<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 5, 1997
REGISTRATION NO. 333-22491
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
BRIGHAM EXPLORATION COMPANY
(Exact name of Registrant as specified in its charter)
<TABLE>
<C> <C> <C>
DELAWARE
(State or other jurisdiction 1311 75-2692967
of incorporation or (Primary Standard Industrial (I.R.S. Employer
organization) Classification Code Number) Identification No.)
</TABLE>
5949 SHERRY LANE, SUITE 1616
DALLAS, TEXAS 75225
(214) 360-9182
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------------
BEN M. BRIGHAM
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND CHAIRMAN OF THE BOARD
BRIGHAM EXPLORATION COMPANY
5949 SHERRY LANE, SUITE 1616
DALLAS, TEXAS 75225
(214) 360-9182
(Name, address, including zip code, and telephone number, including area code,
of Registrant's agent for service)
---------------------
Copies of Communication to:
<TABLE>
<C> <C>
JOE DANNENMAIER ROBERT L. KIMBALL
THOMPSON & KNIGHT, P.C. VINSON & ELKINS L.L.P.
1700 PACIFIC AVENUE, SUITE 3300 2001 ROSS AVENUE, SUITE 3700
DALLAS, TEXAS 75201 DALLAS, TEXAS 75201
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION, DATED MAY 5, 1997
PROSPECTUS
3,000,000 SHARES
[BRIGHAM EXPLORATION COMPANY LOGO]
COMMON STOCK
The 3,000,000 shares of common stock, par value $.01 per share (the "Common
Stock"), offered hereby are being sold by Brigham Exploration Company ("Brigham"
or the "Company"). Prior to the offering made hereby (the "Offering"), there has
been no public market for the Common Stock. It is currently estimated that the
initial public offering price will be between $9.50 and $11.50 per share. See
"Underwriting" for information relating to the factors to be considered in
determining the initial public offering price. The Common Stock has been
approved for listing on the Nasdaq National Market under the symbol "BEXP."
------------------------------
ANY INVESTMENT IN THE SECURITIES OFFERED HEREIN INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 10.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==============================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share...................................... $ $ $
- --------------------------------------------------------------------------------------------------------------
Total(3)....................................... $ $ $
==============================================================================================================
</TABLE>
(1) The Company and the Selling Stockholders named herein have agreed to
indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $750,000.
(3) The Company and the Selling Stockholders have granted the Underwriters a
30-day option to purchase up to 450,000 additional shares of Common Stock on
the same terms and conditions as set forth above to cover over-allotments,
if any. If the Underwriters exercise this option in full, the total Price to
Public will be $ , the total Underwriting Discounts and Commissions
will be $ , the total Proceeds to Company will be $ and
the total Proceeds to Selling Stockholders will be $ . See
"Underwriting."
------------------------------
The shares of Common Stock are offered, subject to prior sale, when, as and
if delivered to and accepted by the Underwriters and subject certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made against payment therefor, on
or about , 1997 at the offices of Bear, Stearns & Co. Inc., 245 Park
Avenue, New York, New York 10167.
------------------------------
BEAR, STEARNS & CO. INC.
HOWARD, WEIL, LABOUISSE, FRIEDRICHS
INCORPORATED
RAUSCHER PIERCE REFSNES, INC.
THE DATE OF THIS PROSPECTUS IS MAY , 1997
<PAGE> 3
[MAP DEPICTING BRIGHAM'S AREAS OF CORE ACTIVITY. The omitted map is
captioned "Core Exploration Provinces" and depicts Texas, Louisiana and
Oklahoma, with three areas marked to indicate the Anadarko Basin, the West Texas
Region and the Gulf Coast. Relating to the area marked Anadarko Basin, the
following information is provided: 1,043 Sq. Miles of 3-D Acquired, 942 Sq.
Miles of 3-D Interpreted, 24 Projects, 325 Potential 3-D Drilling Locations.
Relating to the area marked West Texas Region, the following information is
provided: 1,552 Sq. Miles of 3-D Acquired, 1,552 Sq. Miles of 3-D Interpreted,
73 Projects, 508 Potential 3-D Drilling Locations. Relating to the area marked
Gulf Coast, the following information is provided: 533 Sq. Miles of 3-D
Acquired, 154 Sq. Miles of 3-D Interpreted, 6 Projects, 31 Potential 3-D
Drilling Locations. Under the caption "Other", the following information, set
apart from the three-state map, is provided: 215 Sq. Miles of 3-D Acquired, 189
Sq. Miles of 3-D Interpreted, 22 Projects, 30 Potential 3-D Drilling Locations.
Beneath the map and under the caption "TOTAL," the following information is
provided: 3,343 Sq. Miles of 3-D Acquired, 2,837 Sq. Miles of 3-D Interpreted,
125 Projects, 894 Potential 3-D Drilling Locations.]
------------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
COMMON STOCK, AND THE IMPOSITION OF A PENALTY BID, DURING AND AFTER THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the detailed information and the Financial Statements and
notes thereto included elsewhere in this Prospectus. All references in this
Prospectus to "Brigham" or the "Company" include Brigham Exploration Company,
its predecessors and their subsidiaries. Unless otherwise indicated, the
information in this Prospectus assumes no exercise of the Underwriters'
over-allotment option. Certain terms relating to the oil and gas industry are
defined in "Glossary of Certain Oil and Gas Terms."
THE COMPANY
Brigham is an independent exploration and production company that applies
3-D seismic imaging and other advanced technologies to systematically explore
and develop onshore domestic natural gas and oil provinces. With this focus,
Brigham has achieved rapid growth in reserves, potential drilling locations and
3-D seismic data.
Since inception in 1990, Brigham has drilled over 265 exploratory and 35
development wells on its 3-D generated prospects with an aggregate 63% success
rate. Through December 31, 1996, the Company had discovered total estimated
proved reserves of 70.1 Bcf of natural gas and 22.4 MMBbls of oil, or an
aggregate of 204.5 Bcfe, 14% of which is attributable to the Company's interest.
The Company's estimated proved reserves as of December 31, 1996 were 21.9 Bcfe
having an aggregate Present Value of Future Net Revenues of $44.5 million,
compared to estimated proved reserves as of December 31, 1993 of 2.2 Bcfe having
an aggregate Present Value of Future Net Revenues of $3.2 million.
The Company pioneered the acquisition of large scale onshore 3-D seismic
surveys for exploration, obtaining extensive 3-D seismic data and experience in
capturing undiscovered natural gas and oil reserves. Brigham has acquired over
3,300 square miles (2,112,000 acres) of 3-D seismic data and, from the 2,837
square miles interpreted to date, has identified approximately 1,200 potential
drilling locations. Brigham has drilled over 300 of these locations with an
average working interest of 21%. The Company generates most of its exploratory
projects and, therefore, has the ability to retain a sizeable working interest
to the extent that it decides not to place interests with industry participants.
In the projects in which it is currently acquiring 3-D seismic data, the Company
may retain an average working interest in the drilling and leasing phases in
excess of 60%.
BUSINESS STRATEGY
Brigham was founded in 1990 with the core belief that systematic
exploration applying 3-D seismic imaging and other advanced technologies could
reduce drilling risks and finding costs. Brigham's business strategy is to
continue to increase shareholder value by focusing on this core belief.
Brigham's exploration activities are concentrated primarily in three
provinces: the Anadarko Basin, the Gulf Coast and the West Texas region. The
Company is accelerating its 3-D seismic activity in the Anadarko Basin and the
Gulf Coast and will continue such activity in those geologic trends of the West
Texas region where it has achieved its best results historically. Brigham is
focusing its 3-D seismic activity in provinces where it believes 3-D technology
may be effectively applied and that it believes offer large potential reserve
volumes per well and per field, high potential production rates and multiple
producing objectives.
The Company's growth will be driven by drilling and developing its
potential drilling locations, as well as adding new locations through its
systematic 3-D seismic exploration effort. Using the proceeds of the Offering,
Brigham plans to accelerate growth by (i) increasing the working interest it
retains in drilling locations in order to capture a greater share of the
reserves the Company discovers, (ii) increasing the rate at which it acquires
3-D seismic data and identifies potential drilling locations, (iii) seeking to
identify higher potential drilling locations, (iv) increasing the rate at which
potential drilling locations are drilled and (v) reducing the time spent
marketing projects to industry participants.
3
<PAGE> 5
COMPETITIVE ADVANTAGES
Brigham believes that its knowledge base, personnel and technology provide
it with the following competitive advantages to capture undiscovered natural gas
and oil reserves.
Pioneering Innovations. In 1990 the Company pioneered the
assemblage of large scale onshore 3-D seismic projects and the use of
preseismic lease options for the systematic exploration of proven
natural gas and oil provinces. Subsequent innovations include the
Company's 3-D seismic acquisition and processing alliances and
creative industry trade structures to financially leverage its
drilling program.
3-D Seismic Knowledge Base. Since inception, the Company has
acquired over 3,300 square miles of 3-D seismic data and drilled more
than 300 wells in over 20 geologic trends in six basins and seven
states. With the resulting knowledge of the application of 3-D seismic
to different geologic trends, the Company has refined its exploration
techniques and identified exploration areas where it believes 3-D
seismic can reduce risks and enhance returns on its investments.
Technological Expertise. Brigham's explorationists collectively
have over 200 years of experience, including over 65 years of
experience using computer aided exploration ("CAEX") workstations, and
have expertise in many geologic trends.
Project Generation and Control. Brigham is not dependent on third
parties for its project flow, having generated approximately 90% of
its 3-D exploration projects. With the resulting project control, the
Company is able to manage the predrilling exploration phases and can
determine the level of working interest it retains and the extent to
which it manages drilling and post-drilling operations.
Numerous Potential Drilling Locations. The Company has identified
approximately 1,200 3-D defined potential drilling locations in
historically productive geologic trends, of which over 300 have been
drilled. The Company anticipates drilling 91 of these locations (23.8
net) in 1997 at a cost of approximately $16.0 million.
PRIMARY EXPLORATION PROVINCES
Brigham's exploration activities are concentrated primarily in three
provinces: the Anadarko Basin, the Gulf Coast and the West Texas region. Brigham
is accelerating 3-D seismic activity in the Anadarko Basin and the Gulf Coast
and will continue such activity in those geologic trends of the West Texas
region where it has achieved its best results historically. Brigham is focusing
its 3-D seismic exploration efforts in provinces where it believes 3-D
technology may be effectively applied and that it believes offer large potential
reserve volumes per well and per field, high potential production rates and
multiple producing objectives.
Although the Company is acquiring 3-D seismic data within the provinces
listed below and has identified approximately 900 potential drilling locations
yet to be drilled in those provinces, there can be no assurance that any of the
seismic data will be acquired or will generate additional drilling locations or
that any potential drilling locations will be drilled at all or within the
expected time frame. The final determination with respect to the drilling of any
well, including those currently budgeted, will depend on a number of factors,
including (i) the results of exploration efforts and the review and analysis of
the seismic data, (ii) the availability of sufficient capital resources by the
Company and other participants for drilling prospects, (iii) economic and
industry conditions at the time of drilling, including prevailing and
anticipated prices for natural gas and oil and the availability of drilling rigs
and crews, (iv) the financial resources and results of the Company and (v) the
availability of leases on reasonable terms and permitting for the potential
drilling location. There can be no assurance that the budgeted wells will, if
drilled, encounter reservoirs of commercial quantities of natural gas or oil.
