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

40 Denbury Resources Inc. 2009 Annual Report2.0698 and 2.6336 shares of Denbury common stock for each of their shares of Encore common stock, but not higheror lower than these share amounts if Denbury common stock trades outside this range. If Denbury common stocktrades outside of this range, the value of the shares of Denbury received will represent either more or less than $35 pershare. Based on the number of shares of Encore common stock outstanding as of February 3, 2010, we wouldissue to Encore stockholders between 115 million and 146 million shares of our common stock in the Merger, which willrepresent an increase in our aggregate shares outstanding of between 44% and 56%.The Merger Agreement contains customary covenants by each party to the Merger Agreement and consummation ofthe Merger is subject to customary conditions. The Merger Agreement also contains certain termination rights for bothus and Encore, including, among others, if the Merger has not occurred on or before May 31, 2010 with terminationfees in varying amounts payable by us or by Encore based upon specified reasons for termination. See “Business-Definitive Merger Agreement to Acquire Encore Acquisition Company.”Financing of the MergerWe received a financing commitment from J.P. Morgan, subject to customary conditions, to underwrite a new$1.6 billion senior secured revolving credit facility. We have been advised by the co-arrangers of this new senior securedrevolving credit facility, J.P. Morgan and Bank of America, N.A. that the syndication phase is complete, anddocumentation for this facility is being prepared. Subject to final documentation and satisfaction of closing conditions,we anticipate finalizing this facility prior to the Denbury and Encore stockholder meetings. The newly committedfinancing, coupled with the funds from our recent subordinated debt offering (see next paragraph), will be used to fundthe cash portion of the merger consideration (inclusive of payments due to Encore stock option holders), repayamounts outstanding under our existing $750 million revolving credit facility, which had $125 million outstanding as ofFebruary 15, 2010, potentially retire and replace a portion of up to $825 million of Encore’s senior subordinated notesthat are outstanding, all of which have a change of control put option at 101% of par value, repay amounts outstandingunder Encore’s existing revolving credit facility which had $155 million outstanding as of February 15, 2010, payEncore’s severance costs, pay transaction fees and expenses and provide additional liquidity. The aggregatecommitment of the senior secured lenders is a $1.6 billion facility with a term of four years. The new facility is expectedto be on substantially the same terms as our existing facility, conformed to current market conditions.We also received a financing commitment from J.P. Morgan for a $1.25 billion unsecured bridge loan facility; however,this bridge loan facility has been terminated and will not be utilized to fund the Merger as we have instead issued $1 billionof 8.25% Senior Subordinated Notes due 2020. On February 10, 2010, we sold $1 billion of 8.25% Senior SubordinatedNotes due 2020 at 100% of par in a public offering. The net proceeds from the notes offering were placed in escrowpending the closing of the Merger, subject to mandatory redemption of the notes if the Merger does not close, and partialredemption of the notes to the extent that three series of Encore outstanding senior subordinated notes are notrepurchased. Upon the closing of the Merger, $400 million of the escrowed proceeds will be released to us to finance aportion of the Merger consideration, and the remaining escrowed proceeds will be used to fund repurchases of up to$600 million principal amount of three series of Encore’s outstanding senior subordinated notes (or newly issued 8.25%senior notes to the extent not issued to repurchase Encore notes). On February 8, 2010, we initiated a tender offer forthese Encore subordinated notes, the closing of which is subject to the closing of the Merger.Sale of Interests in General Partner of Genesis Energy, L.P. On February 5, 2010, Denbury and one of itssubsidiaries sold all of the subsidiary’s interests in Genesis Energy, LLC, the general partner of Genesis Energy, L.P., orGenesis, to an affiliate of Quintana Capital Group L.P., for net proceeds of approximately $82 million (including amountsrelated to Genesis management incentive compensation and other selling costs). This sale gives the buyer controlof Genesis’ general partner. The sale of Denbury’s interest in the general partner does not include the sale of itsapproximate 10% ownership of Genesis’ outstanding common units, which Denbury currently still owns and for which aresale registration statement was filed in January 2010.Conroe Field Acquisition. On December 18, 2009, we purchased from Wapiti Energy, LLC, Wapiti Operating, LLCand Wapiti Gathering, LLC (collectively, “Wapiti”), a Houston based privately-owned company, oil and natural gasassets in the Conroe Field for total consideration of $422.9 million (after preliminary purchase price adjustments),consisting of $254.2 million in cash and 11,620,000 shares of Denbury common stock, which for the purpose ofForm 10-K Part IIManagement’s Discussion and Analysis of Financial Condition and Results of Operations