein and not otherwise defined herein are used as defined in the Indenture. Section 2.02. This First Supplemental Indenture shall be governed by, and construed in accordance with, the laws of the State of New York, as applied to contracts made and performed within the State of New York, without regard to principles of conflict of laws. Section 2.03. This First Supplemental Indenture may be executed in any number of counterparts, each of which, when so executed, shall be deemed to be an original, but all of which shall together constitute but one and the same instrument. Section 2.04. This First Supplemental Indenture is an amendment supplemental to the Indenture and said Indenture and this First Supplemental Indenture shall henceforth be read together. SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be executed as of the day and year first above written. DENBURY RESOURCES INC., CHASE BANK OF TEXAS, NATIONAL a Delaware corporation, successor ASSOCIATION, Trustee by merger to Denbury Management, Inc. By:______________________________ By:_____________________________ Name: Phil Rykhoek Name: Michael D. Scrivner Title: Chief Financial Officer and Secretary Title: Vice President 4(a) - 3 EX-10 5 FIFTH AMENDMENT TO FIRST RESTATED CREDIT AGREEMENT EXHIBIT 10(b) FIFTH AMENDMENT TO FIRST RESTATED CREDIT AGREEMENT FIFTH AMENDMENT TO FIRST RESTATED CREDIT AGREEMENT This Fifth Amendment to First Restated Credit Agreement (this "Fifth Amendment") is entered into as of the 21st day of April, 1999 (the "Effective Date"), by and among Denbury Resources, Inc. ("DRI"), a corporation previously incorporated under the Canadian Business Corporation Act which has been domesticated in the State of Delaware and which is the successor by merger to Denbury Management, Inc. ("Management"), a Texas corporation, NationsBank, N.A., successor by merger to NationsBank of Texas, N.A., as Administrative Agent ("Agent"), and the financial institutions parties hereto as Banks ("Banks"). W I T N E S S E T H: WHEREAS, Management, DRI, Agent and Banks are parties to that certain First Restated Credit Agreement dated as of December 29, 1997, as amended by (a) that certain First Amendment to First Restated Credit Agreement dated as of January 27, 1998, (b) that certain Second Amendment to First Restated Credit Agreement dated as of February 25, 1998, (c) that certain Third Amendment to First Restated Credit Agreement dated as of August 10, 1998, and (d) that certain Fourth Amendment to First Restated Credit Agreement dated February 19, 1999 (as amended, "Credit Agreement") (unless otherwise defined herein, all terms used herein with their initial letter capitalized shall have the meaning given such terms in the Credit Agreement); and WHEREAS, pursuant to the Credit Agreement the Banks have made certain Loans to Management; and WHEREAS, DRI was formerly incorporated under the Canadian Business Corporation Act and was domesticated in the State of Delaware; and WHEREAS, Management merged with and into DRI with DRI being the surviving corporation (such merger is referred to herein as the "Merger"); and WHEREAS, as a result of the Merger, DRI assumed and is primarily liable for all of the debts, obligations and liabilities of Management under the Credit Agreement and the other Loan Papers and DRI became the "Borrower" under and as defined in the Credit Agreement and the other Loan Papers; and WHEREAS, the parties desire to (a) evidence in writing the assumption by DRI of the debts, obligations and liabilities of Management under the Credit Agreement and the other Loan Papers, and (b) make certain conforming amendments to the Credit Agreement. NOW THEREFORE, for and in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confessed, DRI, Agent and each Bank hereby agree as follows: Section 1. Assumption. DRI acknowledges and agrees that as a result of the Merger DRI has assumed and is directly and primarily liable for the due and punctual payment and performance in full of the Obligations. DRI represents and warrants that it has no counterclaim, right of set off or other defense to payment or performance of such Obligations. Section 2. Amendments. The Credit Agreement is hereby amended effective as of the Effective Date in the manner provided in this Section 2. 2.1 Additional Definitions. Section 1.1 of the Credit Agreement is amended to add thereto in alphabetical order the definitions of "Merger" and "Fifth Amendment" which shall read in full as follows: 10(b) - 1 "Merger" means the merger of Denbury Management, Inc. into Borrower, in each case with Borrower being the surviving corporation. "Fifth Amendment" means that certain Fifth Amendment to First Restated Credit Agreement dated as of April 21, 1999 among Borrower, Administrative Agent and Banks. 