SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No.)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[ ] Preliminary Proxy Statement [_] Soliciting Material Under Rule
[ ] Confidential, For Use of the 14a-12
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
Denbury Resources Inc.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
________________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
1) Amount previously paid:
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2) Form, Schedule or Registration Statement No.:
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4) Date Filed:
________________________________________________________________________________
[GRAPHIC OMITTED]
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS
April 1, 2005
To our Stockholders:
You are hereby notified that the 2005 Annual Meeting of Stockholders of
Denbury Resources Inc., a Delaware corporation ("Denbury" or the "Company"),
will be held at the Denbury offices located at 5100 Tennyson Parkway, Suite
3000, Plano, Texas 75024, at 3:00 P.M., Central Time (CDT), on Wednesday, May
11, 2005, for the following purpose:
(1) to elect seven directors, each to serve until their successor is
elected and qualified;
(2) to extend the term of our employee stock purchase plan;
and to transact such other business as may properly come before the annual
meeting or any adjournment or postponement thereof.
Only stockholders of record at the close of business on March 31, 2005, are
entitled to notice of and to vote at the annual meeting.
Stockholders are urged to vote their proxy promptly by either returning the
enclosed proxy, voting by telephone or voting via the internet, each as more
fully described in the enclosed proxy statement, whether or not they expect to
attend the annual meeting in person. If your shares are held in street name by a
broker or bank, you will need to obtain a written proxy from the broker, bank or
other nominee holding your shares to be able to vote at the meeting.
/s/ Phil Rykhoek
----------------
Phil Rykhoek
Senior Vice President, Chief Financial
Officer and Secretary
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, STOCKHOLDERS ARE
URGED TO VOTE AND RETURN THEIR PROXY WHETHER OR NOT THEY EXPECT TO ATTEND THE
ANNUAL MEETING IN PERSON. YOUR PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS
VOTED.
DENBURY RESOURCES INC.
Proxy Statement
Annual Meeting of Stockholders
to be held on Wednesday, May 11, 2005
THE ENCLOSED PROXY IS FURNISHED IN CONNECTION WITH THE SOLICITATION OF
VOTES BY THE MANAGEMENT OF DENBURY RESOURCES INC., a Delaware corporation
("Denbury" or the "Company") for use at the annual meeting of the stockholders
of Denbury to be held on the 11th day of May, 2005 at our offices located at
5100 Tennyson Parkway, Suite 3000, Plano, Texas 75024 at 3:00 P.M. Central Time
CDT, or at any adjournment thereof.
We anticipate that this proxy statement, proxy card and our 2004 annual
report to stockholders will be mailed on or before April 5, 2005.
RECORD DATE AND COMMON STOCK OUTSTANDING
Our Board of Directors has fixed the record date for the annual meeting as
of the close of business on Thursday, March 31, 2005. Only Denbury stockholders
of record as of the record date are entitled to receive notice of and to vote at
the meeting. As of the record date, there were approximately 56,780,000 shares
of common stock of Denbury issued and outstanding.
VOTING OF COMMON STOCK
A proxy card is included with this proxy statement. In order to be valid
and acted upon at the annual meeting, your proxy card must be received by the
Secretary of Denbury or by the transfer agent, American Stock Transfer and
Trust, 40 Wall Street, New York, NY 10005, before the time set for the holding
of the meeting or any adjournment thereof. You may also vote your shares by
phone, (800)-PROXIES, or may vote via the Internet at www.voteproxy.com.
If you submit a proxy, you may revoke it any time prior to the meeting, or
if you attend the meeting personally, you may revoke your proxy at that time and
vote in person. In addition, regardless of which method you used to submit your
proxy, you may revoke it by any later-dated vote via the telephone, the Internet
or in writing. This later dated proxy may be deposited at either our registered
office or our principal place of business, at any time up to the time of the
meeting, or with the Chairman of the meeting on the day of the meeting. If your
shares are held in street name by a broker or bank, you will need to obtain a
written proxy from the broker, bank or other nominee holding your shares to be
able to vote at the meeting. You should note that your mere presence at the
meeting, however, will not constitute a revocation of a previously submitted
proxy.
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In order for us to have a quorum at our annual meeting, we must have
present in person or represented by proxy at least one-third of our issued and
outstanding shares of common stock entitled to vote at the meeting. If you are a
holder of our common stock, you are entitled to one vote at the meeting for each
share of common stock that you held as of the record date. You will not be
allowed to cumulate your votes for the election of directors. If you do not wish
to vote for a particular nominee, you must clearly identify such nominee on your
proxy card. A majority of the votes cast in person or by proxy at the meeting is
required to elect each nominee for director and to approve each item at the
meeting. We will include abstentions in the vote totals, which mean that they
have the same effect on each proposal as a negative vote. However, broker
non-votes, if any, will not be included in the vote totals and therefore will
not have any effect.
We will vote all properly executed proxies at the meeting in accordance
with the direction on the proxy. YOU SHOULD NOTE THAT IF NO DIRECTION IS
INDICATED, THE SHARES WILL BE VOTED FOR ALL THE DIRECTOR NOMINEES AND FOR
EXTENDING THE TERM OF OUR EMPLOYEE STOCK PURCHASE PLAN. Our Board has designated
Ron Greene and/or Gareth Roberts to serve as proxies. We do not know of any
matters, other than those matters listed on the Notice of Annual Meeting of
Stockholders that will be brought before the meeting. However, if any other
matters are properly presented for action at the meeting, we intend for Ron
Greene and/or Gareth Roberts, as proxies named in the enclosed proxy card, to
vote at their discretion on such matters.
PERSONS MAKING THE SOLICITATION
We will bear all the costs incurred in the preparation and mailing of the
proxy, proxy statement and Notice of Annual Meeting. In addition to solicitation
by mail, our directors, officers or employees may solicit proxies by personal
interviews, telephone or other means of communication. If they do so, these
individuals will not receive any special compensation for these services. Even
though we have not made any provision to do so, we may also retain a proxy
solicitor to assist us with the distribution and solicitation of proxies for the
meeting at our expense.
BUSINESS TO BE CONDUCTED AT THE MEETING
PROPOSAL ONE:
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ELECTION OF DIRECTORS
Our Bylaws provide that our Board of Directors shall consist of a minimum
of three and a maximum of fifteen directors. Each of the directors is elected
annually and holds office until the close of the next annual meeting of
stockholders unless he resigns from that position or ceases to be a director by
operation of law. We presently have seven directors, all of whom are serving
terms that expire at the meeting.
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Unless you mark a proxy to the contrary, we plan to vote the proxies for
the election of the seven nominees as directors as listed herein. All seven of
these individuals are current members of the Board. We do not foresee any reason
why any of these nominees would become unavailable, but if they should, we may
either vote your proxy for a substitute that is nominated by the Board or reduce
the size of our Board accordingly.
Ronald G. Greene
David I. Heather
Gregory McMichael
Gareth Roberts
Randy Stein
Wieland F. Wettstein
Donald D. Wolf
The names, ages, offices held, period of time served as a director and the
principal occupation of each person nominated for election as a director are as
follows:
Officer or
Offices Director
Name Age Held Since Principal Occupation
---------------------------- ----- --------------- ------------ ----------------------------------------------
Ronald G. Greene (1) (3) 56 Chairman and 1995 Principal Stockholder, Officer and
Director Director of Tortuga Investment Corp.
David I. Heather (2) (3) 63 Director 2000 Director of The Scotia Group
Greg McMichael (1) 56 Director 2004 Independent Consultant
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Gareth Roberts President, 1992 President and Chief Executive Officer,
Chief Executive Denbury Resources Inc.
Officer and
Director
Randy Stein (2) 51 Director 2005 Independent Consultant
Wieland F. Wettstein (2)(3) 55 Director 1990 President, Finex Financial Corporation Ltd.
Donald D. Wolf (1) 61 Director 2004 President and Chief Executive Officer of
Aspect Energy, LLC
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Nominating/Corporate Governance Committee.
Directors
Ronald G. Greene has been Chairman of the Board and a director of Denbury
since 1995. Mr. Greene was the founder and served as Chairman of the board of
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directors of Renaissance Energy Ltd. and Chief Executive Officer of Renaissance
from its inception in 1974 until May 1990, and remained as Chairman until
Renaissance was merged with Husky Oil Operations to create Husky Energy, Inc. in
December 2000. He is also the principal stockholder, officer and director of
Tortuga Investment Corp., a private investment company and serves on the Board
of Directors of WestJet Airlines Ltd., a public Canadian scheduled airline. Mr.
Greene has served on the boards of several public and private companies, as well
as industry organizations and community and international charitable
organizations.
David I. Heather has been a director of Denbury since 2000. Mr. Heather is
a founding partner and director of The Scotia Group, an independent geoscience
and reservoir-engineering firm in Dallas and Houston, Texas, formed in 1981. He
retired as president of Scotia in 2002, but continues to provide technical and
strategic advice to Scotia and its client base as an independent consultant. Mr.
Heather is a Chartered Engineer of Great Britain and received his Bachelor of
Science degree in Chemical Engineering from the University of London in 1963.