4
<PAGE> 6
<TABLE>
<CAPTION>
ADDITIONAL 3-D 1997
SEISMIC DATA ADDITIONAL BUDGETED ESTIMATED
3-D SEISMIC BUDGETED FOR TOTAL GROSS POTENTIAL WELLS 1997
DATA ACQUIRED/ ACQUISITION WELLS DRILLED DRILLING ------------ CAPITAL
PROVINCE INTERPRETED(1) IN 1997 THROUGH 1996 LOCATIONS(2) GROSS NET EXPENDITURES(3)
-------- --------------- -------------- ------------- ------------ ----- ---- ---------------
(SQUARE MILES) (SQUARE MILES) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Anadarko Basin................. 1,043/942 493 31 325 41 12.3 $15,000
Gulf Coast..................... 533/154 191 1 31 7 2.2 7,000
West Texas Region.............. 1,552/1,552 68 255 508 41 8.2 4,000
Other (4)...................... 215/189 60 11 30 2 1.1 1,000
----------- --- --- --- -- ---- -------
Total.................. 3,343/2,837 812(5) 298 894 91 23.8 $27,000
=========== === === === == ==== =======
</TABLE>
- ---------------
(1) 3-D seismic data that had been or was being acquired/interpreted on February
15, 1997.
(2) The potential drilling locations that had been identified from the portion
of the 3-D seismic data that had been interpreted by February 15, 1997.
(3) 3-D seismic and land acquisition costs and drilling expenditures.
(4) Colorado, Kansas and Montana.
(5) The Company has budgeted approximately 1,400 square miles of 3-D seismic
data for acquisition in 1997, 582 of which had been acquired or were being
acquired on February 15, 1997.
Anadarko Basin. The Anadarko Basin is a prolific natural gas province that
the Company believes has been relatively under explored, particularly with
regard to deep, high potential objectives. The Anadarko Basin contains numerous
historically elusive stratigraphic targets, such as the Red Fork, Morrow and
Springer channel sands, and structural targets, such as the Hunton and Arbuckle
carbonates, which are well-suited to 3-D seismic imaging. In some cases, these
objectives have produced in excess of 30 Bcf of natural gas from a single well
at rates up to 30 MMcf of natural gas per day.
The Company has assembled an extensive digital data base in this province,
including geologic studies, basin wide geologic tops, production data, well
data, geographic data and over 7,400 miles of 2-D seismic data. Working with
consulting regional geologists, the Company's explorationists integrate this
data with their expertise and knowledge base to generate 3-D projects in the
Anadarko Basin.
As of February 15, 1997, the Company had acquired 1,043 square miles
(667,520 acres) of 3-D seismic data in 24 projects in the Anadarko Basin. As of
December 31, 1996, Brigham had completed 23 wells in 31 attempts (a 74% success
rate) in this province and had found cumulative proved reserves of 53.4 Bcf of
natural gas and 1.7 MMBbls of oil, or an aggregate of 63.4 Bcfe, with 16.3%
attributable to the Company's interest. In 1996, the Company completed 14 wells
in 20 attempts, adding 38.8 Bcfe of proved reserves, with 6.7 Bcfe attributable
to the Company's interest. As of February 15, 1997, the Company had 325 3-D
delineated potential drilling locations in the Anadarko Basin, of which the
Company intends to drill 41 gross (12.3 net) wells in 1997.
Gulf Coast. The Gulf Coast is a high potential, multi-pay province that
lends itself to 3-D seismic exploration due to its substantial structural and
stratigraphic complexity. The Company has assembled a digital data base
including geographical, production, geophysical and geological information that
the Company evaluates on its CAEX workstations. Working with consulting regional
geologists the Company's explorationists integrate this data with their
expertise and knowledge base to generate 3-D projects in the Gulf Coast.
Brigham's commitment to this province is evidenced by the Company's staff
additions, the opening of its Houston office and the addition of ten new 3-D
seismic projects in 1996 and 1997.
As of February 15, 1997, the Company had acquired or was acquiring 533
square miles (341,120 acres) of 3-D seismic data in six projects in the onshore
Gulf Coast. The Company anticipates acquiring 191 square miles (122,240 acres)
of additional 3-D seismic data in 1997.
The Company anticipates that its increased project assemblage and 3-D
seismic acquisition activity in the Gulf Coast will generate accelerated
drilling in the province in 1997 and 1998. The Company is currently assembling
projects in the Expanded Wilcox, Expanded Vicksburg and Yegua trends in South
Texas, the
5
<PAGE> 7
Miocene trend in South Texas and South Louisiana, and the Lower and Middle Frio
trends of the upper Gulf Coast of Texas. The Company has thirty-one 3-D
delineated potential drilling locations in the Gulf Coast and intends to drill 7
gross (2.2 net) wells in 1997.
West Texas Region. The Company's 3-D seismic and drilling activity in the
West Texas region has been focused in the Horseshoe Atoll, the Midland Basin and
the Eastern Shelf of the Permian Basin and the Hardeman Basin. The Company plans
to continue drilling its locations in these areas. Recently the Company
increased its activity in portions of geologic trends that the Company believes
offer greater potential for lower finding costs and higher returns, including
the Ellenberger and Devonian formations of the Delaware Basin and the Fusselman
formation of the Permian Basin. One area where the Company increased its
activity is in the Midland Basin, where the Company has drilled five recent
Fusselman discoveries and has acquired or intends to acquire 3-D seismic in four
additional projects, in which it expects to retain working interests in excess
of 50%.
As of February 15, 1997, the Company had acquired 1,552 square miles
(993,280 acres) of 3-D seismic in 73 projects in the West Texas region. As of
December 31, 1996, the Company had completed 164 wells in 255 attempts (a 64%
success rate) and had found cumulative proved reserves of 16.7 Bcf of natural
gas and 20.6 MMBbls of oil, or an aggregate of 139.8 Bcfe, with 13.0%
attributable to the Company's interest. In 1996 the Company completed 28 wells
in 43 attempts in this province, adding 29.8 Bcfe of proved reserves, with 5.7
Bcfe attributable to the Company's interest. The Company has 508 3-D delineated
potential drilling locations in the West Texas region and intends to drill 41
gross (8.2 net) wells in 1997.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company....................... 3,000,000 shares
Common Stock to be Outstanding after the Offering......... 11,928,574 shares(1)
Use of Proceeds........................................... The net proceeds of the Offering will
be used for exploration and development
activities, repayment of all
outstanding indebtedness of
approximately $10.9 million, and other
general corporate purposes. See "Use of
Proceeds."
Nasdaq National Market Symbol............................. "BEXP"
</TABLE>
- ---------------
(1) Does not include 644,097 shares of Common Stock issuable upon exercise of
outstanding employee stock options with an average exercise price of $5.00
per share. See "Management -- Executive Compensation" and Note 3 of Notes to
Balance Sheet and Note 8 of Notes to Financial Statements.
RISK FACTORS
Any investment in the Common Stock involves a high degree of risk. For a
discussion of certain risks that a potential investor should carefully evaluate
prior to making an investment in the Common Stock, see "Risk Factors."
6
<PAGE> 8
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table sets forth certain summary financial data of the
Company. The information should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
Unaudited Pro Forma Financial Statements and notes thereto and the Financial
Statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1992(1) 1993 1994 1995 1996
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Natural gas and oil sales............... $ 244 $ 937 $ 2,565 $ 3,578 $ 6,141
Workstation revenue..................... 252 467 815 635 627
------- ------- ------- ------- --------
Total revenues..................... 496 1,404 3,380 4,213 6,768
Costs and expenses:
Lease operating......................... 32 111 491 761 726
Production taxes........................ 12 47 126 165 362
General and administrative.............. 462 1,433 1,785 1,897 2,199
Depletion of natural gas and oil
properties............................ 127 4,371(2) 1,104 1,626 2,323
Depreciation and amortization........... 224 406 561 533 487
------- ------- ------- ------- --------
Total costs and expenses........... 857 6,368 4,067 4,982 6,097
------- ------- ------- ------- --------
Operating income (loss).................... (361) (4,964) (687) (769) 671
Other income (expense):
Interest income......................... 12 6 56 128 52
Interest expense........................ (21) (105) (668) (936) (1,173)
------- ------- ------- ------- --------
Net loss................................... $ (370) $(5,063) $(1,299) $(1,577) $ (450)
======= ======= ======= ======= ========
PRO FORMA STATEMENT OF OPERATIONS DATA:
Net loss(3)(4)............................. $ (56)
Net loss per share(3)(4)................... $ 0.00
Weighted average shares outstanding(3)..... 9,266
STATEMENT OF CASH FLOWS DATA:
Net cash provided by (used in) operating
activities.............................. $ (172) $ (730) $ 626 $ 1,383 $ 3,710
Net cash used in investing activities...... (3,931) (6,983) (5,463) (8,005) (11,796)
Net cash provided by financing
activities.............................. 4,845 7,839 4,634 7,724 7,731
OTHER FINANCIAL DATA:
Capital expenditures....................... $ 4,285 $ 6,632 $ 5,445 $ 7,935 $ 13,612
EBITDA(5).................................. 2 (181) 1,034 1,518 3,533
Cash flow from operations(6)............... (19) (286) 366 582 2,360
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
--------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3)(4) AS ADJUSTED(3)(4)(7)
------- --------------- --------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................... $ 1,447 $ 1,447 $21,992
Natural gas and oil properties, net........... 28,005 28,005 28,005
Total assets.................................. 33,614 33,614 54,159
Notes payable................................. 24,000 8,000 --
Total equity.................................. 3,244 14,565 43,110
</TABLE>
7
<PAGE> 9
- ---------------
(1) Represents the period from inception (May 1, 1992) of the Partnership, the
Company's predecessor, through December 31, 1992. Operations of the
predecessor to the Partnership for the period from January 1, 1992 through
April 30, 1992 were insignificant. See "The Company."
(2) Includes a capitalized ceiling impairment of $3.3 million in 1993.
(3) Gives effect to the Exchange (see "The Company") and the issuance of stock
options to employees under the 1997 Incentive Plan as if they had occurred
on January 1, 1996 for Statement of Operations Data and as of December 31,
1996 for Balance Sheet Data. See the Unaudited Pro Forma Financial
Statements and Note 1 of Notes to Financial Statements.
(4) Prior to the Exchange, the Company's predecessor was classified as a
partnership for federal income tax purposes. No provision has been made for
income taxes since these taxes are the responsibility of the partners. The
pro forma data reflect an income tax benefit in 1996 of $161,000 and a
deferred tax liability of $5.1 million at December 31, 1996 which would have
been recorded if the Company's predecessor had been required to pay federal
income taxes.
(5) EBITDA represents net income plus income taxes, interest expense and
depreciation, depletion and amortization expense. EBITDA should not be
considered in isolation or as a substitute for net income, cash flows from
operating activities or any other measure of financial performance prepared
in accordance with generally accepted accounting principles or as a measure
of a company's profitability or liquidity.
(6) Cash flow from operations represents net income plus non-cash items. Cash
flow from operations should not be considered in isolation or as a
substitute for net income, cash flows from operating activities or any other
measure of financial performance prepared in accordance with generally
accepted accounting principles or as a measure of a company's profitability
or liquidity.