2.2 Amendment to Definitions. The definitions of "Administrative Agent," "Borrower," "Consolidated Current Assets," "Consolidated Current Liabilities," "Credit Parties," "GAAP," "Loan Papers," "Parent," and "Required Consolidated Tangible Net Worth" set forth in Section 1.1 of the Credit Agreement are amended to read in full as follows: "Administrative Agent" means NationsBank, N.A., successor by merger to NationsBank of Texas, N.A., in its capacity as Administrative Agent for Banks hereunder or any successor thereto. "Borrower" means Denbury Resources, Inc., a corporation previously incorporated under the Canadian Business Corporation Act and which was domesticated in the State of Delaware, and which is the successor by merger to Denbury Management, Inc., a Texas corporation. "Consolidated Current Assets" means, for any Person at any time, the current assets of such Person and its Consolidated Subsidiaries at such time, plus, in the case of Borrower, the Availability at such time. "Consolidated Current Liabilities" means, for any Person at any time, the current liabilities of such Person and its Consolidated Subsidiaries at such time, but, in the case of Borrower, excluding the current portion (if any) of the outstanding principal balance of the Revolving Loan. "Credit Parties" means Borrower and any Subsidiary or Affiliate of Borrower which Required Banks and Borrower may hereafter jointly designate in writing as a "Credit Party" for purposes of this Agreement. Unless and until any such designation is made, "Credit Party" and "Credit Parties" shall refer only to Borrower. "GAAP" means those generally accepted accounting principles and practices which are recognized as such by the Securities and Exchange Commission, the American Institute of Certified Public Accountants acting through its Accounting Principles Board or by the Financial Accounting Standards Board or through other appropriate boards or committees thereof and which are consistently applied for all periods after the date hereof so as to properly reflect the financial condition, and the results of operations and changes in financial position, of Borrower and its Consolidated Subsidiaries, except that any accounting principle or practice required to be changed by the said Accounting Principles Board or Financial Accounting Standards Board (or other appropriate board or committee thereof) in order to continue as a generally accepted accounting principle or practice may be so changed. "Loan Papers" means this Agreement, the Notes, the Existing Mortgages (as amended by the Amendment to Mortgages), the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment, and each Security Document now or at any time hereafter delivered pursuant to Section 5.2, and all other certificates, documents or instruments delivered in connection with this Agreement, as the foregoing may be modified, amended, renewed, extended or restated from time to time. "Parent" means Denbury Resources, Inc., a corporation previously incorporated under the Canadian Business Corporations Act, which, prior to the Merger, was the owner and holder of one hundred percent (100%) of the issued and outstanding capital stock of Denbury Management, Inc., a Texas corporation. 10(b) - 2 "Required Consolidated Tangible Net Worth" means, (a) as of June 30, 1999, the sum of (i) Parent's Consolidated Tangible Net Worth as of December 31, 1998 plus (ii) an amount equal to sixty percent (60%) of the Net Cash Proceeds received by Parent or Borrower from any issuance by Parent or Borrower of its equity securities after January 1, 1999 and on or prior to June 30, 1999 (including pursuant to the Proposed Equity Contribution) (the sum of (i) and (ii) preceding is referred to herein as the "June 30, 1999 Required Net Worth"), and (b) from and after (but excluding), June 30, 1999, "Required Consolidated Tangible Net Worth" shall increase (but not decrease) above the Required Consolidated Tangible Net Worth previously in effect pursuant to this definition (i) on each Quarterly Date by an amount equal to fifty percent (50%) of Borrower's Consolidated Net Income for the Fiscal Quarter then ended, and (ii) on the date of issuance by Borrower of its equity securities by amount equal to fifty percent (50%) of the net proceeds received by Borrower from the issuance of such securities. Notwithstanding anything to the contrary contained herein, in no event will Required Consolidated Tangible Net Worth be less than $25,000,000. 2.3 Deletion of Definitions. Section 1.1 of the Credit Agreement shall be amended to delete therefrom in their entirety the definitions of "Facility Guaranty", and "Parent Pledge Agreement." 2.4 Amendments to Certain Interpretive Provisions. Section 1.2 of the Credit Agreement shall be amended to read in full as follows: "SECTION 1.2. Accounting Terms and Definitions. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be expressed in U.S. Dollars and shall be prepared in accordance with GAAP, applied on a basis consistent with the most recent audited consolidated financial statements of Borrower and its Consolidated Subsidiaries delivered to Banks except for changes concurred in by Borrower's independent certified public accountants and which are disclosed to Administrative Agent on the next date on which financial statements are required to be delivered to Banks pursuant to Sections 8.1(a) or (b); provided that, unless Required Banks shall otherwise agree in writing, no such change shall modify or affect the manner in which compliance with the covenants contained in Article X are computed such that all such computations shall be conducted utilizing financial information presented consistently with prior periods." 2.5 Amendment to Collateral and Guarantee Requirements. Article V of the Credit Agreement is amended to read in full as follows: ARTICLE V COLLATERAL AND GUARANTEES SECTION 5.1. Required Security. The Obligations shall be secured by first priority perfected Liens on such Proved Mineral Interests owned by Borrower as Administrative Agent shall require but which shall, in all events, include Proved Mineral Interests with a Recognized Value representing not less than eighty five percent (85%) of the Recognized Value of all Proved Mineral Interests evaluated by Banks for purposes of determining the Borrowing Base; provided, that, from and after the occurrence of a Borrowing Base Deficiency, a Default or an Event of Default, the Obligations shall be secured by first priority perfected Liens on one hundred percent (100%) of all Mineral Interests owned by Borrower. SECTION 5.2. Security Documents. Not later than March 1, 1999 and thereafter simultaneously with any Redetermination or the occurrence of any Default or Event of Default, and at such other times as Administrative Agent or Required Banks shall request, Borrower shall execute and deliver to Administrative Agent such deeds of trust, mortgages, security agreements, assignments, financing statements, pledge agreements, collateral assignments and other documents, instruments and agreements (including, without limitation, any modifications, 10(b) - 3 amendments, supplements, restatements, renewals or extensions of any of the foregoing) as Administrative Agent shall request to fully create, evidence and perfect the liens and security interests required by Section 5.1 (collectively, the "Security Documents"). SECTION 5.3. Evidence of Existence, Authority, Proper Execution and Delivery and Title; Opinions. At any time Borrower is required to execute and deliver Security Documents pursuant to Section 5.2, Borrower shall also deliver to Administrative Agent and its counsel (a) such certificates of Authorized Officers of Borrower, certificates of Governmental Authorities, resolutions of the Boards of Directors of Borrower, certified copies of the charter and bylaws of Borrower and other documents, instruments and agreements as Administrative Agent shall require to evidence (i) the valid corporate existence and authority to transact business of Borrower, and (ii) the due authorization, execution and delivery of the Security Documents by Borrower, (b) opinions of counsel (addressed to Administrative Agent) or other evidence of title as Administrative Agent shall require to verify Borrower's title to all Proved Mineral Interests subject to the Liens of such Security Documents and the priority of such Liens, and (c) opinions of counsel addressed to Administrative Agent favorably opining as to the due authorization, execution, delivery and enforceability of such Security Documents and such other matters related to Borrower or such Security Documents as Administrative Agent shall require. 2.6 Financial Representation and Warranty. Section 7.5 of the Credit Agreement is amended to delete the words "Parent" and "Parent's" each time such words appear therein and substitute in lieu thereof the words "Borrower" and "Borrower's." 2.7 Organization Structure; Nature of Business Representation and Warranty. Section 7.14 of the Credit Agreement is amended to delete the first two (2) sentences thereof in their entirety. 2.8 Fiscal Year Representation and Warranty. Section 7.17 of the Credit Agreement is amended to delete the word "Parent's" where it appears therein, and substitute in lieu thereof "Borrower's." 2.9 Financial Information Covenant. Section 8.1 of the Credit Agreement is amended to delete the words "Parent" and "Parent's" each time they appear therein and to substitute in lieu thereof the words "Borrower" and "Borrower's." 2.10 Business of the Credit Parties Covenant. Section 8.2 of the Credit Agreement is amended to delete the first sentence thereof in its entirety. 