Greg McMichael has been a director of Denbury since December 8, 2004. Mr.
McMichael is currently a self-employed business consultant, having retired in
2004 from his position of Vice President and Group Leader - Energy Research of
A.G. Edwards, where he was responsible for all of the firm's equity research in
the energy sector. Prior to his employment by A.G. Edwards, which commenced in
1998, Mr. McMichael was Director of Equity Research of Hanifen, ImHoff, Inc., a
regional investment banking firm based in Denver, for eight years. Mr. McMichael
also serves on the board of Matador Resources Company, a private oil and natural
gas company headquartered in Dallas, Texas.
Gareth Roberts has been President, Chief Executive Officer and a director
since 1992. Mr. Roberts founded Denbury Management, Inc., the former primary
operating subsidiary of the Company in April 1990. Mr. Roberts has more than 30
years of experience in the exploration and development of oil and natural gas
properties with Texaco, Inc., Murphy Oil Corporation and Coho Resources, Inc.
His expertise is particularly focused in the Gulf Coast region where he
specializes in the acquisition and development of old fields with low
productivity. Mr. Roberts holds honors and masters degrees from St. Edmund Hall,
Oxford University, where he has been elected to an Honorary Fellowship. Mr.
Roberts also serves as Chairman of the Board of Directors of Genesis Energy,
L.P., a public master limited partnership.
Randy Stein has been a director of Denbury since January 21, 2005. Mr.
Stein is currently a self-employed business consultant having retired from
PricewaterhouseCoopers LLP, formerly Coopers & Lybrand LLP, in 2000. Mr. Stein
was employed for 20 years with PricewaterhouseCoopers LLP, most recently as
principal in charge of the Denver tax practice. Mr. Stein served as audit
committee chairman, co-chairman of the nominating and governance committee, and
a member of the compensation committee of Westport Resources Corp., a
Denver-based public oil and gas company, from 2000 until they were acquired in
2004. Mr. Stein is currently a board member and audit committee chairman of Bill
Barrett Corporation, an oil and gas company, and also serves on the board and
audit committee of Koala Corporation, both Denver-based public companies.
Wieland F. Wettstein has been a director of Denbury since 1990. Mr.
Wettstein is the President and indirectly controls 50%, of Finex Financial
Corporation Ltd., a merchant banking company in Calgary, Alberta, a position he
has held since November 2003. Prior to that, Mr. Wettstein was Executive Vice
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President of Finex since 1987. Mr. Wettstein has been a director of a number of
Canadian public companies during the past 15 years, including several junior oil
and gas companies. Mr. Wettstein is a Chartered Accountant.
Donald D. Wolf has been a director of Denbury since June 1, 2004. Mr. Wolf
is currently the Chief Executive Officer and President of Aspect Energy, a
private oil and natural gas company based in Denver. Beginning in 1996, Mr. Wolf
was Chairman and Chief Executive Officer of Westport Resources Corporation of
Denver, Colorado, until Westport merged with Kerr-McGee in 2004. From 1994 to
1996, Mr. Wolf was President and Chief Operating Officer of UMC Corporation, and
from 1981 to 1993, he was CEO and President of General Atlantic Resources. Mr.
Wolf also serves on the boards of MarkWest Hydrocarbons, Inc., Aspect Energy,
LLC and Enduring Resources LLC.
OUR BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR EACH OF THE
FOREGOING DIRECTORS. Unless otherwise directed by a proxy marked to the
contrary, it is the intention of management to vote proxies FOR the election of
the foregoing nominees as directors.
PROPOSAL TWO:
-------------
TO EXTEND THE TERM OF OUR EMPLOYEE STOCK PURCHASE PLAN
The second proposal before stockholders is the approval of an amendment to
our employee stock purchase plan previously approved by our Board, to extend the
life of our employee stock purchase plan by five years, from August 2005 to
August 2010. We are not asking for any additional shares to be reserved under
the plan at this time. Without stockholder approval, we will not be able to
issue any more shares under the plan after June 30, 2005, the last quarterly
closing date before the plan expires.
When we adopted the employee stock purchase plan in 1996, a maximum of
250,000 shares of common stock were reserved under the plan. Subsequent
amendments by the board and stockholders have increased the maximum number of
shares reserved under the plan to 1,750,000. As of February 28, 2005, we had
291,376 shares available for future purchases pursuant to the plan.
Our Board is proposing to extend the life of the plan for another five
years as the stock purchase plan is a vital element of our employees'
compensation, helps align the interest of our employees with you, our
stockholders, and helps us recruit and retain employees. See also "Statement of
Executive Compensation - Board Compensation Committee Report on Executive
Compensation."
SUMMARY OF THE KEY TERMS OF THE PLAN. Our employee stock purchase plan,
adopted as of February 1996, is designed to provide our employees with an
opportunity to purchase our common stock, thereby aligning their interests with
our stockholders' interests. In addition, with its partial matching provisions,
the plan provides additional compensation to our employees, helping us to
attract and retain personnel of outstanding competence. Our plan is administered
by the Compensation Committee of the Board, which is currently comprised of
Messrs. Greene, McMichael and Wolf.
The stock purchase plan provides that full-time employees may elect to
participate in the plan before the beginning of each quarter, although if they
should elect not to continue to participate, they must wait for a period of six
months before participating again. The employees may elect to contribute up to
10% of their base salary to the plan either by payroll deductions or by making a
cash payment prior to the end of each quarter. At each quarter-end, we
contribute an amount equal to 75% of the employee's contributions and convert
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the combined funds into shares of our common stock for the account of the
employee calculated by using the current market price at quarter-end. The market
price is defined as the average closing price on the NYSE for the ten trading
days prior to the issue date. In addition, we pay the income tax on the Company
matching portion for employees that are below a certain salary threshold,
generally lower-paid employees who are not in the professional group.
We initially issued new, previously unissued shares of common stock to our
employees under the plan, although since September 2003, we have purchased
shares on the open market and reissued them to employees under the plan. Under
the terms of the plan, the shares of common stock must be held by our transfer
agent for one year after issuance, after which time the employee is able to sell
the shares at his or her discretion. Even though the employee may not sell the
shares during the first year, the shares are fully vested at the time of
issuance. If an employee is terminated for any reason prior to the quarter-end
or makes an election to withdraw during the quarterly period, any contributions
made by such employee during the quarter is refunded, without interest, and such
employee does not receive our matching contribution.
As the shares are immediately vested upon issuance, there are no provisions
for a change of control in the plan. Any change in the capitalization of our
Company such as stock dividends, stock splits, mergers, etc., will be taken into
account at the time of issuance at each quarter-end. The funds contributed by us
and the employee will be combined to purchase shares each quarter based on the
capital structure in place at that point in time. This plan must also comply
with the policies and procedures of the NYSE.
BOARD OF DIRECTORS' RECOMMENDATION
A simple majority of votes cast at the meeting will approve the amendment,
provided that there is a quorum at the meeting. OUR BOARD OF DIRECTORS BELIEVES
THAT THE EMPLOYEE STOCK PURCHASE PLAN IS AN INTEGRAL PART OF OUR OVERALL
COMPENSATION PLAN AND RECOMMENDS THAT YOU VOTE FOR THE AMENDMENT. Unless
otherwise directed by a proxy marked to the contrary, it is the intention of
management to vote proxies FOR the approval of the amendment.
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EQUITY COMPENSATION PLAN INFORMATION
The following table summarizes information about Denbury's equity
compensation plans as of December 31, 2004.
Number of securities
remaining available
for future issuance
Number of securities to Weighted average under equity
be issued upon exercise exercise price of compensation plans
of outstanding options, outstanding options, (excluding securities
warrants and rights warrants and rights reflected in column a)
Plan Category (a) (b) (c)
---------------------------------------- ------------------------- ------------------------- -------------------------
EQUITY COMPENSATION PLANS
APPROVED BY SECURITY HOLDERS:
Stock Option Plan....................... 4,440,157 $ 10.49 710,291
2004 Omnibus Plan....................... - - 1,350,000
Employee Stock Purchase Plan............ - - 291,376
EQUITY COMPENSATION PLANS
NOT APPROVED BY SECURITY HOLDERS:
Director Compensation Plan.............. - - 71,930
------------------------- ------------------------- -------------------------
4,440,157 $ 10.49 2,423,597
========================= ========================= =========================
A description of our Director Compensation Plan is included under the
heading "Compensation of Directors - Directors' Fees."
GOVERNANCE OF THE COMPANY
The business, property and affairs of the Company are managed by the Chief
Executive Officer under the direction of the Board of Directors. The Board has
responsibility for establishing broad corporate policies and for overall
performance and direction of the Company, but is not involved in day-to-day
operations. Members of the Board keep informed of the Company's business by
participating in Board and committee meetings, by reviewing analyses and reports
sent to them regularly, and through discussions with the Chief Executive Officer
and other officers.