(7) As adjusted for the Offering and the application of the estimated $28.5
million in net proceeds. See "Use of Proceeds."
8
<PAGE> 10
SUMMARY RESERVE AND OPERATING DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1992(1) 1993 1994 1995 1996(2)
------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
3-D SEISMIC ACQUIRED ANNUALLY:
Gross square miles........................ 288 908 423 311 655
Average project working interest.......... 17% 30% 27% 29% 37%
WELLS DRILLED ANNUALLY:
Gross wells drilled....................... 19 52 73 78 68
Net wells drilled......................... 1.5 9.2 16.8 18.5 16.0
Average drilling working interest......... 8% 18% 23% 24% 24%
ESTIMATED PROVED RESERVES (AT YEAR END)(3):
Natural gas (MMcf)........................ 57 227 3,579 4,257 10,257
Oil (MBbls)............................... 93 336 1,022 1,672 1,940
Natural gas equivalent (MMcfe)............ 614 2,243 9,710 14,288 21,895
Proved developed reserves as a percentage
of proved reserves..................... 100% 100% 76% 80% 67%
Present Value of Future Net Revenues...... $1,083 $3,158 $10,240 $18,222 $44,506
PRODUCTION VOLUMES:
Natural gas (MMcf)........................ 6 59 165 272 698
Oil (MBbls)............................... 11 50 140 177 227
Natural gas equivalent (MMcfe)............ 74 359 1,002 1,332 2,060
PERCENTAGE OF RESERVES REPLACED(4).......... 936% 533% 809% 368% 500%
PER MCFE DATA:
Natural gas and oil sales................. $ 3.32 $ 2.61 $ 2.56 $ 2.69 $ 2.98
Workstation revenue....................... 3.43 1.30 .81 .48 .30
Lease operating expenses.................. (.43) (.31) (.49) (.57) (.35)
Production taxes.......................... (.16) (.13) (.13) (.12) (.18)
General and administrative expenses....... (6.28) (3.99) (1.78) (1.42) (1.07)
------ ------ ------- ------- -------
Operating margin....................... $ (.12) $ (.52) $ .97 $ 1.06 $ 1.68
====== ====== ======= ======= =======
</TABLE>
- ---------------
(1) Represents the period from inception (May 1, 1992) of the Partnership, the
Company's predecessor, through December 31, 1992. Operations of the
predecessor to the Partnership for the period from January 1, 1992 through
April 30, 1992 were insignificant. See "The Company."
(2) Net of a sale by the Company in January 1996 of its interest in certain
properties that accounted for 303 MMcf of natural gas and 277 MBbls of oil
(1,962 MMcfe of proved reserves) as of December 31, 1995.
(3) The estimates of reserve and present value data as of December 31, 1996 have
been prepared in accordance with the SEC's guidelines by Cawley, Gillespie &
Associates, Inc., the Company's independent petroleum consultants ("Cawley
Gillespie"). Cawley Gillespie's letter summarizing its December 31, 1996
reserve report is Appendix A to this Prospectus.
(4) Reserve replacement is calculated as reserve additions divided by the
Company's production for the period.
9
<PAGE> 11
RISK FACTORS
Any investment in the Common Stock involves a high degree of risk.
Prospective purchasers of the Common Stock should carefully consider the risk
factors set forth below, as well as the other information contained in this
Prospectus. This Prospectus contains forward-looking statements. Actual results
may differ materially from those projected in the forward-looking statements as
a result of any number of factors, including risk factors set forth below.
DEPENDENCE ON EXPLORATORY DRILLING ACTIVITIES
The Company's revenues, operating results and future rate of growth are
highly dependent upon the success of its exploratory drilling program, which
will be funded in part with the proceeds of the Offering. Exploratory drilling
involves numerous risks, including the risk that no commercially productive
natural gas or oil reservoirs will be encountered. The cost of drilling,
completing and operating wells is often uncertain, and drilling operations may
be curtailed, delayed or cancelled as a result of a variety of factors,
including unexpected drilling conditions, pressure or irregularities in
formations, equipment failures or accidents, adverse weather conditions,
compliance with governmental requirements and shortages or delays in the
availability of drilling rigs and the delivery of equipment. Despite the use of
3-D seismic and other advanced technologies, exploratory drilling remains a
speculative activity. Even when fully utilized and properly interpreted, 3-D
seismic data and other advanced technologies only assist geoscientists in
identifying subsurface structures and do not enable the interpreter to know
whether hydrocarbons are in fact present in those structures. In addition, the
use of 3-D seismic data and other advanced technologies requires greater
predrilling expenditures than traditional drilling strategies, and the Company
could incur losses as a result of such expenditures. The Company's future
drilling activities may not be successful. There can be no assurance that the
Company's overall drilling success rate or its drilling success rate for
activity within a particular province will not decline. Unsuccessful drilling
activities could have a material adverse effect on the Company's results of
operations and financial condition. The Company often gathers 3-D seismic data
over large areas. The Company's interpretation of data delineates those portions
of an area desirable for drilling. Therefore, the Company may choose not to
acquire option and lease rights prior to acquiring seismic and, in many cases,
the Company may identify a drilling location before seeking option or lease
rights in the location. Although the Company has identified numerous potential
drilling locations, there can be no assurance that they will ever be leased or
drilled or that natural gas or oil will be produced from these or any other
potential drilling locations.
VOLATILITY OF NATURAL GAS AND OIL PRICES
The Company's revenues, operating results and future rate of growth are
highly dependent upon the prices received for the Company's natural gas and oil.
Historically, the markets for natural gas and oil have been volatile and are
likely to continue to be volatile in the future. Various factors beyond the
control of the Company will affect prices of its natural gas and oil, including
worldwide and domestic supplies of natural gas and oil, the ability of the
members of the Organization of Petroleum Exporting Countries to agree to and
maintain oil price and production controls, political instability or armed
conflict in oil-producing regions, the price and level of foreign imports, the
level of consumer demand, the price and availability of alternative fuels, the
availability of pipeline capacity, weather conditions, domestic and foreign
governmental regulations and taxes, and the overall economic environment. During
1996, the high and low prices for oil on the NYMEX were $26.57 per Bbl and
$17.45 per Bbl, and the high and low prices for natural gas on the NYMEX were
$4.57 per MMBtu and $1.76 per MMBtu. It is impossible to predict future natural
gas and oil price movements with certainty. Declines in natural gas and oil
prices may materially adversely affect the Company's financial condition,
liquidity, ability to finance planned capital expenditures and results of
operations. Lower natural gas and oil prices also may reduce the amount of
natural gas and oil that the Company can produce economically. Any significant
decline in the price of oil or natural gas would adversely affect the Company's
revenues and operating income and may require a reduction in the carrying value
of the Company's natural gas and oil properties. See "Risk Factors-Uncertainty
of Reserve Information and Future Net Revenue Estimates" and "Business and
Properties -- Competition."
10
<PAGE> 12
RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH AND IMPLEMENTATION OF GROWTH STRATEGY
The Company's rapid growth has placed, and is expected to continue to
place, a significant strain on the Company's financial, technical, operational
and administrative resources. As the Company increases the number of projects it
is evaluating or in which it is participating, there will be additional demands
on the Company's financial, technical and administrative resources. In addition,
the Company has only limited experience operating and managing field operations,
including drilling, and there can be no assurances that the Company will be
successful in doing so. Any increase in the Company's activities as an operator
will increase its exposure to operating hazards. See "Risk Factors -- Operating
Hazards and Uninsured Risks." The failure to continue to upgrade the Company's
technical, administrative, operating and financial control systems or the
occurrence of unexpected expansion difficulties, including difficulties in
recruiting and retaining geophysicists, geologists, engineers and sufficient
numbers of qualified personnel to enable the Company to expand its role in the
drilling and production phase, or the reduced availability of seismic gathering,
drilling or other services in the face of growing demand, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
SUBSTANTIAL CAPITAL REQUIREMENTS
The Company makes and will continue to make substantial capital
expenditures in its exploration and development projects. The Company intends to
finance these capital expenditures with the net proceeds from the Offering, cash
flow from operations and its existing financing arrangements. Additional
financing may be required in the future to fund the Company's developmental and
exploratory drilling and 3-D seismic acquisition activities. No assurance can be
given as to the availability or terms of any such additional financing that may
be required or that financing will continue to be available under the existing
or new financing arrangements. If additional capital resources are not available
to the Company, its drilling and other activities may be curtailed and its
business, financial condition and results of operations could be materially
adversely affected. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
HISTORICAL OPERATING LOSSES AND VARIABILITY OF OPERATING RESULTS
The Company had net losses of approximately $370,000 in 1992, $5.1 million
in 1993, $1.3 million in 1994, $1.6 million in 1995 and $450,000 in 1996. The
Company has incurred net losses in each year of operation, and there can be no
assurance that the Company will be profitable in the future. At December 31,
1996, the Company's pro forma accumulated deficit was $5.1 million, as a result
of recording deferred federal income tax expense as if the Company's partnership
predecessor was a taxable entity, and its pro forma total stockholders' equity
was $14.6 million. In addition, the Company's future operating results may
fluctuate significantly depending upon a number of factors, including industry
conditions, prices of natural gas and oil, rates of drilling success, rates of
production from completed wells and the timing of capital expenditures. This
variability could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, any failure or delay
in the realization of expected cash flows from operating activities could limit
the Company's ability to invest and participate in economically attractive
projects. See "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
RESERVE REPLACEMENT RISK
In general, production from natural gas and oil properties declines as
reserves are depleted, with the rate of decline depending on reservoir
characteristics. Except to the extent the Company conducts successful
exploration and development activities or acquires properties containing proved
reserves, or both, the proved reserves of the Company will decline as reserves
are produced. The Company's future natural gas and oil production is highly
dependent upon its ability to economically find, develop or acquire reserves in
commercial quantities. The business of exploring for or developing reserves is
capital intensive. To the extent cash flow from operations is reduced and
external sources of capital become limited or unavailable, the Company's ability
to make the necessary capital investment to maintain or expand its asset base of
natural gas and oil
11
<PAGE> 13
reserves would be impaired. The Company participates in a substantial percentage
of its wells as non-operator. The failure of an operator of the Company's wells
to adequately perform operations, or an operator's breach of the applicable
agreements, could adversely impact the Company. In addition, there can be no
assurance that the Company's future exploration and development activities will
result in additional proved reserves or that the Company will be able to drill
productive wells at acceptable costs. Furthermore, although the Company's
revenues could increase if prevailing prices for natural gas and oil increase
significantly, the Company's finding and development costs could also increase.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
OPERATING HAZARDS AND UNINSURED RISKS
The Company's operations are subject to hazards and risks inherent in
drilling for and producing and transporting natural gas and oil, such as fires,
natural disasters, explosions, encountering formations with abnormal pressures,
blowouts, cratering, pipeline ruptures and spills, any of which can result in
the loss of hydrocarbons, environmental pollution, personal injury claims and
other damage to properties of the Company and others. As protection against
operating hazards, the Company maintains insurance coverage against some, but
not all, potential losses. The Company may elect to self-insure if management
believes that the cost of insurance, although available, is excessive relative
to the risks presented. The Company generally maintains insurance for the
hazards and risks inherent in drilling for and producing and transporting
natural gas and oil and believes this insurance is adequate. Nevertheless, the
occurrence of an event that is not covered, or not fully covered, by insurance
could have a material adverse effect on the Company's financial condition and
results of operations. In addition, pollution and environmental risks generally
are not fully insurable. See "Business and Properties -- Operating Hazards and
Uninsured Risks."