2.11 Maintenance of Existence Covenant. Section 8.3 of the Credit Agreement is amended to delete the phrase "Each of Parent and" which are the first four words of such covenant. 2.12 Title Data Representation and Warranty. Section 8.4 of the Credit Agreement is hereby amended to read in full as follows: "SECTION 8.4. Title Data. In addition to the title information required by Sections 5.3 and 6.1(c) hereof, Borrower shall, upon the request of Required Banks, cause to be delivered to Administrative Agent such title opinions and other information regarding title to Mineral Interests owned by Borrower as are appropriate to determine the status thereof; provided, however, that the Banks may not require the Credit Parties to furnish title opinions (except pursuant to Section 5.3 and 6.1(c)) unless (a) an Event of Default shall have occurred and be continuing, or (b) the Required Banks have reason to believe that there is a defect in or encumbrance upon Borrower's title to such Mineral Interests that is not a Permitted Encumbrance." 2.13 Maintenance of Insurance Covenant. Section 8.6 of the Credit Agreement is amended to delete the phrase "and 10(b) - 4 Parent" in the third sentence thereof and delete the word "assign" in such sentence and substitute in lieu of the word "assign" the word "assigns." 2.14 Merger Covenant. Section 9.4 of the Credit Agreement is amended to read in full as follows: "SECTION 9.4. Consolidations and Mergers. The Credit Parties will not, nor will the Credit Parties permit any of their Subsidiaries to, consolidate or merge with or into any other Person; provided, that so long as no Default exists or will result any wholly owned Subsidiary of Borrower may merge or consolidate with any other Person so long as a wholly owned Subsidiary of Borrower is the surviving corporation." 2.15 Fiscal Year Covenant. Section 9.12 of the Credit Agreement is amended to delete the word "Parent" where it appears therein and substitute in lieu thereof, the word "Borrower." 2.16 Financial Covenants. Article X of the Credit Agreement is amended to delete the words "Parent" and "Parent's" each time such words appear therein and to substitute in lieu thereof, the words "Borrower" and "Borrower's." 2.17 Change of Control. Section 11.1(k) of the Credit Agreement is amended to read in full as follows: "(k) as of any date any Person or group (as defined in Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934) other than the Texas Pacific Group shall become the direct or indirect beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of more than 30% of the total voting power of all classes of capital stock then outstanding of Borrower entitled (without regard to the occurrence of any contingency) to vote in elections of directors of Borrower;" or 2.18 Miscellaneous Provisions. Article XIV of the Credit Agreement is hereby amended to delete the word "Parent's" and the phrases "Parent and" and "Parent or" each time such words and such phrases appear in such Article. Section 3. Representations and Warranties of Borrower. To induce the Banks and Administrative Agent to enter into this Fifth Amendment, DRI hereby represents and warrants to Banks and Administrative Agent as follows: 3.1 Confirmation of Representations and Warranties. After giving effect to the Amendments contained in Section 2 hereof, each representation and warranty of Borrower contained in the Credit Agreement and the other Loan Papers is true and correct on the date hereof. 3.2 Corporate Power; Due Authorization; No Conflicts. The execution, delivery and performance by DRI of this Fourth Amendment are within DRI's corporate powers, have been duly authorized by necessary action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not violate or constitute a default under any provision of applicable law or any Material Agreement binding upon DRI or any Subsidiary of DRI or result in the creation or imposition of any Lien upon any of the assets of DRI or any of the Subsidiaries of DRI except Permitted Encumbrances. 3.3 Validity of Binding Effect. This Fifth Amendment constitutes the valid and binding obligations of DRI enforceable in accordance with its terms, except as (a) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditor's rights generally, and (b) the availability of equitable remedies may be limited by equitable principles of general application. 3.4 No Defenses. DRI has no defenses to payment, counterclaim or rights of set-off with respect to the Obligations existing on the date hereof. 