CORPORATE GOVERNANCE GUIDELINES
The Board has adopted corporate governance guidelines that address
significant issues of corporate governance and set forth the procedures by which
the Board carries out its responsibilities. Among the areas addressed by the
guidelines are director qualifications and responsibilities, Board committee
responsibilities, selection and election of directors, director compensation and
tenure, director orientation and continuing education, access to management and
independent advisors, succession planning and management development, Board
meetings, and Board and committee performance evaluations. The Board's
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Nominating/Corporate Governance Committee is responsible for assessing and
periodically reviewing the adequacy of these guidelines. The guidelines are
available on the Company's website at www.denbury.com under the "Corporate
Governance" link. The Company will provide the guidelines free of charge to
stockholders who request them.
DIRECTOR INDEPENDENCE
The guidelines provide that at least a majority of the members of the Board
must be independent as required by the New York Stock Exchange ("NYSE")
corporate governance listing standards. The Board has affirmatively determined
that all nominees for director, with the exception of Mr. Roberts, the Company's
President and Chief Executive Officer, qualify as independent directors under
these standards based on its review of all relevant facts and circumstances.
CODE OF CONDUCT AND ETHICS
The Company has a code of conduct and ethics that applies to its officers,
employees and directors. This code assists employees in resolving ethical issues
that may arise in complying with Denbury's policies. The President and Chief
Executive Officer, Senior Vice President and Chief Financial Officer and Vice
President and Chief Accounting Officer are also subject to the Code of Ethics
for Senior Financial Officers and Principal Executive Officer. The purpose of
these codes is to promote, among other things:
o ethical handling of actual or apparent conflicts of interest;
o full, fair and accurate and timely disclosure in filings with the
Securities and Exchange Commission and in other public disclosures;
o compliance with the law and other regulations;
o protection of the Company's assets;
o insider trading policies; and
o prompt internal reporting of violations of the codes.
Both of these codes are available on the Company's website at
www.denbury.com, under the "Corporate Governance" link. The Company will provide
these codes free of charge to stockholders who request them. Any waiver of these
codes with respect to officers and directors of the Company may be made only by
the Board of Directors and will be disclosed to stockholders on the Company's
website, along with any amendments to these codes.
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COMMUNICATION WITH THE BOARD
The Board has approved the process that stockholders or other interested
parties may use in contacting the members of the Board. All parties wishing to
communicate with the Board should address letters to:
Denbury Resources Inc.
Attn: Corporate Secretary
5100 Tennyson Parkway, #3000
Plano, TX 75024
In addition, interested parties may e-mail the corporate secretary and
Board members at: secretary@denbury.com. All such communications will be
forwarded by the Secretary directly to the Board.
IDENTIFICATION OF DIRECTOR CANDIDATES
Our Nominating/Corporate Governance Committee is responsible for
identifying and reviewing director candidates to determine whether they qualify
for and should be considered for membership on the Board. The committee seeks
candidates from diverse business and professional backgrounds with outstanding
integrity, achievements, judgment and other skills and experience that will
enhance the Board's ability to serve the long-term interests of stockholders.
Members of the Board will be asked to submit recommendations when there is an
opening or anticipated opening for a director position. The Nominating/Corporate
Governance Committee may also use outside sources or third parties to find
potential Board member candidates, and similarly may use the services of outside
sources or a third party to identify, evaluate or assist in identifying or
evaluating nominees brought to their attention.
The Nominating/Corporate Governance Committee will also equally consider
director candidates recommended by the stockholders. For the 2006 annual meeting
of stockholders, any such recommendation should be submitted in writing on or
before November 1, 2005, to permit adequate time for review by the Committee.
The recommendation should also provide the reasons supporting a candidate's
recommendation, the candidate's qualifications, the candidate's consent to being
considered as a nominee, and a way to contact the candidate to verify his or her
interest and to gather further information, if necessary. In addition, the
stockholder should submit information demonstrating the number of shares he or
she owns. Stockholders may send recommendations for director candidates to the
address listed above under "Communication with the Board." Stockholders who wish
to nominate an individual to the Board must follow the advance notice and other
requirements of the Company's Bylaws.
BOARD MEETINGS, ATTENDANCE AND COMMITTEES
The Board met ten times during the year ended December 31, 2004, including
telephone meetings. All incumbent directors attended at least 75% of the
meetings held while they were on the Board. The Board took all other actions by
unanimous written consent during 2004. In addition, all directors attended at
least 75% of all meetings of each of the committees on which they served. The
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Company encourages the directors to attend, but does not have a policy that all
of the directors must be present at the annual meeting of stockholders. The
following directors attended last year's annual meeting of stockholders: Messrs.
Greene, Heather, Roberts, and Wettstein, the only incumbent directors on the
Board at that time. The board has an Audit Committee, a Compensation Committee
(which also functions as the Stock Option Plan and Stock Purchase Plan
Committee) and a Nominating/Corporate Governance Committee. The entire board
acts in that capacity. On occasion, the Board appoints other committees to deal
with certain matters.
AUDIT COMMITTEE REPORT
The Audit Committee is currently comprised of three outside independent
directors, Messrs. Heather, Stein and Wettstein, with Mr. Wettstein and Mr.
Stein acting as Co-Chairmen. Mr. Greene was also on the Audit Committee from May
2004 to January 2005 to fill a committee vacancy resulting from the decision of
Mr. Miller to not stand for re-election at the 2004 annual meeting. He was
replaced on the Audit Committee by Mr. Stein upon his appointment to the Board
in January 2005. The purpose of the Committee is to appoint, compensate and
evaluate the Company's independent accountants and petroleum engineers, and to
provide assistance to the Board in fulfilling its oversight responsibility with
respect to:
o the integrity and quality of the financial statements and proven
reserves of the Company;
o evaluation of the internal controls of the Company;
o the performance of the Company's internal audit function, the
independent accountants, and the independent petroleum engineers;
o the independent accountants' and petroleum engineers' qualifications
and independence;
o compliance by the Company with legal and regulatory requirements;
o evaluation of the Company's effectiveness for assessing, mitigating
and controlling significant business risks; and
o compliance with the Company's code of conduct and ethics.
The Audit Committee meets regularly with financial management, the
Company's internal auditor and independent auditors to review financial
reporting and accounting and financial controls of the Company. The Audit
Committee reviews and gives prior approval for fees and non-audit related
services of the independent auditors. The internal auditor, independent auditors
and independent engineers all have unrestricted access to the Audit Committee
and meet with the Audit Committee without management representatives present to
discuss the results of their examinations and their opinions. The Audit
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Committee also meets with the independent reserve engineers, has the power to
conduct internal audits and investigations, receives recommendations or
suggestions for changes in accounting procedures, and initiates or supervises
any special investigations it may choose to undertake. Each year, the Audit
Committee recommends to the Board the selection of a firm of independent
auditors and a firm of independent reserve engineers. The Audit Committee met
five times during 2004.
The NYSE and the Securities and Exchange Commission (the "SEC") have
adopted standards with respect to independence and financial experience of the
members of the Audit Committee. The standards require that all of the members of
audit committees be independent and that they all be able to read and understand
fundamental financial statements, including balance sheets, income statements
and cash flow statements. Additionally, at least one member of the committee
must be deemed to be the "audit committee financial expert." The financial
expert must be knowledgeable in the application of generally accepted accounting
principles, the understanding and preparation of financial statements,
accounting for estimates, accruals and reserves, internal accounting controls
and audit committee functions. Such knowledge is to have been obtained through
past education and experience in positions of financial oversight. Both
Co-Chairmen of our Audit Committee, Mr. Stein and Mr. Wettstein, have such
experience and have been designated as "audit committee financial experts." All
members of the Audit Committee satisfy the criteria for both independence and
experience.
The Audit Committee reports to the Board on its activities and findings.
The Board adopted a written charter for the Audit Committee in 2000 and amended
it in February 2003. The charter is available on our website at www.denbury.com
under the "Corporate Governance" link.
The Audit Committee reports as follows with respect to the Company's 2004
audited financial statements:
o The Committee has reviewed and discussed with management the Company's
2004 audited financial statements;
o The Committee has discussed with the independent auditors,
PricewaterhouseCoopers LLP, the matters required to be discussed by
SAS 61, as modified or supplemented, which include matters related to
the conduct of the audit of the Company's financial statements;
o The Committee has received written disclosures and the letter from the
independent auditors required by ISB Standard No. 1 (which relates to
the auditors' independence from Denbury and its related entities) and
has discussed with the auditors the auditors' independence from
Denbury;
o The Committee reviewed the requirements and the Company's
implementation of Section 404 of the Sarbanes-Oxley Act of 2002 and
related regulations; and
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o Based on review and discussions of the Company's 2004 audited
financial statements, including management's discussion and analysis
of financial condition and results of operations, with management and
the independent auditors, the Audit Committee has approved Denbury's
audited financial statements and management's discussion and analysis
of financial condition and results of operations for inclusion in the
Company's 2004 Annual Report on Form 10-K.