UNCERTAINTY OF RESERVE INFORMATION AND FUTURE NET REVENUE ESTIMATES
Numerous uncertainties are inherent in estimating quantities of proved
reserves and their values, including many factors beyond the Company's control.
The reserve information in this Prospectus is an estimate only. Although the
Company believes these estimates are reasonable, reserve estimates are imprecise
and are expected to change as additional information becomes available.
Estimates of natural gas and oil reserves by necessity are projections
based on engineering data, and uncertainties are inherent in the interpretation
of this data, the projection of future rates of production and the timing of
development expenditures. Reserve engineering is a subjective process of
estimating underground accumulations of natural gas and oil that are difficult
to measure. The accuracy of any reserve estimate is a function of the quality of
available data, engineering and geologic interpretation, and judgment. Estimates
of economically recoverable natural gas and oil reserves and of future net cash
flows depend upon a number of variable factors and assumptions, such as
historical production from the area compared with production from other
producing areas, the assumed effects of regulations by governmental agencies,
and assumptions concerning future natural gas and oil prices, future operating
costs, severance and excise taxes, development costs and workover and remedial
costs, all of which may in fact vary considerably from actual results. For these
reasons, estimates of the economically recoverable quantities of natural gas and
oil attributable to any particular group of properties, classifications of
reserves based on risk of recovery, and estimates of the future net cash flows
may vary substantially. Moreover, there can be no assurance that the Company's
reserves will ultimately be produced or that the Company's proved undeveloped
reserves will be developed within the periods anticipated. Any significant
variance in the assumptions could materially affect the estimated quantity and
value of the Company's reserves. Actual production, revenues and expenditures
with respect to the Company's reserves will likely vary from estimates, and such
variances may be material. See "Business and Properties -- Natural Gas and Oil
Reserves."
The Present Value of Future Net Revenues referred to in this Prospectus
should not be construed as the current market value of the estimated natural gas
and oil reserves attributable to the Company's properties. In accordance with
applicable requirements of the SEC, the estimated discounted future net cash
flows from proved reserves are generally based on prices and costs as of the
date of the estimate, whereas actual future prices and costs may be materially
higher or lower. At December 31, 1996, the date Cawley Gillespie
12
<PAGE> 14
estimated the Company's reserves and present value data, the prices of natural
gas and oil on the NYMEX were $2.76 per MMBtu and $25.92 per Bbl, respectively.
At March 31, 1997, the prices were $1.93 per MMBtu and $20.41 per Bbl,
respectively. Actual future net cash flows also will be affected by factors such
as the amount and timing of actual production, supply and demand for natural gas
and oil, curtailments or increases in consumption by gas purchasers, and changes
in governmental regulations or taxation. The timing of actual future net cash
flows from proved reserves, and thus their actual present value, will be
affected by the timing of both the production and the incurrence of expenses in
connection with development and production of natural gas and oil properties. In
addition, the 10% discount factor, which must be used to calculate discounted
future net cash flows for reporting purposes, is not necessarily the most
appropriate discount factor based on interest rates in effect from time to time
and risks associated with the Company or the oil and gas industry in general.
COMPETITION
The Company operates in the highly competitive areas of natural gas and oil
exploration, exploitation, acquisition and production with other companies. In
seeking to acquire desirable producing properties or new leases for future
exploration and in marketing its natural gas and oil production, as well as in
seeking to acquire the equipment and expertise necessary to operate and develop
those properties, the Company faces intense competition from a large number of
independent, technology-driven companies as well as both major and other
independent natural gas and oil companies. Many of these competitors have
financial and other resources substantially in excess of those available to the
Company. See "Business and Properties -- Competition." The effects of this
highly competitive environment could have a material adverse effect on the
Company.
COMPLIANCE WITH GOVERNMENT REGULATIONS
The Company's business is subject to federal, state and local laws and
regulations relating to the exploration for, and the development, production and
transportation of, natural gas and oil, as well as safety matters. Although the
Company believes it is in substantial compliance with all applicable laws and
regulations, legal requirements are frequently changed and subject to
interpretation, and the Company is unable to predict the ultimate cost of
compliance with these requirements or their effect on its operations.
Significant expenditures may be required to comply with governmental laws and
regulations. See "Business and Properties -- Governmental Regulation."
COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
The Company's operations are subject to complex environmental laws and
regulations adopted by federal, state and local governmental authorities.
Environmental laws and regulations are frequently changed. The implementation of
new, or the modification of existing, laws or regulations could have a material
adverse effect on the Company. The discharge of natural gas, oil, or other
pollutants into the air, soil or water may give rise to significant liabilities
on the part of the Company to the government and third parties and may require
the Company to incur substantial costs of remediation. No assurance can be given
that existing environmental laws or regulations, as currently interpreted or
reinterpreted in the future, or future laws or regulations will not materially
adversely affect the Company's results of operations and financial condition.
See "Business and Properties -- Environmental Matters."
RISK OF HEDGING ACTIVITIES
In an attempt to reduce its sensitivity to energy price volatility, the
Company uses swap arrangements that generally result in a fixed price over a
period of six months. If the Company's reserves are not produced at rates
equivalent to the hedged position, the Company would be required to satisfy its
obligations under hedging contracts on potentially unfavorable terms without the
ability to hedge that risk through sales of comparable quantities of its own
production. Further, the terms under which the Company enters into hedging
contracts are based on assumptions and estimates of numerous factors such as
cost of production and pipeline and other transportation costs to delivery
points. Substantial variations between the assumptions and estimates
13
<PAGE> 15
used by the Company and actual results experienced could materially adversely
affect the Company's anticipated profit margins and its ability to manage the
risk associated with fluctuations in natural gas and oil prices. Additionally,
hedging contracts limit the benefits the Company will realize if actual prices
rise above the contract prices. In addition, hedging contracts are subject to
the risk that the other party may prove unable or unwilling to perform its
obligations under such contracts. Any significant nonperformance could have a
material adverse financial effect on the Company. As of December 31, 1996, the
Company had approximately 37.1% of its average monthly oil production (based on
fourth quarter production) committed to hedging contracts through May 1997.
These arrangements provide for the Company to exchange a floating market price
for a fixed contract price. Payments are made by the Company when the floating
price exceeds the fixed price for a contract month and payments are received
when the fixed price exceeds the floating price. Settlements on these swaps are
based on the difference between the average daily closing NYMEX price for a
contract month and the fixed contract price for the same month. In 1996 the
Company did not hedge any of its natural gas production. For the year ended
December 31, 1996, the Company realized a reduction in revenues attributable to
oil hedges of $301,280. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Other Matters."
MARKETABILITY OF PRODUCTION
The marketability of the Company's production depends in part upon the
availability, proximity and capacity of natural gas gathering systems, pipelines
and processing facilities. The Company delivers natural gas through gas
gathering systems and gas pipelines that it does not own. Federal and state
regulation of natural gas and oil production and transportation, tax and energy
policies, changes in supply and demand and general economic conditions all could
adversely affect the Company's ability to produce and market its natural gas and
oil. Any dramatic change in market factors could have a material adverse effect
on the Company.
DEPENDENCE ON KEY PERSONNEL
The Company has assembled a team of geologists, geophysicists and engineers
having considerable experience applying 3-D imaging technology. The Company is
dependent upon the knowledge, skills and experience of these experts to provide
3-D imaging and assist the Company in reducing the risks associated with its
participation in natural gas and oil exploration projects. In addition, the
success of the Company's business also depends to a significant extent upon the
abilities and continued efforts of its management, particularly Ben M. Brigham,
the Company's President, Chief Executive Officer and Chairman of the Board. The
Company has an employment agreement with Ben M. Brigham, but does not have an
employment agreement with any of its other employees. The Company has key man
life insurance on Mr. Brigham in the amount of $2.0 million. The loss of
services of key management personnel or the Company's technical experts, or the
inability to attract additional qualified personnel, could have a material
adverse effect on the Company's business, financial condition, results of
operations, development efforts and ability to grow. There can be no assurance
that the Company will be successful in attracting and retaining such executives,
geophysicists, geologists and engineers. See "Management -- Directors and
Executive Officers" and "Business and Properties -- Exploration Staff."
CONTROL BY EXISTING STOCKHOLDERS
Upon completion of the Offering, directors, executive officers and
principal stockholders of the Company, and certain of their affiliates, will
beneficially own approximately 74.7% of the Company's outstanding Common Stock
(approximately 71.8% if the Underwriters exercise the over-allotment option in
full). Accordingly, these stockholders, as a group, will be able to control the
outcome of stockholder votes, including votes concerning the election of
directors, the adoption or amendment of provisions in the Company's Certificate
of Incorporation or Bylaws and the approval of mergers and other significant
corporate transactions. The existence of these levels of ownership concentrated
in a few persons make it unlikely that any other holder of Common Stock will be
able to affect the management or direction of the Company. These factors may
also have the effect of delaying or preventing a change in the management or
voting control of the Company. See "Principal Stockholders."
14
<PAGE> 16
CERTAIN ANTITAKEOVER CONSIDERATIONS
The Company's Certificate of Incorporation authorizes the Board of
Directors of the Company to issue up to 10.0 million shares of preferred stock
without stockholder approval and to set the rights, preferences and other
designations, including voting rights, of those shares as the Board of Directors
may determine. These provisions, alone or in combination with the matters
described in "Risk Factors -- Control by Existing Stockholders," may discourage
transactions involving actual or potential changes of control of the Company,
including transactions that otherwise could involve payment of a premium over
prevailing market prices to holders of Common Stock. The Company also is subject
to provisions of the Delaware General Corporation Law that may make some
business combinations more difficult. See "Description of Capital Stock --
Delaware Law Provisions."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of a substantial number of shares of Common Stock in the public
market following the Offering could adversely affect the market price for the
Common Stock. The Company believes all of the shares of Common Stock currently
outstanding, 8,928,574 shares, will be eligible for sale under Rule 144 on
February 27, 1998, subject to compliance with the volume and other limitations
of Rule 144. Investors holding 8,421,431 shares have the right to require the
Company to register the public resale of their shares before that time. Holders
of approximately 8,928,574 shares are entitled to "piggyback" registration
rights. Approximately 8,907,574 shares are subject to "lock-up" agreements from
which they will be released 180 days after the date of this Prospectus. Options
covering 644,097 shares of Common Stock have been issued, with an exercise price
of $5.00 per share, subject to vesting. See "Shares Eligible for Future Sale"
and "Description of Capital Stock -- Registration Rights."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of the Common Stock in the Offering will experience an immediate
and substantial dilution in pro forma net tangible book value per share. See
"Dilution."
NO PRIOR PUBLIC MARKET; POSSIBLE STOCK PRICE VOLATILITY
Before the Offering, there has been no public market for the Common Stock,
and an active public market for the Common Stock may not develop or be
sustained. The initial public offering price will be determined through
negotiation between the Company and the Representatives of the Underwriters
based on several factors that may not be indicative of future market prices. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The trading price of the Common Stock and the
price at which the Company may sell securities in the future could be subject to
large fluctuations in response to changes in government regulations, quarterly
variations in operating results, litigation, general market conditions, the
prices of natural gas and oil, announcements by the Company and its competitors,
the liquidity of the Company, the Company's ability to raise additional funds
and other events.
