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

Denbury Resources Inc. 2009 Annual Report 33Fair value calculated for the purpose of testing for impairment of our goodwill is estimated using the expected presentvalue of future cash flows method and comparative market prices when appropriate. A significant amount ofjudgment is involved in performing these fair value estimates for goodwill since the results are based on estimatedfuture cash flows and assumptions related thereto. Significant assumptions include estimates of future oil and naturalgas prices, projections of estimated quantities of oil and natural gas reserves, estimates of future rates of production,timing and amount of future development and operating costs, estimated availability and cost of CO 2 , projectedrecovery factors of reserves and risk-adjusted discount rates. We base our fair value estimates on projected financialinformation which we believe to be reasonable. However, actual results may differ from those projections.Item 1B. Unresolved Staff CommentsNone.Item 2. PropertiesSee Item 1. “Business – Oil and Natural Gas Operations.” We also have various operating leases for rental of officespace, office and field equipment, and vehicles. See “Off-Balance Sheet Agreements – Commitments and Obligations”in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Note 12,“Commitments and Contingencies,” to the Consolidated Financial Statements for the future minimum rental payments.Such information is incorporated herein by reference.Item 3. Legal ProceedingsIn connection with our proposed acquisition of Encore (the “Merger”), three shareholder lawsuits styled as classactions have been filed against Encore and its board of directors. The lawsuits are entitled Sanjay Israni, Individuallyand On Behalf of All Others Similarly Situated vs. Encore Acquisition Company et al. (filed November 4, 2009 in theDistrict Court of Tarrant County, Texas), Teamsters Allied Benefit Funds, Individually and On Behalf of All OthersSimilarly Situated vs. Encore Acquisition Company et al. (filed November 5, 2009 in the Court of Chancery in the Stateof Delaware) and Thomas W. Scott, Jr., individually and on behalf of all others similarly situated v. Encore AcquisitionCompany et al. (filed November 6, 2009 in the District Court of Tarrant County, Texas). The Teamsters and Scottlawsuits also name Denbury as a defendant. The complaints generally allege that (1) Encore’s directors breached theirfiduciary duties in negotiating and approving the Merger and by administering a sale process that failed to maximizeshareholder value and (2) Encore, and, in the case of the Teamsters and Scott complaints, Denbury aided and abettedEncore’s directors in breaching their fiduciary duties. The Teamsters complaint also alleges that Encore’s directors andexecutives stand to receive substantial financial benefits if the transaction is consummated on its current terms. Theplaintiffs in these lawsuits seek, among other things, to enjoin the Merger and to rescind the Merger Agreement. Encoreand Denbury have entered into a Memorandum of Understanding with the plaintiffs in these lawsuits agreeing inprinciple to the settlement of the lawsuits based upon inclusion in our joint proxy statement/prospectus dated February 5,2010, mailed to shareholders of Denbury and Encore in connection with their respective shareholder meetings toapprove the Merger, of additional disclosures requested by the plaintiffs, and agreeing that the parties to the lawsuitswill use best efforts to enter into a definitive settlement agreement, which has not yet occurred pending completionof limited discovery, and to seek court approval for the settlement which would be binding on all Encore shareholderswho do not opt-out of the settlement.A shareholder suit regarding a compensation matter brought as a derivative action on behalf of Denbury againstDenbury’s board of directors, entitled Harbor Police Retirement System v. Gareth Roberts, et al, in the District Court ofDallas County, Texas, was amended during January 2010 to generally allege breach of the Denbury directors’ fiduciaryduties based upon the further allegation that the directors approved an unreasonably high purchase price in theMerger. At a hearing held on March 1, 2010, the Court granted plaintiff’s motion for leave to amend its petition to addputative class action claims, including disclosure claims related to the joint proxy statement/prospectus. The plaintiffseeks monetary damages and equitable relief, which in the latter case includes enjoining the Denbury shareholdersForm 10-K Part I