The Audit Committee
Wieland F. Wettstein, Co-Chairman
Randy Stein, Co-Chairman
David I. Heather
COMPENSATION COMMITTEE
The Compensation Committee is currently comprised of Messrs. Greene,
McMichael and Wolf, with Mr. Greene acting as its Chairman. The purpose of the
Compensation Committee, acting also as the Stock Option Plan Committee and Stock
Purchase Plan Committee, is to provide assistance to the Board in discharging
its responsibilities relating to the compensation and development of the Chief
Executive Officer and other officers, and to oversee and administer equity and
other compensation and benefit plans, including:
o recommending to the Board the design of an overall compensation
program and structure for the Company and reviewing the program
annually, recommending to the Board overall salary increases, bonuses
and other annual compensation, and proposing modifications to the
compensation program as deemed necessary;
o reviewing and approving corporate goals and objectives relevant to the
Chief Executive Officer's compensation and evaluating the Chief
Executive Officer's performance in light of these goals and
determining and recommending to the Board his compensation in light of
this evaluation;
o recommending to the Board the adoption or amendment of the Company's
equity-based and other incentive compensation plans, and approving,
administering and granting awards under these plans; and
o preparing and publishing an annual report on executive compensation
to be included in the Company's proxy statement.
The specific responsibilities of the Compensation Committee are identified
in the Company's charter, which is available on the Company's website at
www.denbury.com under the "Corporate Governance" link. The Compensation
Committee met twice during 2004.
13
NOMINATING/CORPORATE GOVERNANCE COMMITTEE
The Board created a Nominating/Corporate Governance Committee during 2003,
which is currently comprised of Messrs. Greene, Heather and Wettstein. All of
the members of the Nominating/Corporate Governance Committee are independent
under the NYSE corporate governance listing standards. The purpose of the
Committee is to provide assistance to the Board in discharging its
responsibilities for ensuring the effective governance of the Company,
including:
o identifying individuals qualified to become members of the Board;
o recommending to the Board the director nominees for the annual meeting
of stockholders or for appointment by the Board if a vacancy occurs
between annual meetings;
o seeking to maintain the independence and quality of the Board through
an annual self-evaluation and compliance with applicable laws and
regulations for each director and committee member;
o developing and recommending to the Board adoption of its various codes
of conduct, ethics, and governance guidelines;
o monitoring and developing the necessary training for new board
members;
o recommending to the Compensation Committee regarding director
compensation and benefits on an annual basis; and
o reviewing the Company's proxy statement prior to its publication.
The specific responsibilities of the Nominating/Corporate Governance
Committee are identified in the Company's charter, which is available on the
Company's website at www.denbury.com under the "Corporate Governance" link. The
Nominating/Corporate Governance Committee met twice during 2004.
COMPENSATION OF DIRECTORS
Information regarding the compensation received from Denbury, including
options, during the fiscal year ended December 31, 2004, by Mr. Roberts,
President, Chief Executive Officer and a director of the Company, is disclosed
under the heading "Executive Compensation - Summary Compensation Table."
DIRECTORS' FEES
We have a Director Compensation Plan to provide compensation to all of our
non-employee directors so as to attract, motivate, and retain experienced and
knowledgeable persons to serve as our directors and to promote an identity of
interest between our directors and you, our stockholders.
14
We increased our compensation for the non-employee directors effective July
1, 2004 in order to be competitive with the compensation paid to directors of
our peer companies. Since July, they have been paid an annual retainer fee of
$35,000, plus $2,000 per board meeting attended and $1,000 per telephone
conference attended. The Chairman of the Compensation Committee and the Chairman
of the Board are also paid an additional fee of $5,000 per year. The Co-Chairmen
of the Audit Committee are both paid an additional fee of $20,000 per year and
the other Audit Committee members are paid an additional annual retainer of
$5,000 for serving on the Audit Committee. The members of the Audit Committee
may also receive an additional $5,000 per year fee for performing special
services. The only such award to date has been to Mr. Heather who performs
review work on our annual reserve report and began receiving this additional fee
in the fourth quarter of 2002.
As part of our review of compensation for our directors during 2004, we
also issued each non-employee director 10,000 shares of restricted stock, to the
four then existing independent directors in September 2004, and to Mr. McMicheal
and Mr. Stein upon the appointment to the Board in December 2004 and January
2005, respectively. With respect to the 60,000 restricted shares which have been
issued to Denbury's independent board members, the shares vest 20% per year over
five years. For these shares, on each annual vesting date, 40% of such vested
shares may be delivered to the director with the remaining 60% retained and held
in escrow until the director's separation from the Company. All restricted
shares vest upon death, disability or a change in control. We also issued stock
options to the non-employee directors for the first time since 1993, issuing to
each director 3,000 stock options in January 2005 that 100% balloon vest four
years from the date of grant. Mr. Roberts has historically received stock option
grants as an employee, and the options held by Mr. Roberts are disclosed under
the heading "Executive Compensation".
We adopted a Director Plan effective July 1, 2000, for a term of ten years.
The Director Plan allows each non-employee director to make an annual election
to receive his or her compensation either in cash or in shares of our common
stock and to elect to defer receipt of such compensation, if they wish. The
number of shares issued to a director who elects to receive shares of common
stock under the Director Plan is calculated by dividing the director fees to be
paid to such director by the average price of the Company's common stock for the
ten trading days prior to the date the fees are payable. Generally directors'
fees are paid quarterly. We also reimburse our directors for out-of-pocket
travel expenses in connection with each board meeting attended. We have reserved
100,000 shares for issuance under the Director Plan, for directors who elect to
receive their compensation in stock, and as of February 28, 2005, had 71,930
shares available under the plan.
15
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table lists, as of February 28, 2005, the stockholders of
which we are aware that beneficially own more than 5% of our issued and
outstanding common stock and the common stock held by our executive officers and
directors, individually and as a group to our knowledge solely based upon public
filings. Unless otherwise indicated, each stockholder identified in the table is
believed to have sole voting and investment power with respect to the shares
beneficially held. The table includes shares that were acquirable within 60 days
following February 28, 2005 under our Stock Option Plan.
Beneficial Ownership
of Common Stock as of
February 28, 2005
-------------------------------------
Percent of
Name and Address of Shares
Beneficial Owner Shares Outstanding
---------------------------------------------------------- -------------------- --------------
Ronald G. Greene.......................................... 956,353 (1)(2) 1.7%
David I. Heather.......................................... 16,500 (1)(3) *
Greg McMichael............................................ 15,000 (1) *
Randy Stein............................................... 10,000 (1) *
Wieland F. Wettstein...................................... 39,418 (1)(4) *
Donald D. Wolf............................................ 12,899 (1) *
Gareth Roberts............................................ 930,310 (5) 1.6%
Ronald T. Evans........................................... 212,003 (6) *
Phil Rykhoek.............................................. 256,043 (6) *
Mark A. Worthey........................................... 269,356 (6) *
Mark C. Allen............................................. 118,481 (6) *
Ray Dubuisson............................................. 101,885 (6) *
Ron Gramling.............................................. 171,126 (6) *
James H. Sinclair......................................... 123,493 (6) *
All of the executive officers and directors as a group
(14 persons)............................................. 3,232,867 (7) 5.7%
Wellington Management Company.............................. 4,062,338 (8) 7.2%
75 State Street
Boston, MA 02109
* Less than 1%
(1) Includes 10,000 shares of restricted common stock which vests 20% per
year, commencing on September 15, 2005 (except in the cases of Messrs.
McMichael and Stein, whose vesting commences December 8, 2005 and
January 21, 2006 respectively) until fully vested, none of which are
vested as of February 28, 2005. In addition to the foregoing vesting
provisions, all of these shares will vest upon death, disability, or a
change in control of the Company. On each annual vesting date, 40% of
such vested shares may be delivered to the director with the remaining
60% retained and held in escrow until their ceasing to be a director.
(2) Includes 20,150 shares of common stock held by Mr. Greene's spouse in
her retirement plan, 34,000 shares held in the Greene Family
Charitable Foundation of which Mr. Greene is the trustee, and 564,703
shares held by Tortuga Investment Corp., which is solely owned by Mr.
Greene.
(3) Includes 6,500 shares of common stock held in a family trust of which
Mr. Heather is a trustee.
16
(4) Includes 7,700 shares of common stock held by S.P. Hunt Holdings Ltd.,
which is solely owned by a trust of which Mr. Wettstein is a trustee.
Also includes 14,818 shares of common stock held by Mr. Wettstein's
spouse in her retirement plan.
(5) Includes 118,330 shares of common stock held by a corporation which is
solely owned by Mr. Roberts, 2,228 shares held by his spouse and
192,900 shares which Mr. Roberts has the right to acquire pursuant to
stock options which are currently vested or which vest within 60 days
from February 28, 2005. Ownership also includes 63,000 shares of
common stock held in a private charitable foundation which he and his
spouse control, but in which they have no beneficial interest. Also
includes 235,000 shares of restricted stock, 65% of which vests 20%
per year, commencing on August 6, 2005 until fully vested, and 35% of
which vests upon the later of the officer reaching a retirement age
between the age of 60 and 65, depending on length of service, and the
officer's separation from the Company. None of the shares of
restricted stock are currently vested. In addition to the foregoing
vesting provisions, all of these shares will vest upon death,
disability, or a change in control of the Company. With respect to
one-third of the 65% that vests over time and all of the shares that
vest upon retirement, delivery of the shares will not be made to the
officer until that officer's separation from the Company.