15
<PAGE> 17
THE COMPANY
Brigham was formed in February 1997 and is the holding company for Brigham
Oil & Gas, L.P. (the "Partnership"), a Texas limited partnership. Brigham, Inc.
was formed as a Texas corporation in September 1990 to pursue natural gas and
oil exploration using 3-D seismic technology. The Partnership was formed in May
1992 by contribution of assets of Brigham, Inc., and its general partners were
General Atlantic Partners III, L.P., a Delaware limited partnership ("GAP III"),
and Brigham, Inc. Under the Exchange Agreement (the "Exchange Agreement"),
effective February 27, 1997, the following transactions occurred: (i) GAP III
and the limited partners of the Partnership transferred all their partnership
interests to the Company in exchange for an aggregate of 3,314,286 shares of
Common Stock, (ii) the stockholders of Brigham, Inc. transferred all the issued
and outstanding stock of Brigham, Inc. to the Company in exchange for an
aggregate of 3,859,821 shares of Common Stock and (iii) Resource Investors
Management Company Limited Partnership ("RIMCO") exchanged all of the 5%
Convertible Unsecured Subordinated Notes of the Partnership for 1,754,464 shares
of Common Stock. These transactions are referred to in this Prospectus as the
"Exchange." Following the Exchange, the Company owns all the general and limited
partnership interests in the Partnership and no instruments, agreements or
rights exist which may be converted, exchanged into, or otherwise become
interests in the Partnership. The stockholders of Brigham, Inc. were Ben M.
Brigham, President, Chief Executive Officer and Chairman of the Board of the
Company, and Anne L. Brigham, Executive Vice President and a Director of the
Company. The limited partners of the Partnership included the following officers
and/or directors of the Company, who received shares of Common Stock as
indicated: Jon L. Glass, Vice President -- Exploration and a Director (66,964
shares); Craig M. Fleming, Chief Financial Officer (44,643 shares); David T.
Brigham, Vice President -- Legal (44,643 shares); and Harold D. Carter, a
Director (350,893 shares). As a result of the Exchange, Brigham Exploration
Company owns, directly or indirectly, all the partnership interests in the
Partnership and conducts its active business operations through the Partnership.
References to the "Company" or to "Brigham" are to Brigham Exploration Company
and its predecessors and subsidiaries, including the Partnership and Brigham,
Inc.
Brigham's principal executive offices are located at 5949 Sherry Lane,
Suite 1616, Dallas, Texas 75225, and its telephone number is (214) 360-9182. In
July 1997, the Company intends to relocate its principal executive offices to
6300 Bridgepoint Parkway, Building 2, Suite 500, Austin, Texas 78730.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered by the Company are estimated to be approximately $28.5 million ($32.0
million if the Underwriters exercise their over-allotment option in full), based
on an assumed initial public offering price of $10.50 per share and after
deducting the estimated underwriting discounts and commissions and estimated
offering expenses.
The Company intends to use the net proceeds for exploration and development
activities (including 3-D seismic and land acquisition and drilling for which
the Company had budgeted approximately $27 million in 1997), repayment of all
outstanding indebtedness under the Revolving Credit Facility ($10.9 million at
March 31, 1997), and other general corporate purposes. While the Company
believes that the net proceeds from the Offering, cash flow from operations and
borrowings under the Revolving Credit Facility should allow the Company to
finance its operations at least through 1998 based on current conditions,
additional financing may be required in the future to fund the Company's 3-D
seismic acquisition and drilling programs. The interest rate for borrowings
under the Revolving Credit Facility is either the lender's base rate or LIBOR
plus from 1.75% to 2.25% depending on the amount outstanding under the facility.
At March 31, 1997 the current rate paid by the Company was 8.0%. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Revolving Credit Facility" for
a description of the Revolving Credit Facility. Pending application of the net
proceeds of the Offering as described above, they will be invested in
short-term, interest-bearing instruments. The Company will not receive any of
the proceeds from the sale of Common Stock by the Selling Stockholders, which
will occur only if the Underwriters exercise their over-allotment option.
16
<PAGE> 18
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock
and anticipates that all future earnings will be retained for use in its
business. In addition, the Revolving Credit Facility prohibits the payment of
cash dividends on Common Stock. The Board of Directors of the Company may review
the Company's dividend policy from time to time in light of, among other things,
the Company's earning and financial position. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation -- Liquidity and
Capital Resources" and Note 4 of Notes to Financial Statements.
DILUTION
The Company's pro forma net tangible book value at December 31, 1996 was
$14.6 million, or approximately $1.63 per share of Common Stock. Pro forma net
tangible book value per share represents the amount of total tangible assets of
the Company reduced by the amount of the Company's total liabilities, divided by
the number of shares of Common Stock outstanding. All amounts below give effect
to the Exchange. After giving effect to the sale by the Company of shares of
Common Stock in the Offering at an assumed initial public offering price of
$10.50 per share and the application of the estimated net proceeds as described
under "Use of Proceeds," the Company's pro forma as adjusted net tangible book
value as of December 31, 1996 would have been $43.1 million, or $3.61 per share.
This represents an immediate increase in pro forma net tangible book value of
$1.98 per share to the Company's existing stockholders and an immediate dilution
in pro forma net tangible book value of $6.89 per share to new investors
purchasing shares of Common Stock in the Offering. The following tables
illustrates the per share dilution in pro forma net tangible book value to new
investors:
<TABLE>
<CAPTION>
AMOUNT
COMMON --------------------------
SHARES TOTAL PER SHARE
---------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Actual net tangible book value at December 31,
1996........................................... -- $ 3,244
Outstanding Common Stock......................... 3 --
Pro forma adjustments:
Exchange of common stock for Partnership
interest.................................... 7,174,107 --
Conversion of subordinated notes............... 1,754,464 16,433
Deferred tax liability......................... -- (5,112)
---------- -------
Pro forma net tangible book value at December 31,
1996........................................... 8,928,574 14,565 $ 1.63
Net offering proceeds............................ 3,000,000 28,545
---------- -------
Pro forma as adjusted net tangible book value at
December 31, 1996.............................. 11,928,574 $43,110 $ 3.61
========== =======
Assumed initial public offering price per share............. $10.50
Pro forma net tangible book value per share
of Common Stock at December 31, 1996................... $ 1.63
Increase per share attributable to new investors.......... 1.98
----------
Pro forma as adjusted net tangible book value per share..... 3.61
------
Pro forma dilution per share to new investors............... $ 6.89
======
</TABLE>
17
<PAGE> 19
The following table sets forth the number of shares of Common Stock
purchased from the Company, the total consideration paid, and the average price
per share paid by the existing stockholders and new investors (based on the
assumed initial public offering price before deducting estimated underwriting
discounts and commissions and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------------- ------------------------ PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
-------------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 8,928,574 74.9% $28,433,130 47.0% $ 3.18
New investors................... 3,000,000 25.1 31,500,000 53.0 10.50
---------- ----- ----------- -----
Total...................... 11,928,574 100.0% $59,933,130 100.0%
========== ===== =========== =====
</TABLE>
The Company has reserved 1,588,169 shares for future issuance under the
Company's 1997 Incentive Plan. The preceding table excludes options that have
been granted to purchase 644,097 shares with an exercise price of $5.00 per
share, all of which have been granted since December 31, 1996. See
"Management -- Employee Benefit Plans -- 1997 Incentive Plan," Note 3 of Notes
to Balance Sheet and Note 8 of Notes to Financial Statements.
18
<PAGE> 20
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
December 31, 1996, (ii) pro forma to give effect to the Exchange and (iii) pro
forma as adjusted for the Offering and the application of the estimated $28.5
million in net proceeds described under "Use of Proceeds." The table should be
read with "Management's Discussion and Analysis of Financial Condition and
Results of Operations," the Unaudited Pro Forma Financial Statements, and the
Financial Statements and notes thereto in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Total debt(1):
Notes payable.................................. $ 8,000 $ 8,000 $ --
Subordinated notes payable..................... 16,000 -- --
------- ------- -------
24,000 8,000 --
Partners' capital and stockholders' equity:
Partners' capital.............................. 3,244 -- --
Preferred Stock, $.01 par value, 10,000,000
shares authorized; no shares outstanding
actual, pro forma and pro forma as
adjusted.................................... -- -- --
Common Stock, $.01 par value, 30,000,000 shares
authorized; no shares issued and outstanding
actual; 8,928,574 shares issued and
outstanding pro forma; and 11,928,574 shares
issued and outstanding pro forma as
adjusted(2)................................. -- 89 119
Additional paid-in capital..................... -- 22,486 51,001
Unearned stock compensation.................... -- (2,898) (2,898)
Accumulated deficit............................ -- (5,112) (5,112)
------- ------- -------
Total partners' capital and stockholders'
equity...................................... 3,244 14,565 43,110
------- ------- -------
Total capitalization............................. $27,244 $22,565 $43,110
======= ======= =======
</TABLE>
- ---------------
(1) See Note 4 of Notes to Financial Statements.
(2) Excludes 1,588,169 shares of Common Stock the Company has reserved for
future issuance under the Company's 1997 Incentive Plan, of which options
have been granted since December 31, 1996 to purchase 644,097 shares with an
exercise price equal to $5.00 per share. See "Management -- Employee Benefit
Plans 1997 Incentive Plan," Note 3 of Notes to Balance Sheet and Note 8 of
Notes to Financial Statements.
(3) Pro forma adjustments include the (i) exchange of 7,174,107 shares of Common
Stock for all of the Partnership interests, (ii) exchange of 1,754,464
shares of Common Stock for the Partnership's subordinated notes payable of
$16 million and $.4 million of deferred interest, (iii) recording of
unearned compensation of $2.9 million relative to the granting of 644,097
options to employees for the purchases of the Common Stock, and (iv) the
recording of deferred federal income tax expense of $5.1 million as if the
Partnership had been a taxable entity.
(4) Pro forma as adjusted reflects the issuance of 3,000,000 shares of common
stock at the assumed initial public offering price of $10.50 per share for
estimated proceeds of $28,545,000, net of estimated underwriting discounts
and expenses of the Offering.
