Interactive 2009 Annual Report (PDF 7.56 MB) - Denbury Resources ...

32 Denbury Resources Inc. 2009 Annual ReportRisks Relating to the MergerBusiness uncertainties and contractual restrictions while the merger is pending may have an adverse effect on Encoreor Denbury.Uncertainty about the effect of the merger on employees, suppliers, partners, regulators and customers may have anadverse effect on Encore. These uncertainties may impair Encore’s ability to attract, retain and motivate key personneluntil the merger is consummated and could cause suppliers, customers and others that deal with Encore to deferpurchases or other decisions concerning Encore or seek to change existing business relationships with Encore.Failure to complete the merger or delays in completing the merger could negatively affect our stock prices and futurebusiness and operations.If the merger is not completed for any reason, we may be subject to a number of risks, including the following:• we will not realize the benefits expected from the merger, including a potentially enhanced financial and competitiveposition;• the current market price of our common stock may reflect a market assumption that the merger will occur and afailure to complete the merger could result in a negative perception by the stock market generally and a resultingdecline in the market price of our common stock;• certain costs relating to the merger, including certain investment banking, financing, legal and accounting fees andexpenses, must be paid even if the merger is not completed, and we may be required to pay substantial fees to theother if the merger agreement is terminated under specified circumstances;• there may be substantial disruption to our business and distraction of our management and employees fromday-to-day operations because matters related to the merger (including integration planning) may requiresubstantial commitments of time and resources, which could otherwise have been devoted to other opportunitiesthat could have been beneficial to us; and• delays in completing the merger could exacerbate uncertainties concerning the effect of the merger, which mayhave an adverse effect on the business following the merger and could defer or detract from the realization of thebenefits expected to result from the merger.We are subject to financial risks if we fail to complete the merger under certain circumstances.If we terminate the merger agreement because Denbury stockholders do not adopt the merger agreement, we will berequired to pay Encore $60 million, and in certain cases $120 million. If we terminate the merger agreement becausewe are unable to obtain the financing necessary to consummate the merger, we will be required to pay to Encore a$300 million termination fee. Further, there is a limited exception that would allow our board of directors to withdraw orchange its recommendation to holders of our common stock that they vote in favor of the adoption of the mergeragreement. Although our board of directors is permitted to take these actions if it determines in good faith that theseactions are likely to be required to comply with its fiduciary duties, doing so in specified situations could entitle Encoreto terminate the merger agreement and to be paid a termination fee of $120 million.Risks relating to the combined company after the mergerThe combined company may experience an impairment of its goodwill.We expect a significant increase to our existing goodwill in connection with consummation of the merger and theallocation of the purchase price thereto. We test goodwill for impairment annually during the fourth quarter, or betweenannual tests if an event occurs or circumstances change that may indicate the fair value of a reporting unit is less thanthe carrying amount. The need to test for impairment can be based on several indicators, including but not limited to asignificant reduction in the price of oil or natural gas, a full cost ceiling write-down of oil and natural gas properties,unfavorable revisions to oil and natural gas reserves and significant changes in the expected timing of production, orchanges in the regulatory environment.Form 10-K Part I