(6) Includes the following shares of common stock for each respective
individual which they respectively have the right to acquire pursuant
to (a) stock options that are currently vested or that vest within 60
days from February 28, 2005, and (b) shares of restricted stock, 65%
of which vests 20% per year, commencing on August 6, 2005 until fully
vested, and 35% of which vests upon the later of the officer reaching
a retirement age between the age of 60 and 65, depending on length of
service, and the officer's separation from the Company. None of the
shares of restricted stock are currently vested. In addition to the
foregoing vesting provisions, all of these shares will vest upon
death, disability, or a change in control of the Company. With respect
to one-third of the 65% that vests over time and all of the shares
that vest upon retirement, delivery of the shares will not be made to
the officer until that officer's separation from the Company.
Officer Stock Options Restricted Stock
--------------------------- ----------------- ------------------
Ronald T. Evans............ 21,700 175,000
Phil Rykhoek............... 61,750 175,000
Mark A. Worthey............ 56,046 175,000
Mark C. Allen.............. 21,500 85,000
Ray Dubuisson.............. 15,000 85,000
Ron Gramling............... 73,894 85,000
James H. Sinclair.......... 35,656 85,000
(7) Includes 488,446 shares of common stock which the officers and
directors as a group have the right to acquire pursuant to stock
options which are currently vested or which vest within 60 days from
February 28, 2005, and 1,160,000 shares of restricted stock of which
vests over time as indicated above, none of which are vested as of
February 28, 2005.
(8) Information based on Schedule 13G filed with the SEC on February 14,
2005. Wellington Management Company claims shared power to vote or to
direct the vote for 3,182,338 shares and shared power to dispose or to
direct the disposition of 4,062,338 shares.
17
MANAGEMENT
The names of our officers, the offices held by them and the period during
which such offices have been held are set forth below. Each officer holds office
until his successor is duly elected and qualified in accordance with the
By-laws.
Name Age Position
----------------- ----- ---------------------------------------
Gareth Roberts 52 President and Chief Executive Officer
Ronald T. Evans 42 Senior Vice President, Reservoir Engineering
Phil Rykhoek 48 Senior Vice President, Chief Financial
Officer, Secretary and Treasurer
Mark A. Worthey 47 Senior Vice President, Operations
Mark C. Allen 37 Vice President & Chief Accounting Officer
Ray Dubuisson 54 Vice President, Land
Ron Gramling 59 Vice President, Marketing
James H. Sinclair 42 Vice President, Exploration
Set forth below is a description of the business experience of each of our
officers other than Gareth Roberts. See "Business to be Conducted at the Meeting
- Election of Directors" for a discussion of the business experience of Gareth
Roberts.
Ronald T. Evans, Senior Vice President, Reservoir Engineering, is a
registered Professional Engineer who joined us in September 1999. Before joining
Denbury, he was employed as a manager with Matador Petroleum Corporation for 3
years and employed by Enserch Exploration, Inc. for 12 years in various
positions. Mr. Evans received his Bachelor of Science degree in Petroleum
Engineering from the University of Oklahoma in 1984 and his MBA from the
University of Texas at Dallas in 1995. Mr. Evans also serves as a director of
Genesis Energy, L.P.
Phil Rykhoek, a Certified Public Accountant, is Senior Vice President,
Chief Financial Officer, Secretary and Treasurer of Denbury. Before joining us
in June 1995, Mr. Rykhoek was co-founder and an executive officer of Petroleum
Financial, Inc. ("PFI"), a private company formed in May 1991 to provide
accounting, financial, and management services on a contract basis to other
entities. While at PFI, Mr. Rykhoek was also an officer of Amerac Energy
Corporation, where he had been employed in various positions for eight years,
most recently as Vice President and Chief Accounting Officer. Mr. Rykhoek also
serves as a director of Genesis Energy, L.P.
Mark A. Worthey, Senior Vice President, Operations, is a geologist and is
responsible for all aspects of operations in the field. Before joining us in
September 1992, Mr. Worthey was with Coho Resources, Inc. as an exploitation
manager, beginning his employment there in 1985. Mr. Worthey graduated from
Mississippi State University with a Bachelor of Science degree in petroleum
geology in 1984. Mr. Worthey also serves as a director of Genesis Energy, L.P.
Mark C. Allen, a Certified Public Accountant, is Vice President and Chief
Accounting Officer. Mr. Allen joined us in April 1999 as Controller and Chief
18
Accounting Officer. Prior to joining Denbury, Mr. Allen was Manager of Financial
Reporting for ENSCO International Incorporated from November 1996 to April 1999.
Prior to November 1996, Mr. Allen was a manager in the accounting firm of Price
Waterhouse LLP.
Ray Dubuisson is Vice President, Land, of Denbury. He joined us in July
2002. Prior to joining Denbury, Mr. Dubuisson was a practicing oil and gas
attorney in the Houston area primarily involved in exploration and production
transaction work, preparation of title opinions, and negotiation and preparation
of acquisition and divestiture agreements. He is licensed to practice law in the
State of Texas, and has previously served as Vice President of Land for Weber
Energy Corporation and Quanah Petroleum in Dallas, as Gulf Coast District Land
Manager for Aminoil in Houston, and as Landman for Chevron in New Orleans.
Ron Gramling is Vice President, Marketing. He joined us in May 1996. Before
becoming affiliated with Denbury, he was employed by Hadson Gas Systems as Vice
President of Term Supply. Mr. Gramling has 34 years of marketing, transportation
and supply experience in the natural gas and crude oil industry. He received his
Bachelor of Business Administration degree from Central State University,
Edmond, Oklahoma in 1970.
James H. Sinclair, Vice President of Exploration joined Denbury in 1993.
During his tenure he has served in management positions in acquisitions and
exploration. Before joining Denbury, he was with Coho Resources, Inc. as a
geologist. Mr. Sinclair received his Bachelor of Science degree in Geology in
1984 from Northeast Louisiana University. He is a member of the AAPG (American
Association of Petroleum Geologists), Dallas Geologic Society, and the SEG
(Society of Exploration Geophysicists).
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets out a summary of executive compensation for our
President and Chief Executive Officer and our next four most highly compensated
executive officers for each of the last three completed fiscal years
(collectively, the "Named Executive Officers").
19
Annual Compensation Long Term Compensation
---------------------------------- -----------------------------
Number of
Securities
Restricted Underlying
Stock Options All Other
Name and Principal Position Year Salary Bonuses(1) Awards Granted Compensation(2,3)
------------------------------------------- -------- ------------ ------------ ------------- ------------- -------------------
Gareth Roberts 2004 $ 358,340 $ 186,092 $ 4,657,700 (4) 23,333 $ 38,605
President and 2003 350,000 100,091 - 22,807 37,630
Chief Executive Officer 2002 309,500 129,342 - 22,845 14,390
Ronald T. Evans 2004 $ 256,000 $ 132,923 $ 3,468,500 (4) 16,675 $ 30,925
Senior Vice President, 2003 250,000 71,528 - 14,870 29,962
Reservoir Engineering 2002 201,750 84,600 - 14,901 26,102
Phil Rykhoek 2004 $ 256,000 $ 132,923 $ 3,468,500 (4) 16,675 $ 30,925
Senior Vice President, Chief 2003 250,000 71,528 - 14,870 29,962
Financial Officer and Secretary 2002 201,750 84,600 - 14,901 26,102
Mark A. Worthey 2004 $ 256,000 $ 132,923 $ 3,468,500 (4) 16,675 $ 30,925
Senior Vice President, 2003 250,000 71,528 - 14,870 29,962
Operations 2002 201,750 84,600 - 14,901 26,102
Mark C. Allen 2004 $ 179,330 $ 93,114 $ 1,684,700 (4) 11,667 $ 24,649
Vice President and 2003 175,000 50,046 - 11,820 23,890
Chief Accounting Officer 2002 160,430 67,245 - 11,844 20,992
(1) Bonuses represent the amounts earned based on our performance for the
year indicated, even though they are actually paid in the subsequent
year. Bonuses also include a Christmas bonus that is equivalent to one
week's salary and has been paid to all employees for each of the last
three years.
(2) Amounts in this column for 2004 include our matching contributions to
the Employee Stock Purchase Plan, 401(k) Plan, and life and disability
insurance premiums paid on behalf of the Named Executive Officers as
follows:
Stock 401(k) Insurance
Purchase Plan Plan Premiums
------------------ ----------------- -----------------
Gareth Roberts $ 26,880 $ 9,225 $ 2,500
Ronald T. Evans 19,200 9,225 2,500
Phil Rykhoek 19,200 9,225 2,500
Mark A. Worthey 19,200 9,225 2,500
Mark C. Allen 13,450 9,225 1,974
(3) The aggregate amount of all other non-cash annual compensation for
2004 was less than 10% of the total annual salary and bonus of each
Named Executive Officer for each year.