19
<PAGE> 21
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Unaudited Pro Forma Financial Statements and notes thereto, and
the Financial Statements and notes thereto included elsewhere in this
Prospectus. All financial data presented, other than pro forma data, below are
derived from audited financial statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1992(1) 1993 1994 1995 1996
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Natural gas and oil sales............................... $ 244 $ 937 $ 2,565 $ 3,578 $ 6,141
Workstation revenue..................................... 252 467 815 635 627
------- ------- ------- ------- --------
Total revenues...................................... 496 1,404 3,380 4,213 6,768
Costs and expenses:
Lease operating......................................... 32 111 491 761 726
Production taxes........................................ 12 47 126 165 362
General and administrative.............................. 462 1,433 1,785 1,897 2,199
Depletion of natural gas and oil properties............. 127 4,371(2) 1,104 1,626 2,323
Depreciation and amortization........................... 224 406 561 533 487
------- ------- ------- ------- --------
Total costs and expenses............................ 857 6,368 4,067 4,982 6,097
------- ------- ------- ------- --------
Operating income (loss)................................... (361) (4,964) (687) (769) 671
Other income (expense):
Interest income......................................... 12 6 56 128 52
Interest expense........................................ (21) (105) (668) (936) (1,173)
------- ------- ------- ------- --------
Net loss.................................................. $ (370) $(5,063) $(1,299) $(1,577) $ (450)
======= ======= ======= ======= ========
PRO FORMA STATEMENT OF OPERATIONS DATA:
Net loss(3)(4)............................................ $ (56)
Net loss per share(3)(4).................................. $ 0.00
Weighted average shares outstanding(3).................... 9,266
STATEMENT OF CASH FLOWS DATA:
Net cash provided by (used in) operating activities....... $ (172) $ (730) $ 626 $ 1,383 $ 3,710
Net cash used in investing activities..................... (3,931) (6,983) (5,463) (8,005) (11,796)
Net cash provided by financing activities................. 4,845 7,839 4,634 7,724 7,731
OTHER FINANCIAL DATA:
Capital expenditures...................................... $ 4,285 $ 6,632 $ 5,445 $ 7,935 $ 13,612
EBITDA(5)................................................. 2 (181) 1,034 1,518 3,533
Cash flow from operations(6).............................. (19) (286) 366 582 2,360
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------------------------------------
1996
---------------------------------------------
PRO FORMA AS
1992 1993 1994 1995 ACTUAL PRO FORMA(3)(4) ADJUSTED(3)(4)(7)
------ ------- ------- ------- ------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..... $ 777 $ 903 $ 700 $ 1,802 $ 1,447 $ 1,447 $21,992
Natural gas and oil
properties, net............. 5,541 7,803 11,970 18,538 28,005 28,005 28,005
Total assets.................. 8,056 14,003 15,781 22,916 33,614 33,614 54,159
Notes payable................. -- 3,000 7,950 16,000 24,000 8,000 --
Total equity.................. 6,632 6,570 5,271 3,694 3,244 14,565 43,110
</TABLE>
- ---------------
(1) Represents the period from inception (May 1, 1992) of the Partnership, the
Company's predecessor, through December 31, 1992. Operations of the
predecessor to the Partnership for the period from January 1, 1992 through
April 30, 1992 were insignificant. See "The Company."
(2) Includes a capitalized ceiling impairment of $3.3 million in 1993.
(3) Gives effect to the Exchange (see "The Company") and the issuance of stock
options to employees under the 1997 Incentive Plan as if they had occurred
on January 1, 1996 for Statement of Operations
20
<PAGE> 22
Data and as of December 31, 1996 for Balance Sheet Data. See the Unaudited
Pro Forma Financial Statements and Note 1 of Notes to Financial Statements.
(4) Prior to the Exchange, the Company's predecessor was classified as a
partnership for federal income tax purposes. No provision has been made for
income taxes since these taxes are the responsibility of the partners. The
pro forma data reflect an income tax benefit in 1996 of $161,000 and a
deferred tax liability of $5.1 million at December 31, 1996 which would have
been recorded if the Company's predecessor had been required to pay federal
income taxes.
(5) EBITDA represents net income plus income taxes, interest expense and
depreciation, depletion and amortization expense. EBITDA should not be
considered in isolation or as a substitute for net income, cash flows from
operating activities or any other measure of financial performance prepared
in accordance with generally accepted accounting principles or as a measure
of a company's profitability or liquidity.
(6) Cash flow from operations represents net income plus non-cash items. Cash
flow from operations should not be considered in isolation or as a
substitute for net income, cash flows from operating activities or any other
measure of financial performance prepared in accordance with generally
accepted accounting principles or as a measure of a company's profitability
or liquidity.
(7) As adjusted for the Offering and the application of the estimated $28.5
million in net proceeds. See "Use of Proceeds."
21
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is an independent exploration and production company that
applies 3-D seismic imaging and other advanced technologies to systematically
explore and develop onshore domestic natural gas and oil provinces. Brigham has
acquired over 3,300 square miles of 3-D seismic, identified approximately 1,200
potential drilling locations and drilled over 300 wells. The Company believes
this performance demonstrates a systematic methodology for finding natural gas
and oil in onshore domestic natural gas and oil provinces.
Combining its geologic and geophysical expertise with a sophisticated land
effort, the Company manages the majority of its projects from conception through
3-D acquisition, processing and interpretation and leasing. Because it generates
most of its projects, the Company can control the size of the working interest
that it retains as well as the selection of the operator and the non-operating
participants. Additionally, the Company manages the negotiation and drafting of
most of its geophysical exploration agreements, resulting in reduced contract
risk and more consistent deal terms. In 1995, the Company began to manage
operations, on a limited basis, through the drilling and production phases. The
Company had discovered an aggregate of 204.7 Bcfe of proved reserves as of
December 31, 1996. However, primarily due to capital constraints the Company
retained an interest in only approximately 14% of the reserves discovered, or
28.7 Bcfe. Brigham is endeavoring to increase its working interest in its
projects, based on capital availability and perceived risk, and plans to use a
portion of the proceeds of the Offering to retain a larger portion of the value
it creates.
Expenditures made in natural gas and oil exploration vary from project to
project depending primarily on the costs related to land, seismic acquisition,
drilling costs and the working interest retained by the Company. Typically, the
Company's participants bear a disproportionate share of the costs of optioning
available acreage and acquiring, processing and interpreting the 3-D seismic
data, and the Company and its participants each bear leasing, drilling and
completion costs in proportion to their ownership interests.
From inception through 1993, the Company acquired 1,373 square miles of 3-D
seismic in 63 projects. The majority of the Company's 3-D seismic acquisitions
were concentrated in the Horseshoe Atoll and Eastern Shelf of the Permian Basin
and the Hardeman Basin of West Texas. The Company drilled seventy-nine 3-D
delineated wells during this period, increasing its revenues from natural gas
and oil production to $936,634 in 1993. The Company's production volumes
consisted of 85% oil on an equivalent basis. The Company's average working
interest in these wells was 14%. In 1992, the Company increased its capacity to
finance its project generation and drilling activities through a $10.0 million
private placement of equity. This financing partially funded the Company's
acquisition of 908 square miles of 3-D seismic data in 32 projects in 1993,
which contributed to the Company's reserve growth in subsequent years. The
Company also issued $3.0 million of 10% Senior Secured General Obligation Notes
(the "10% Notes") in 1993.
During 1994, the Company acquired 423 square miles of 3-D seismic in 16
projects, primarily in the Horseshoe Atoll and Eastern Shelf areas of the
Permian Basin, the Hardeman Basin and the Anadarko Basin. The Company drilled
seventy-three 3-D delineated wells, increasing its revenues from natural gas and
oil production to $2.6 million. The Company's production volumes consisted of
84% oil on an equivalent basis. The Company's average working interest in wells
drilled in 1994 was 23%. To finance its project generation and drilling
activities, the Company supplemented cash flow from operations with capital from
the issuance of $4.9 million of its 10% Notes and the placement of working
interests in projects to industry participants. The Company's acquisition of
seismic data declined in 1994 compared to previous years as the Company
allocated a greater portion of its capital expenditure budget to drilling 3-D
delineated locations.
During 1995, the Company significantly expanded its efforts in the Anadarko
Basin of Texas and Oklahoma by acquiring 195 square miles of 3-D seismic in four
projects in this basin, and initiated its exploration program in the Gulf Coast
with the Esperson Dome Project (39 square miles of 3-D seismic). The Company
also continued its efforts in the Horseshoe Atoll and Eastern Shelf areas of the
Permian Basin and the Hardeman Basin by acquiring 77 square miles of 3-D
seismic. The Company drilled seventy-eight 3-D delineated wells, increasing its
revenues from natural gas and oil production to $3.6 million. The Company's
22
<PAGE> 24
production volumes consisted of 80% oil on an equivalent basis. The Company's
average working interest in wells drilled in 1995 was 24%. To finance its
project generation and drilling activities the Company supplemented cash flow
from operations with capital from the issuance of $2.6 million of the 10% Notes,
the issuance of $16.0 million principal amount of its 5% Convertible Unsecured
Subordinated Notes (the "5% Notes") and the placement of working interests in
projects to industry participants. The Company used $10.5 million of the
proceeds from the issuance of the 5% Notes to retire the then outstanding
balance of the 10% Notes.
During 1996, the Company acquired 655 square miles of 3-D seismic data and
continued to focus the majority of its 3-D exploration efforts in the Anadarko
Basin and the Gulf Coast. The Company acquired 457 square miles (70%) of the 3-D
seismic data in eight projects in the Anadarko Basin, making this basin the most
active 3-D acquisition province for the Company in 1996. Brigham also
significantly increased its Gulf Coast activity, adding eight 3-D projects, and
continued to expand its operations through staff additions and opening a Houston
office in January 1997. While an increasing portion of the Company's capital was
dedicated to 3-D seismic and land acquisition and subsequent drilling in the
Anadarko Basin and the Gulf Coast, the Company continued to allocate a
significant amount of capital to the drilling of its potential drilling
locations in the West Texas region. The Company expects that its change in
geographic focus will result in a larger percentage of its reserves consisting
of natural gas. During 1996, the Company drilled sixty-eight 3-D delineated
wells, increasing its revenues from natural gas and oil production to $6.1
million. The Company's production volumes consisted of 66% oil on an equivalent
basis. The Company's average working interest in wells drilled in 1996 was 24%.
The Company's fourth quarter 1996 revenue from natural gas and oil production
increased to $1.9 million from $955,000 in the fourth quarter of 1995. The
Company supplemented cash flow from operations with borrowings under its
Revolving Credit Facility, the sale of producing properties and the placement of
working interests in projects to industry participants to finance its project
generation and drilling activities.
The Company uses the full-cost method of accounting for its natural gas and
oil properties. Under this method, all acquisition, exploration and development
costs, including certain internal costs that are directly attributable to the
Company's acquisition, exploration and development activities, are capitalized
in the amortizable base of the "full-cost pool" as incurred. Upon the
interpretation by the Company of the 3-D seismic data associated with unproved
properties, the geological and geophysical costs of acreage that is not
specifically identified as prospective are transferred to the amortizable base.
Geological and geophysical costs associated with prospective acreage, as well as
leasehold costs, are transferred to the amortizable base when the prospects are
drilled. The Company records depletion of its full-cost pool using the unit of
production method. To the extent that the costs capitalized in the full-cost
pool (net of depreciation, depletion and amortization and related deferred
taxes) exceed the present value (using a 10% discount rate) of estimated future
net after-tax cash flows from proved natural gas and oil reserves plus the
capitalized cost of unproved properties, such costs are charged to operations.
Once incurred, a write-down of natural gas and oil properties is not reversed at
a later date. See Note 2 of Notes to Financial Statements.
In connection with the Exchange, the Company issued options to purchase
644,097 shares of Common Stock to certain of its officers and employees. The
Company recorded an unearned stock compensation balance of $2.9 million, of
which approximately one-half will be added to the amortizable base of the
full-cost pool over the vesting period of the options and the balance will be
recorded as a noncash compensation expense of approximately $516,000 in 1997,
$374,000 in 1998 and an aggregate of $457,000 in the five years thereafter.
The Company's predecessor was classified as a partnership for federal
income tax purposes. Therefore, no income taxes were paid or provided for by the
Company prior to the Exchange. The Company is a taxable entity. Assuming the
Exchange had occurred on December 31, 1996, the Company would have incurred an
estimated charge of $5.1 million to record a deferred tax liability primarily
reflecting the difference between the tax bases and financial statement bases of
the Partnership's natural gas and oil properties. Accordingly, the Company
anticipates that a charge approximating this amount will be recorded in the
first quarter of 1997, when the Exchange occurred.