10(b) - 5 3.5 Merger . The domestication of DRI in Delaware and the Merger were consummated (a) substantially in accordance with the descriptions thereof set forth in that certain Consent Letter dated November 30, 1998, by and among Denbury Management, Inc., Parent and Banks, and (b) in accordance with all applicable Laws and the Articles or Certificate of Incorporation, bylaws and other charter documents of DRI and Management. The domestication of DRI in Delaware and the Merger did not, and do not, result in a breach or violation of any material contract, agreement, indenture, mortgage or other instrument to which DRI or Management is or was a party and did not and will not result in the imposition of any Lien on any of the properties or assets of DRI or Management or a default under or the acceleration of any Debt of DRI, Management; as a result of the domestication of DRI in Delaware and the Merger, DRI has succeeded to, and holds good and defensible title, to all assets of Management, subject to no Liens other than Permitted Encumbrances. Section 4. Miscellaneous. 4.1 Reaffirmation of Loan Papers; Extension of Liens. Any and all of the terms and provisions of the Credit Agreement and the Loan Papers shall, except as amended and modified hereby, remain in full force and effect. DRI hereby extends the Liens securing the Obligations until the Obligations have been paid in full or are specifically released by Agent and Banks prior thereto, and agree that the amendments and modifications herein contained shall in no manner adversely affect or impair the Obligations or the Liens securing payment and performance thereof. 4.2 Parties in Interest. All of the terms and provisions of this Fifth Amendment shall bind and inure to the benefit of the parties hereto and their respective successors and assigns. 4.3 Legal Expenses. DRI hereby agrees to pay on demand all reasonable fees and expenses of counsel to Administrative Agent incurred by Administrative Agent, in connection with the preparation, negotiation and execution of this Fifth Amendment and all related documents. 4.4 Counterparts. This Fifth Amendment may be executed in counterparts, and all parties need not execute the same counterpart; however, no party shall be bound by this Fifth Amendment until all parties have executed a counterpart. Facsimiles shall be effective as originals. 4.5 Complete Agreement. THIS FIFTH AMENDMENT, THE CREDIT AGREEMENT AND THE OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 4.6 Headings. The headings, captions and arrangements used in this Fifth Amendment are, unless specified otherwise, for convenience only and shall not be deemed to limit, amplify or modify the terms of this Fifth Amendment, nor affect the meaning thereof. 10(b) - 6 IN WITNESS WHEREOF, the parties hereto have caused this Fifth Amendment to be duly executed by their respective authorized officers on the date and year first above written. BORROWER: DENBURY RESOURCES, INC., a Delaware corporation By:_____________________________________ Gareth Roberts President and Chief Executive Officer By:_____________________________________ Phil Rykhoek Chief Financial Officer and Secretary ADMINISTRATIVE AGENT: NATIONSBANK, N.A., successor by merger to NationsBank of Texas, N.A. By:_____________________________________ J. Scott Fowler Vice President BANKS: NATIONSBANK, N.A., successor by merger to NationsBank of Texas, N.A. By:_____________________________________ J. Scott Fowler Vice President 10(b) - 7 BANKBOSTON, N.A. By:_____________________________________ Name:_____________________________________ Title:_____________________________________ BANK ONE, TEXAS, N.A. By:_____________________________________ Name:_____________________________________ Title:_____________________________________ CHASE BANK OF TEXAS, NATIONAL ASSOCIATION By:_____________________________________ Name:_____________________________________ Title:_____________________________________ CHRISTIANAIA BANK, OG KREDITKASSE ASA By:_____________________________________ Name:_____________________________________ Title:_____________________________________ PARIBAS By:_____________________________________ Name:_____________________________________ Title:_____________________________________ CREDIT LYONNAIS - NEW YORK BRANCH By:_____________________________________ Name:_____________________________________ Title:_____________________________________ 10(b) - 8 WELLS FARGO BANK (TEXAS), N.A. By:_____________________________________ Name:_____________________________________ Title:_____________________________________ NATEXIS BANQUE BFCE By:_____________________________________ Name:_____________________________________ Title:_____________________________________ 10(b) - 9 EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DENBURY RESOURCES INC. MARCH 31, 1999 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000945764 Denbury Resources Inc. 1000 U.S. DOLLARS 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 1 7,063 0 18,449 0 0 25,512 580,694 398,660 216,381 15,531 234,630 0 0 27 (35,320) 216,381 14,703 15,064 0 13,234 0 0 4,858 (3,028) 0 (3,028) 0 0 0 (3,028) (.11) (.11)
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