(4) The holders of these shares have all of the rights and privileges of
owning the shares (including voting rights) except that the holders
20
are not entitled to delivery of the certificates until certain
requirements are met. The vesting restrictions on these shares are as
follows: i) 65% of the awards vest 20% per year over five years and,
ii) 35% of the awards vest upon the holder reaching a retirement age
between the age of 60 and 65, depending on length of service. All
restricted stock vest upon death, disability or a change of control.
The restricted stock was granted on August 6, 2004. The closing market
price on the date of grant was $19.82 per share. As of December 31,
2004, the value of the restricted stock awards, none of which were
vested at that time, was $6,450,750 for Mr. Roberts, $4,803,750 for
Messrs. Evans, Rykhoek and Worthey, and $2,333,250 for Mr. Allen,
based on the closing market price of $27.45 at that time. The officers
are not entitled to dividends on the restricted stock unless the stock
has vested. The total number of shares awarded to each officer and the
number of shares that vest during each of the next three years (39% of
the total awards) are listed below.
Restricted shares that vest during year ended December 31, Total
2005 2006 2007 Grants (shares)
------------------ ----------------- ----------------- ------------------
Gareth Roberts 30,550 30,550 30,550 235,000
Ronald T. Evans 22,750 22,750 22,750 175,000
Phil Rykhoek 22,750 22,750 22,750 175,000
Mark A. Worthey 22,750 22,750 22,750 175,000
Mark C. Allen 11,050 11,050 11,050 85,000
OPTION GRANTS IN 2004
The following table represents the options granted to the Named Executive
Officers during 2004 and the value of such options as of the date of grant:
Individual Grants
-----------------------------------------------------------------------------------------------------
% of
Total Options
Number of Granted to Exercise Grant Date
Options Employees in Price Expiration Present
Name Granted 2004 ($/Share) Date Value $(1)
--------------------- -------------- ---------------- ------------- ------------- --------------
Gareth Roberts 23,333 (2) 2.3% $ 13.65 1/2/2014 $ 143,559
Ronald T. Evans 16,675 (2) 1.7% 13.65 1/2/2014 102,595
Phil Rykhoek 16,675 (2) 1.7% 13.65 1/2/2014 102,595
Mark A. Worthey 16,675 (2) 1.7% 13.65 1/2/2014 102,595
Mark C. Allen 11,667 (2) 1.2% 13.65 1/2/2014 71,782
(1) As permitted by the Securities and Exchange Commission rules, the
Grant Date Present Value of the options set forth in this table is
calculated in accordance with the Black-Scholes option pricing model,
using the following assumptions; expected volatility computed using,
as of the date of grant, the prior five year monthly average of the
our common stock listed on the NYSE, which was 47.0%; expected
dividend yield - 0%; expected option term - 5 years; and a risk-free
rate of return as of the date of grant of 3.3%, based on the yield of
five year U.S. Treasury securities. The actual value of the options
presented in this table depends upon the performance of the common
stock during the applicable period in which they are exercised. The
dollar amounts in this column are not intended to forecast potential
future appreciation, if any, of the common stock.
(2) These options cliff vest 100% on January 2, 2008, four years from the
date of grant.
21
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the Named
Executive Officers concerning unexercised options held by them as of December
31, 2004. The options exercised by the Named Executive Officers during 2004 are
listed below:
Shares Number of Common Shares
Acquired Value Underlying Unexercised Value of Unexercised In-the
on Exercise Realized Options at Money Options at
Name in 2004 in 2004 December 31, 2004 December 31, 2004 (1)
----------------------- ------------ ------------ -------------------------------- ---------------------------------
Exercisable Unexercisable Exercisable Unexercisable
--------------- --------------- ---------------- ----------------
Gareth Roberts - $ - 174,200 87,685 $ 3,403,384 $ 1,506,876
Ronald T. Evans 10,000 207,600 9,500 58,646 224,153 1,003,101
Phil Rykhoek 42,500 (2) 575,329 (2) 55,650 29,324 896,522 501,568
Mark A. Worthey 48,625 1,007,657 43,846 58,646 703,520 1,003,101
Mark C. Allen 21,000 323,092 11,800 45,031 278,441 775,274
(1) Based on the average of the high and low sales price of Denbury's
common stock on December 31, 2004, of $27.575 per share as reported by
the NYSE.
(2) Included in the table are 7,500 options that were exercised and held
by Mr. Rykhoek, with a value realized of $129,150 representing the
difference between the exercise and market price on the date of
exercise, even though the shares were not sold.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board (the "Committee") is responsible
for making recommendations to the Board regarding the general compensation
policies of the Company, the compensation plans and specific compensation levels
for officers and certain other managers. The Committee also administers our
stock option and stock purchase plans for all employees.
The basic policy adopted by the Board is to ensure that salary levels and
compensation incentives are designed to attract and retain qualified individuals
in key positions and are commensurate with the level of executive
responsibility, the type and scope of our operations, and our financial
condition and performance.
The overall compensation philosophy is that:
o we pay base salaries that will attract and retain outstanding talent,
generally around the median salaries of comparable companies;
o long-term incentives are the main focus of compensation;
22
o all employees are encouraged to be stockholders to better align their
interests with those of our stockholders; and
o employees are rewarded primarily for the effort and results of the
team or Company as a whole, rather than compensating only for
individual performance.
The components of this philosophy consist of:
o competitive base salaries;
o a stock purchase plan for all employees;
o stock options for all employees, but with a higher level for the
professionals;
o restricted stock to the officers; and
o a profit sharing plan or bonus plan.
BASE SALARIES. In determining an executive's salary, the Committee weighs
individual performance, overall corporate performance, the executive's position
and responsibility in the organization, the executive's experience and expertise
and compensation for comparable positions at comparable companies. In making
recommendations, the Committee exercises subjective judgment using no specific
weights for these factors. The Committee believes that base salaries that
average at or near the median of comparable companies, as determined from salary
surveys and other data, are generally appropriate as a frame of reference for
base pay decisions. The specific compensation for individual executives will
vary from these levels as a result of the subjective judgment of the Committee
and based on the recommendation of the Chief Executive Officer with regard to
the other executives. This is the primary part of the compensation package
whereby a distinction is made for individual performance, as the other
components of the compensation plan are generally consistent among employee
groups and are proportional to base salaries.
The Chief Executive Officer's salary is determined in much the same manner
as that of other employees, with an intent to set his base salary at or near the
median of comparable companies based on salary surveys of the Company's peers.
The 2004 salary adjustments, effective January 1, 2005, for the Chief Executive
Officer, and other officers were made primarily to recognize the overall wage
inflation in the industry. These salary increases averaged 5.0% for the Company
as a whole (as compared to 3.0% in the prior year), 4.1% for the Named Executive
Officers as a group and 4.0% for the President and Chief Executive Officer. The
Committee does not consider factors relating to the Company's performance in
setting base salaries, but they do impact the magnitude of bonuses that are
granted (see "Bonus Plan" below).
STOCK PURCHASE PLAN. To encourage stock ownership in the Company by all of
the employees, we have a stock purchase plan which allows all employees to
contribute up to 10% of their base compensation with the Company matching 75% of
23
such contributions. The combined funds are used at the end of each quarter to
purchase common stock at the current market price. In addition, we pay the
income tax on the matching portion for employees who are below a certain salary
threshold, who are generally the employees that are not in the professional
group. The stock purchase plan requires each employee to hold these shares for a
minimum of one year before disposition. The Named Executive Officers received
approximately 9.7% of the total Company matching compensation during 2004.
STOCK OPTIONS. Our compensation program currently includes the issuance of
stock options to all of our eligible employees and officers on their date of
hire, with additional options granted each year as part of the annual review by
the Committee of compensation. An employee's initial grant generally vests 25%
per year over a period of four years, while the annual grants generally cliff
vest 100% four years from the grant date. The goal of our stock option grant
program to employees is to provide a generally consistent level of option grants
that vest each year.
As part of their annual compensation evaluation, the Committee considers
the computed value of stock options using the Black-Scholes pricing model, and
also takes into consideration:
o the total options outstanding relative to the total common stock
outstanding;
o the number of option grants made by comparable companies in the
aggregate and for similar positions;
o the perceived incentive value of the options currently held by the
employees; and
o the overall compensation package by the Company for that year.
Based on these factors, the Committee determines the appropriate number of
stock options to set aside for issuance to new employees and the number to be
granted to existing employees who are part of the Company's annual recurring
grant program. Since the price of the Company's stock has generally increased
over the last few years, the Black-Scholes pricing model suggests that the
number of stock options granted to each employee should decrease
correspondingly, assuming that other variables that are part of the
Black-Scholes computation remain constant. The Committee, following a practice
generally used since 1999, has reduced the number of annual option grants to
each employee by approximately one-half of what the Black-Scholes formula would
suggest is necessary to maintain a consistent level of stock option compensation
for each employee, as they believe the other factors noted above should also be
taken into consideration.