23
<PAGE> 25
RESULTS OF OPERATIONS
The following table sets forth certain operating data for the periods
presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Production:
Natural gas (MMcf)..................................... 165 272 698
Oil (MBbls)............................................ 140 177 227
Natural gas equivalent (MMcfe)......................... 1,002 1,332 2,060
Average sales prices per unit(1):
Natural gas (per Mcf).................................. $ 1.76 $ 1.62 $ 2.30
Oil (per Bbl).......................................... 16.30 17.76 19.98
Natural gas equivalent (per Mcfe)...................... 2.56 2.69 2.98
Costs and expenses per Mcfe:
Lease operating........................................ $ .49 $ .57 $ .35
General and administrative............................. 1.78 1.42 1.07
Depletion of natural gas and oil properties............ 1.10 1.22 1.13
</TABLE>
- ---------------
(1) Reflects the effects of the Company's hedging activities. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Other Matters -- Hedging Activities."
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Natural gas and oil sales. Natural gas and oil sales increased 72% from
$3.6 million in 1995 to $6.1 million in 1996. Of this increase, $2.0 million or
76% was attributable to an increase in production, and $607,894 or 24% was
attributable to an increase in the average sales price received for natural gas
and oil. Production volumes for natural gas increased 157% from 271,707 Mcf in
1995 to 698,036 Mcf in 1996. The average price received for natural gas
increased 42% from $1.62 per Mcf in 1995 to $2.30 per Mcf in 1996. Production
volumes for oil increased 28% from 176,693 Bbls in 1995 to 226,925 Bbls in 1996.
The average price received for oil increased 13% from $17.76 per Bbl in 1995 to
$19.98 per Bbl in 1996. Natural gas and oil sales were increased by production
from 43 wells completed in 1996, which was partially offset by the sale of
certain producing properties in January 1996 and the natural decline of existing
production. Hedging activities in 1996 reduced the amount by which oil revenues
increased by $301,280, compared to an increase in oil revenues of $40,849 as a
result of hedging activities in 1995.
Workstation revenue. Workstation revenue decreased 1% from $635,401 in 1995
to $627,255 in 1996, primarily as a result of a decrease in the rate at which
3-D seismic data were acquired in 1995 and interpreted in 1996. Workstation
revenue is recognized by Brigham as industry participants in the Company's
seismic programs are charged an hourly rate for the work performed by the
Company on its 3-D seismic interpretation workstations. The Company expects an
increase in workstation revenues in 1997 due to the increase in square miles of
3-D seismic acquired in 1996. Workstation revenue is expected to decline after
1997 due to the Company's increasing its interest in the square miles of 3-D
seismic acquired beginning in 1997, reducing the net hours billed to its
participants.
Lease operating expenses. Lease operating expenses decreased 5% from
$760,784 ($.57 per Mcfe) in 1995 to $725,785 ($.35 per Mcfe) in 1996. The
decrease is primarily due to the sale of certain producing properties in January
1996 partially offset by an increase in producing wells. The decrease in the per
unit rate was a result of the sale of higher cost oil wells in January 1996 and
an increase in the percentage of production from natural gas wells.
General and administrative expenses. General and administrative expenses
increased 16% from $1.9 million ($1.42 per Mcfe) in 1995 to $2.2 million ($1.07
per Mcfe) in 1996. Approximately $110,000 of the increase in 1996 resulted from
salary increases for employees, and the rest is primarily attributable to an
increase in third-party consulting fees. The decrease in the per unit rate was a
result of the increase in natural gas and oil production from 1995 to 1996. The
Company expects general and administrative expenses to
24
<PAGE> 26
increase in 1997, primarily as a result of a nonrecurring expense related to
relocating its principal executive office to Austin, Texas and the hiring of
additional personnel as the Company's operations grow.
Depletion of natural gas and oil properties. Depletion of natural gas and
oil properties increased 43% from $1.6 million ($1.22 per Mcfe) in 1995 to $2.3
million ($1.13 per Mcfe) in 1996 as a result of higher production volumes.
Interest expense. Interest expense increased 25% from $936,266 in 1995 to
$1.2 million in 1996. This increase was due to a higher average outstanding debt
balance in 1996, which was partially offset by a lower effective interest rate.
The weighted average outstanding debt balance increased 71% from approximately
$11.5 million in 1995 to $19.7 million in 1996. The effective interest rate
decreased 25% from 7.6% in 1995 to 5.7% in 1996. The increase in the weighted
average outstanding debt balance and decrease in the effective interest rate
resulted primarily from the retirement of the 10% Notes and the issuance of
$16.0 million in principal amount of the 5% Notes in August 1995. The Company
entered into the Revolving Credit Facility in April 1996, which had an effective
interest rate of 7.9% at December 31, 1996.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Natural gas and oil sales. Natural gas and oil sales increased 39% from
$2.6 million in 1994 to $3.6 million in 1995. Of this increase, $843,635 or 83%
was attributable to an increase in production and $168,785 or 17% was
attributable to an increase in the average sales price received for natural gas
and oil. Production volumes for natural gas increased 65% from 164,893 Mcf in
1994 to 271,707 Mcf in 1995. The average price received for natural gas
decreased 8% from $1.76 per Mcf in 1994 to $1.62 per Mcf in 1995. Production
volumes for oil increased 27% from 139,560 Bbls in 1994 to 176,693 Bbls in 1995.
The average price received for oil increased 9% from $16.30 per Bbl in 1994 to
$17.76 per Bbl in 1995. Natural gas and oil sales were increased by the
completion of 46 wells in 1995, which was partially offset by the natural
decline of existing production.
Workstation revenue. Workstation revenue decreased 22% from $814,841 in
1994 to $635,401 in 1995, primarily as a result of a decrease in the rate at
which 3-D seismic data were acquired in 1994 and interpreted in 1995.
Lease operating expenses. Lease operating expenses increased 55% from
$491,047 ($.49 per Mcfe) in 1994 to $760,784 ($.57 per Mcfe) in 1995. The
increase was primarily due to an increase in production from new wells and an
increase in the per unit rate. The per unit rate increase was due to natural
production decline in existing wells relative to the cost of operating the
wells.
General and administrative expenses. General and administrative expenses
increased 6% from $1.8 million ($1.78 per Mcfe) in 1994 to $1.9 million ($1.42
per Mcfe) in 1995. The increase was related to salary increases for existing
employees. The decrease in the per unit rate was the result of the increase in
natural gas and oil production from 1994 to 1995.
Depletion of natural gas and oil properties. Depletion of natural gas and
oil properties increased 47% from $1.1 million ($1.10 per Mcfe) in 1994 to $1.6
million ($1.22 per Mcfe) in 1995, as a result of higher production volumes and
per unit rates.
Interest expense. Interest expense increased 40% from $667,418 in 1994 to
$936,266 in 1995. This increase was due to a higher average outstanding debt
balance partially offset by a lower effective interest rate in 1995. The
weighted average outstanding debt balance increased 95% from approximately $5.9
million in 1994 to $11.5 million in 1995. The effective interest rate decreased
24% from 10.0% in 1994 to 7.6% in 1995. The increase in the weighted average
outstanding debt balance and decrease in the effective interest rate resulted
from the retirement of the 10% Notes and the issuance of $16.0 million in
principal amount of the 5% Notes in August 1995.
25
<PAGE> 27
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of capital have been borrowings (primarily
the 10% Notes, the 5% Notes and the Revolving Credit Facility), equity capital
from private sources, the sale of interests in projects and funds generated by
operations. The Company's primary capital requirements are 3-D seismic and land
acquisition costs and drilling expenditures.
Revolving Credit Facility. In April 1996, the Company entered into the
Revolving Credit Facility with Bank One, Texas, NA ("Bank One"). This facility
has a three-year term and provides for a maximum borrowing base of $25.0
million, subject to certain borrowing base limitations. Principal outstanding is
due at maturity on March 31, 1999 with interest due monthly. On March 31, 1997,
the borrowing base was $13.7 million and borrowings outstanding under the
Revolving Credit Facility were $10.9 million. The Company intends to repay the
balance then outstanding under the Revolving Credit Facility with a portion of
the net proceeds from the Offering. The Revolving Credit Facility will remain in
place, although the Company intends to reduce the borrowing base in the future.
The borrowing base is determined semiannually, in March and September,
based upon the Company's proved natural gas and oil reserves. The interest rate
for borrowings under the Revolving Credit Facility is either the lender's base
rate or LIBOR plus from 1.75% to 2.25%, depending on the amounts outstanding.
The Company is subject to typical covenants and restrictions under the terms of
the Revolving Credit Facility. The Company's obligations under the Revolving
Credit Facility are secured by substantially all of the natural gas and oil
properties of the Company. See Note 4 of Notes to Financial Statements.
5% Notes. In August 1995, the Company entered into a note purchase
agreement with RIMCO under which RIMCO purchased $16.0 million in convertible
subordinated notes due September 1, 2002. These notes were unsecured and bore
interest at 5% per annum, of which 3% was currently payable and 2% was deferred
and payable at the maturity date. The balance outstanding under the 10% Notes
was retired with a portion of the proceeds from the issuance of the $16.0
million in principal amount of the 5% Notes. RIMCO converted these notes and the
deferred interest thereon into a 19.65% equity interest in the Company in
February 1997. The Company will pay RIMCO an amount equal to the interest the
Company would have paid on the 5% Notes through the earlier to occur of the
closing of the Offering or September 30, 1997. See Note 4 of Notes to Financial
Statements.
Cash Flow Analysis
Cash Flows from Operating Activities. Cash flows provided by operating
activities were $3.7 million in 1996, $1.4 million in 1995 and $626,205 in 1994.
Increase in cash flows for 1996 compared to 1995 was due primarily to an
increase in natural gas and oil revenues, net of lease operating expenses,
production taxes and general and administrative expenses. The increase in cash
flows for 1995 compared to 1994 was due primarily to an increase in natural gas
and oil revenues, net of lease operating expenses, production taxes and general
and administrative expenses, and changes in balance sheet items.
Cash Flows from Investing Activities. Cash flows used in investing
activities increased to $11.8 million in 1996 compared to $8.0 million in 1995
and $5.5 million in 1994. These increases are directly related to an increase in
capital expenditures. Capital expenditures were $13.6 million in 1996, $7.9
million in 1995 and $5.5 million in 1994. The Company acquired 655 square miles
of 3-D seismic data in 1996, 311 square miles in 1995 and 423 square miles in
1994. The Company's drilling efforts resulted in the successful completion of 42
wells (8.5 net) in 1996, 46 wells (9.9 net) in 1995 and 45 wells (10.3 net) in
1994, which resulted in aggregate increases in PV-10 of $30.8 million in 1996,
$8.7 million in 1995 and $8.2 million in 1994. In 1996, the Company sold
producing properties for $2.1 million.
Cash Flows from Financing Activities. Cash flows from financing activities
for 1996 were $7.7 million, primarily as a result of borrowings under the
Revolving Credit Facility. Cash flows from financing activities for 1995 were
$7.7 million, primarily a result of the issuance of the 5% Notes offset by the
net repayment of the $7.9 million outstanding balance on the 10% Notes. Cash
flows from financing activities for 1994 were $4.6 million, primarily a result
of issuances of the 10% Notes.