Once overall Company-wide levels of cash compensation and stock option
grants are determined, stock options are generally allocated among employees on
the basis of their current year bonuses which are set at the same time. Our
executive officers receive a level of stock options calculated using the same
percentage of bonuses as the other employees in the management and professional
group, using the same classifications of employees referenced "Bonus Plan"
below, even though their bonuses are paid at the fourth level. These
classifications of employees for cash bonuses and stock options are generally
based upon the level of base compensation. All options are granted at the
prevailing market price for our common stock and only have value if the market
price of the common stock increases after the date of grant. All of the options
granted under the option plan expire ten years from the date of grant and, to
24
the extent allowed under the United States federal income tax laws, are granted
as incentive stock options.
Currently we plan to discontinue the use of stock options effective July 1,
2005. Future grants to new employees and recurring grants to existing employees
will be made with stock appreciation rights payable only in stock rather than
stock options. The allocation methodology and practice is expected to remain the
same. This change will not impact the employees' level of compensation or
potential economic benefit, but will benefit all shareholders as it will
significantly reduce the amount of dilution caused by the issuance of stock
options.
The Named Executive Officers received approximately 8.6% of the total
option grants during 2004. See also "Executive Compensation - Option Grants in
2004."
RESTRICTED STOCK. Following approval of the 2004 Omnibus Stock and
Incentive Plan, the Committee evaluated the issuance of restricted stock to its
then existing officers. The Committee concluded that this additional incentive
for management was necessary (i) in light of our executives' compensation
compared to their peers, (ii) to further emphasize long-term incentives that are
consistent with those of our stockholders, and (iii) to more closely match their
compensation to overall Company performance. The Committee elected to grant
shares of restricted stock that vested over a long-term period and further
required that the officers retain a significant portion of any restricted stock
grant as long as they are employed by the Company. In August 2004, the Board, on
recommendation from the Committee, authorized the issuance of 235,000 shares of
restricted stock to Mr. Roberts, President and CEO, 175,000 shares to each of
the three Senior Vice Presidents, and 85,000 shares to each of the other Vice
Presidents, or a total of 1,100,000 shares. The Committee imposed the following
vesting restrictions on those shares: i) 65% of the awards vest 20% per year
over five years and, ii) 35% of the awards vest upon retirement (as defined in
the plan). With respect to the 65% of the awards that vest over five years, on
each annual vesting date, 66-2/3% of the vested shares may be delivered to the
officer with the remaining 33-1/3% retained and held in escrow until the
officer's separation from the Company.
The Committee also reviewed compensation to directors in 2004. The
Committee concluded that the Company's directors were underpaid as compared to
directors of the Company's peers, both as to cash compensation and as to equity
awards. As such, the Board, on recommendation of the Committee, increased the
directors' compensation (see "Compensation of Directors") and issued each
non-employee director 10,000 shares of restricted stock. With respect to the
60,000 restricted shares issued to Denbury's six independent board members
(including 10,000 restricted shares issued in 2005), the shares vest 20% per
year over five years. For these shares, on each annual vesting date, 40% of such
vested shares may be delivered to the director with the remaining 60% retained
and held in escrow until the director's separation from the Company. All
restricted shares vest upon death, disability or a change in control.
BONUS PLAN. Since 1995, we have had a practice of paying cash bonuses to
all of our employees each year except in 1998, when no bonuses were paid to
employees. There is no formal bonus plan, nor any written formulas for
determining bonus amounts. Because whether or not bonuses will be paid and in
what amounts is determined by the Committee on a Company-wide basis, executive
officers receive bonuses only if all employees receive bonuses.
25
Our bonus practices currently classify employees into four levels for bonus
compensation purposes, whereby at the first level, which includes all employees,
bonuses generally range from zero to ten percent of base salaries, although in
the past bonuses paid at this and all other levels have been as high as twelve
and one-half percent of base salary in an exceptionally good year. There is an
additional compensation layer for all employees in the professional group (the
second level), whereby these employees may receive an additional level of
bonuses of up to ten percent of base salaries, for or a total bonus ranging from
zero to twenty percent. In addition, certain members of the professional group
that are part of management or have been exceptional performers during a year
(the third level) are eligible to receive an additional level of bonuses of up
to ten percent of base salaries, for a total bonus ranging from zero to thirty
percent. Lastly, our officers and other senior management (the fourth level) are
eligible to receive an additional level of bonuses of up to ten percent of base
salaries, for a total bonus ranging from zero to forty percent. All of our
executive officers are eligible for bonuses at all four levels. All bonuses are
paid at the same percentage for each level (i.e. if level one is 10%, levels
two, three and four are also 10%).
Since this practice began in 1995, we have paid cash bonuses ranging from
0% to 50% of base salary to our executive officers, depending on the Company's
results for that year, as determined by the Committee. In addition to the
aforementioned bonus practice, we have usually paid a Christmas bonus each year
that is equivalent to one week of each employee's base salary.
Bonus determinations are made by the directors on our Committee
subjectively, not based on arithmetic methods or formulas, generally based on
our overall corporate results and whether or not the Company has achieved
predetermined Company-wide goals and objectives. Any measure that might be
considered to determine whether or not an oil and gas company had a good year
(or other measures of success or failure) is a possible consideration by the
Committee. These measures have historically included an evaluation of production
levels, stock performance, achievement of acquisition or disposition goals,
completion of significant transactions, completion of significant projects (such
as software systems or significant construction projects), operating and
administrative expense levels as compared to budget, capital expenditures as
compared to budget, and the changes in our proved, probable and possible
reserves for that period as compared to costs incurred. As the Committee's
decisions are subjective evaluations made on an overall basis, it is not
possible to determine how these measures are weighted or evaluated by the
Committee.
The Committee recommended that bonuses for 2004 be awarded at the 125th
percentile of the bonus range, which were paid in early 2005, due to the
exceptionally good year for the Company. During 2004, the Company met almost all
of its stated goals and objectives, including (i) higher than forecasted
production, (ii) the sale of its offshore properties at a good price, the
proceeds of which were used to reduce debt and accelerate the Company's tertiary
programs, (iii) the discovery of an additional one Tcf of carbon dioxide to use
in its tertiary program, (iv) the superb performance in the Company's stock,
outperforming its peers by almost a two-to-one margin during the year, (v)
reasonable, below industry average, finding costs for the year, (vi) conversion
of a new software system on time and relatively close to budget, and (vii)
significant work and effort in order to comply with the Sarbanes-Oxley Act rules
and regulations. While these results were all positive, the Company did face
significant cost inflation in the industry and failed to meet its budget for
operating costs and capital expenditures. However, the Committee perceived most
26
of this failure as an industry issue and concluded that overall, the Company,
its management and its personnel had performed well and exceeded its planned
objectives. As a result, the Committee recommended a bonus award for 2004 equal
to 12.5 percent of salaries for each bonus level, which equated to a bonus of
12.5% for all employees, an additional 12.5 percent for all members of the
professional group, an additional 12.5 percent for certain professionals, and an
additional 12.5 percent for our top managers and officers. All bonuses were
granted at the 125th percentile level of the potential bonus range, the prior
maximum bonus being 10% of salary for each bonus level or a total of 40% for the
officers and senior management. The President and Chief Executive Officers and
all other Named Executive Officers received a bonus equal to approximately 50%
of their salaries, consistent with the other officers and senior management.
Bonuses were also allocated to the President and Chief Executive Officer, other
Named Executive Officers and all other employees in a manner consistent with
prior years, as outlined above.
The foregoing report has been furnished by the following members of the
Committee.
The Compensation Committee
Ronald G. Greene, Chairman
Greg McMichael
Donald D. Wolf
SEVERANCE PROTECTION PLAN
In December 2000, the Board approved a severance protection plan for all of
our employees. Under the terms of the severance plan, an employee is entitled to
receive a severance payment if a change of control in the Company occurs and the
employee is terminated within two years of the change of control. The severance
plan will not apply to any employee who is terminated for cause or by an
employee's own decision for other than good reason (e.g., change of job status
or a required move of more than 25 miles). If entitled to severance payments
under the terms of the severance plan, the Chief Executive Officer and our three
senior vice presidents will receive three times their annual salary and bonus,
all of our other officers will receive two and one-half times their annual
salary and bonus, certain other members of management will receive two times
their annual salary and bonus, and all other employees will receive from
one-third to one and one-half times their annual salary and bonus depending on
their salary level and length of service with us. All employees will also
receive medical and dental benefits for one-half the number of months for which
they receive severance benefits.
The severance plan also provides that if our officers are subject to the
"parachute payment" excise tax, then the Company will pay the employee under the
severance plan an additional amount to "gross up" the payment so that the
employee will receive the full amount due under the terms of the severance plan
after payment of the excise tax.
27
SHARE PERFORMANCE GRAPH
The following graph illustrates changes over the five year period ended
December 31, 2004 in cumulative total stockholder return on our common stock,
assuming an initial investment of $100 on December 31, 1999, as measured against
the cumulative total return of the S&P 500 and the Dow Jones U.S. Exploration
and Production Indexes. The graph below shows the cumulative total return to our
stockholders during the five years ended December 31, 2004 in comparison to the
cumulative returns on the S&P 500 Index and the Dow Jones U.S. Exploration and
Production Index. The results assume $100 was invested on December 31, 1999 and
that dividends were reinvested.
Cumulative Total Return on $100 Investment
(December 31, 1999 - December 31, 2004)
1999 2000 2001 2002 2003 2004
-------- -------- -------- -------- -------- --------
Denbury $ 100 $ 259 $ 172 $ 266 $ 327 $ 646
S&P 500 100 91 80 62 80 89
Dow Jones Exploration and Production 100 160 147 150 196 279
[GRAPHIC OMITTED]
28
INTERESTS OF INSIDERS IN MATERIAL TRANSACTIONS
Other than as described below, there are no material interests, direct or
indirect, of any of our directors, officers or stockholders who beneficially
own, directly or indirectly, or exercise control or direction over more than 10%
of our outstanding common stock, or any known family member, associate or
affiliate of such persons, in any transaction within the last three years or in
any proposed transaction that has materially affected or would materially affect
the Company or any of its subsidiaries. We believe that the terms of the
transactions described below were as favorable to us as terms that reasonably
could have been obtained from non-affiliated third parties.
TPG INVESTMENTS
The Texas Pacific Group and its affiliates ("TPG") made several different
investments in the Company. They made their initial $40 million investment in
December 1995, followed with additional purchases as part of our public
offerings in 1996 and 1998, and invested an additional $100 million in April
1999. At its peak, TPG's ownership was approximately 60% of our then issued and
outstanding common stock.
Commencing in late 2002, TPG began to sell their common stock, selling
additional shares in two offerings during 2003, and sold their remaining balance
of approximately 9.3 million shares on March 26, 2004. TPG representatives no
longer hold any seats on our board.
STOCKHOLDER PROPOSALS
All future stockholder proposals must be submitted in writing to Phil
Rykhoek, Chief Financial Officer and Secretary, 5100 Tennyson Parkway, Suite
3000, Plano, Texas 75024. In order for a stockholder proposal to be included in
the proxy materials for the 2006 Annual Meeting of Stockholders, the proposal
must be received by the Company no later than December 3, 2005. These proposals
must also meet other requirements of the Securities and Exchange Act of 1934 to
be eligible for inclusion.
The form of Proxy for the annual meeting of stockholders grants authority
to the persons designated therein as proxies to vote in their discretion on any
other matters that come before the meeting, or any adjournment thereof, that are
not set forth in our proxy statement, except for those matters as to which
adequate notice is received. In order for a notice to be deemed adequate for
purposes of the 2005 annual meeting of stockholders, it must be received prior
to February 13, 2006.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP was appointed by the Audit Committee in May 2004
to audit the Company's books for 2004 replacing Deloitte & Touche LLP, which had
audited the Company since 1990. This decision was affirmed by Denbury's Board of
Directors. There were no disagreements with Deloitte & Touche LLP on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure. Representatives of PricewaterhouseCoopers LLP are
expected to be present at the annual meeting and will have an opportunity to
make a statement and/or to respond to appropriate questions. The Audit Committee
does not anticipate any changes to the auditors for 2005.
29
Independent Auditors' Fees
The following table presents fees for professional services rendered by
PricewaterhouseCoopers LLP for the year ended December 31, 2004 and by the prior
auditors, Deloitte & Touche LLP, for the year ended December 31, 2003.
2004 2003
-------------- -------------
Audit Fees (1) $ 715,574 $ 294,116
Audit Related Fees (2) - 29,758
Tax Fees - -
All Other Fees (3) 1,599 -
--------------- --------------
Total $ 717,173 $ 323,874
--------------- --------------
(1) Audit fees consisted of audit work and review services, as well as
work only the independent auditor can reasonably be expected to
provide, such as comfort letters, consents and review of documents
filed with the SEC. For 2004, fees included approximately $460,000
related to the audit requirements associated with the Sarbanes-Oxley
Act of 2002.
(2) Audit related fees consisted of employee benefit plan audit and
consultation on financial accounting and reporting matters and
internal control assistance related to the Sarbanes-Oxley Act of 2002.
(3) Fees associated with a license for research software.
The Audit Committee Charter stipulates that the Audit Committee approve the
fees to be paid to the independent accountants prior to the annual audit.
Additionally, all engagements for non-audit services by the independent public
accountants must be approved prior to the commencement of services. All fees
paid to the Company's independent accountants were approved by the Audit
Committee prior to the commencement of services.
30
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 and the rules
thereunder require our executive officers and directors, and persons who own
more than ten percent (10%) of our common stock, to file reports of ownership
and changes in ownership with the Securities and Exchange Commission and stock
exchanges and to furnish us with copies. Based solely on our review of the
copies of such forms received by us, or representations made by the officers and
directors to us, we are not aware of any late filings of these forms.
OTHER MATTERS
We know of no other matter to come before the annual meeting other than the
matters referred to in the Notice of Annual Meeting. However, if any other
matter properly comes before the meeting, the accompanying proxy will be voted
on such matter at the discretion of the person or persons voting the proxy.
All information contained in this proxy statement relating to the
occupations, affiliations and securities holdings of our directors and officers
and their relationship and transactions with us is based upon information
received from the individual directors and officers. All information relating to
any beneficial owner of more than 5% of our common stock is based upon
information contained in reports filed by such owner with the SEC. The
information contained in this proxy statement in the sections entitled "Board
Compensation Committee Report on Executive Compensation," "Share Performance
Graph" and "Audit Committee Report" shall not be deemed incorporated by
reference by any general statement incorporating by reference any information
contained in this proxy statement into any filing under the Securities Act of
1933 or the Securities Exchange Act of 1934, except to the extent that the
Company specifically incorporates by reference the information contained in such
sections, and shall not otherwise be deemed filed under the Securities Act or
the Exchange Act.
WE HAVE PROVIDED TO EACH PERSON WHOSE PROXY IS SOLICITED HEREBY A COPY OF
OUR 2004 ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31, 2004. THE
ANNUAL REPORT TO STOCKHOLDERS DOES NOT CONSTITUTE A PART OF THE PROXY SOLICITING
MATERIAL. A COPY OF OUR ANNUAL REPORT ON FORM 10-K FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION MAY BE OBTAINED WITHOUT CHARGE BY WRITING TO DENBURY
RESOURCES INC., ATTN: LAURIE BURKES, INVESTOR RELATIONS, 5100 TENNYSON PARKWAY,
SUITE 3000, PLANO, TEXAS 75024, OR BY E-MAIL TO INVREL@DENBURY.COM.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Phil Rykhoek
----------------
Phil Rykhoek
Senior Vice President, Chief
Financial Officer and Secretary
31
*** PROXY CARD ***
DENBURY RESOURCES INC.
ANNUAL MEETING OF STOCKHOLDERS
to be held
Wednesday May 11, 2005
PROXY VOTING INSTRUCTIONS
TO VOTE BY MAIL
---------------
Please date, sign and mail your proxy card in the envelope provided as soon as
possible.
TO VOTE BY TELEPHONE (TOUCH-TONE PHONE ONLY)
-------------------------------------------
Please call toll-free 1-800-PROXIES and follow the instructions. Have your
control number, which is presented below, available when you call.
TO VOTE BY INTERNET
-------------------
Please access the web page at "www.voteproxy.com" and follow the on-screen
instructions. Have your control number, which is presented below, available when
you access the web page.
YOUR CONTROL NUMBER IS -> [ ]
Please Detach and mail in the Envelope Provided
[X] Please mark your
votes as in this
example
FOR, except vote
withheld from the
1. Proposal to elect directors. FOR AGAINST following nominees:
Nominees: [ ] [ ] [ ]
Ronald G. Greene ----------------------
David I. Heather ----------------------
Greg Mcichael ----------------------
Gareth Roberts ----------------------
Randy Stein ----------------------
Wieland F. Wettstein ----------------------
Donald D. Wolf ----------------------
FOR AGAINST ABSTAIN
2. Proposal to extend the term of our employee stock purchase plan. [ ] [ ] [ ]
Signature:_________________________Date:___________________Signature: ___________________________ Date:___________________
(If held Jointly)
*** PROXY CARD ***
DENBURY RESOURCES INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 11, 2005
By signing this proxy, I appoint Ronald G. Greene, Chairman of the Board of
Denbury, and Gareth Roberts, President and Chief Executive Officer of Denbury,
and each of them acting singly, my attorney and proxy, with full power of
substitution, to vote on my behalf all of the shares of Denbury Resources Inc.
common stock that I am entitled to vote at the Annual Meeting of Stockholders to
be held on May 11, 2005, and at any adjournments of the meeting. This proxy
revokes any earlier proxy I have signed with respect to these shares.
If this proxy is properly executed, your shares of Denbury Resources Inc.
common stock represented by this proxy will be voted in the manner you specify.
If no specification is made, your shares of Denbury Resources Inc. stock will be
voted for each of the seven nominees for director and for the proposal to extend
the term of our employee stock purchase plan. The proxies are authorized to vote
my shares, in their discretion, on any other matter that is properly brought
before the meeting.
PLEASE SIGN AND MAIL YOUR PROXY TODAY.