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<PAGE> 28
Capital Expenditures
The Company estimates capital expenditures in 1997 will be at least $27
million. The Company expects to incur these capital expenditures primarily to
drill 91 gross (23.8 net) planned wells, acquire approximately 1,400 square
miles of 3-D seismic data and continue to add to and upgrade its 3-D seismic
interpretation hardware and software. The actual number of wells drilled and
square miles acquired may differ significantly from these estimates. See
"Business and Properties -- Primary Exploration Provinces."
Due to the Company's active 3-D seismic acquisition and drilling programs,
the Company has experienced and expects to continue to experience substantial
working capital requirements. While the Company believes that the net proceeds
from the Offering, cash flow from operations and borrowings under the Revolving
Credit Facility should allow the Company to finance its operations at least
through 1998 based on current conditions, additional financing may be required
in the future to fund the Company's 3-D seismic acquisition and drilling
programs. In the event additional financing is not available, the Company may be
required to curtail these activities.
OTHER MATTERS
Hedging Activities
In 1995 the Company, in an attempt to reduce its sensitivity to volatile
commodity prices, began using swap arrangements resulting in a fixed price over
a period of six months. The Company believes that hedging, although not free of
risk, allows the Company to achieve a more predictable cash flow and to reduce
exposure to price fluctuations. However, hedging arrangements, when utilized,
limit the benefit to the Company of increases in the prices of the hedged
commodity. Moreover, the Company's present hedging arrangements apply only to a
portion of its oil production and provide only partial price protection against
declines in oil prices. As of December 31, 1996, the Company had approximately
37.1% of its average monthly oil production (based on fourth quarter production)
committed to hedging contracts through May 1997. These arrangements provide for
the Company to exchange a floating market price for a fixed contract price.
Payments are made by the Company when the floating price exceeds the fixed price
for a contract month and payments are received when the fixed price exceeds the
floating price. Settlements on these swaps are based on the difference between
the average daily closing NYMEX price for a contract month and the fixed
contract price for the same month. Such hedging arrangements may expose the
Company to risk of financial loss in certain circumstances. See "Risk
Factors -- Risk of Hedging Activities." Total oil purchased and sold subject to
the swap arrangements was 118,150 Bbls in 1996 and 54,900 Bbls in 1995. The
Company accounts for all these transactions as hedging activities and,
accordingly, adjusts the price received for oil and gas production during the
period the hedged transactions occur. Adjustments to the price received for oil
under the swap arrangement resulted in an increase in oil revenues of $40,849 in
1995 and a decrease in oil revenues of $301,280 in 1996. There was no hedging in
1994. The Company expects that the amount of its hedges will vary from time to
time. Outstanding hedges at December 31, 1996 were 37,750 Bbls.
Effects of Inflation and Changes in Prices
The Company's results of operations and cash flows are affected by changing
natural gas and oil prices. If the price of natural gas and oil increases
(decreases), there could be a corresponding increase (decrease) in revenues as
well as the operating costs that the Company is required to bear for operations.
Inflation has had a minimal effect on the Company.
Environmental and other Regulatory Matters
The Company's business is subject to certain federal, state and local laws
and regulations relating to the exploration for and the development, production
and transportation of, natural gas and oil, as well as environmental and safety
matters. Many of these laws and regulations have become more stringent in recent
years, often imposing greater liability on a larger number of potentially
responsible parties. Although the Company believes it is in substantial
compliance with all applicable laws and regulations, the requirements imposed by
laws and regulations are frequently changed and subject to interpretation, and
the Company is
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<PAGE> 29
unable to predict the ultimate cost of compliance with these requirements or
their effect on its operations. Any suspensions, terminations or inability to
meet applicable bonding requirements could materially adversely affect the
Company's financial condition and operations. Although significant expenditures
may be required to comply with governmental laws and regulations applicable to
the Company, compliance has not had a material adverse effect on the earnings or
competitive position of the Company. Future regulations may add to the cost of,
or significantly limit, drilling activity. See "Risk Factors -- Compliance with
Environmental Regulations," "Business and Properties -- Governmental Regulation"
and "Business and Properties -- Environmental Matters."
BUSINESS AND PROPERTIES
Brigham is an independent exploration and production company that applies
3-D seismic imaging and other advanced technologies to systematically explore
and develop onshore domestic natural gas and oil provinces. With this focus,
Brigham has achieved rapid growth in reserves, potential drilling locations and
3-D seismic data.
Since inception in 1990, Brigham has drilled over 265 exploratory and 35
development wells on its 3-D generated prospects with an aggregate 63% success
rate. From January 1, 1994 through December 31, 1996, the Company had achieved
finding and development costs of $1.05 per Mcfe. These costs included 3-D
seismic and land costs for all of the Company's 3-D delineated locations, of
which it had only drilled a portion. For the same period, the Company achieved a
drilling cost of $.68 per Mcfe of reserves discovered and, in 1996, achieved a
drilling cost of $.37 per Mcfe of reserves discovered.
Through December 31, 1996, the Company had discovered total estimated
proved reserves of 70.1 Bcf of natural gas and 22.4 MMBbls of oil, or an
aggregate of 204.5 Bcfe, 14% of which is attributable to the Company's interest.
The Company's estimated proved reserves as of December 31, 1996 were 21.9 Bcfe
having an aggregate Present Value of Future Net Revenues of $44.5 million,
compared to estimated proved reserves as of December 31, 1993 of 2.2 Bcfe having
an aggregate Present Value of Future Net Revenues of $3.2 million.
The Company pioneered the acquisition of large scale onshore 3-D seismic
surveys for exploration, obtaining extensive 3-D seismic data and experience in
capturing undiscovered natural gas and oil reserves. Brigham has acquired over
3,300 square miles (2,112,000 acres) of 3-D seismic data and, from the 2,837
square miles interpreted to date, has identified approximately 1,200 potential
drilling locations. Brigham has drilled over 300 of these locations with an
average working interest of 21%. The Company generates most of its exploratory
projects and, therefore, has the ability to retain a sizeable working interest
to the extent that it decides not to place interests with industry participants.
In the projects in which it is currently acquiring 3-D seismic data, the Company
may retain an average working interest in the drilling and leasing phases in
excess of 60%.
BUSINESS STRATEGY
Brigham was founded in 1990 with the core belief that systematic
exploration applying 3-D seismic imaging and other advanced technologies could
reduce drilling risks and finding costs. Brigham's business strategy is to
continue to increase shareholder value by focusing on this core belief.
Brigham's exploration activities are concentrated primarily in three
provinces: the Anadarko Basin, the Gulf Coast and the West Texas region. The
Company is accelerating 3-D seismic activity in the Anadarko Basin and the Gulf
Coast and will continue such activity in those geologic trends of the West Texas
region where it has achieved its best results historically. Brigham is focusing
its 3-D seismic activity in provinces where it believes 3-D technology may be
effectively applied and the Company believes offer large potential reserve
volumes per well and per field, high potential production rates and multiple
producing objectives.
The Company's growth will be driven by drilling and developing its
potential drilling locations, as well as adding new locations through its
systematic 3-D seismic exploration effort. Using the proceeds of the Offering,
Brigham plans to accelerate growth by (i) increasing the working interest it
retains in drilling locations in
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<PAGE> 30
order to capture a greater share of the reserves the Company discovers, (ii)
increasing the rate at which it acquires 3-D seismic data and identifies
potential drilling locations, (iii) seeking to identify higher potential
drilling locations, (iv) increasing the rate at which potential drilling
locations are drilled and (v) reducing the time spent marketing projects to
industry participants.
COMPETITIVE ADVANTAGES
Brigham believes that its knowledge base, personnel and technology provide
it with the following competitive advantages to capture undiscovered natural gas
and oil reserves.
Pioneering Innovations. In 1990 the Company pioneered the
assemblage of large scale onshore 3-D seismic projects and the use of
preseismic lease options for the systematic exploration of proven
natural gas and oil provinces. The Company believes it was one of the
first to form alliances and joint participation arrangements with
companies and individuals possessing extensive local geologic or
operating expertise to complement its 3-D exploration expertise.
Subsequent innovations include the Company's 3-D seismic acquisition
and processing alliances and its creative industry trade structures to
financially leverage its drilling program.
3-D Seismic Knowledge Base. The Company began acquiring 3-D
seismic in 1990 and drilled its first 3-D delineated well, which was a
discovery, in February 1991. Since inception, the Company has acquired
over 3,300 square miles of 3-D seismic data and drilled more than 300
wells in over 20 geologic trends in six basins and seven states. As a
result, the Company has gained extensive technological and economic
knowledge relating to the application of 3-D seismic to different
geologic trends. This experience and knowledge enable the Company to
refine its exploration techniques and identify exploration areas where
Brigham believes 3-D seismic can be applied to reduce risks and
enhance returns on its investments.
Technological Expertise. Led by its CEO, who is an experienced,
practicing geophysicist, the Company has built an exploration staff
that includes nine other geophysicists and six geologists. Brigham's
explorationists collectively have over 200 years of experience,
including over 65 years of experience using CAEX workstations, and
have expertise in many geologic trends. The Company makes extensive
use of advanced technologies, including 3-D seismic imaging and CAEX
and in-house analytical and processing capabilities, to define
drilling prospects. To support the efforts of its explorationists,
Brigham has invested in advanced hardware and software, including
twelve UNIX-based CAEX workstations.
Project Generation and Control. Brigham is not dependent on third
parties for its project flow, having generated approximately 90% of
its 3-D exploration projects. Therefore, the Company is able to manage
the predrilling exploration phases, from project conception and
assemblage through 3-D data acquisition, processing and interpretation
and subsequent leasing. Brigham believes that its management of the
exploration process enhances project quality and compresses the cycle
time, contributing to lower finding and development costs and an
enhanced project rate of return. Furthermore, the Company can
determine the level of working interest it retains and the extent to
which it manages drilling and post-drilling operations and continues
to expand its efforts in these areas.
Numerous Potential Drilling Locations. The Company has identified
approximately 1,200 3-D defined potential drilling locations in
historically productive geologic trends, of which over 300 have been
drilled. The Company anticipates drilling 91 of these locations (23.8
net) in 1997 at a cost of approximately $16 million. The Company also
anticipates acquiring approximately 1,400 square miles of 3-D seismic
data in 1997 at a net cost to the Company of approximately $5.6
million. The Company continually evaluates and prioritizes potential
drilling locations to determine whether to drill them, farm them out
or replace them with higher quality locations.
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<PAGE> 31
EXPLORATION AND OPERATING APPROACH
The Company has acquired 3-D seismic data in approximately 110 projects
covering over 3,300 square miles (2,112,000 acres) in 20 geologic trends in six
basins and seven states. Through this activity, the Company has developed
expertise in the selection of geologic trends that are suitable for 3-D seismic
exploration. Brigham uses experience that it gains within a trend to enhance the
quality of subsequent projects in the same trend and other analogous trends,
contributing to lower finding and development costs, compressing project cycle
times and increasing project rates of return.
The Company typically acquires 3-D seismic data in and around existing
production where the Company can benefit from the mapping of producing analogs.
These 3-D defined analogs, combined with the Company's experience in drilling
over 300 wells, provide the Company a knowledge base to evaluate other potential
geologic trends, 3-D seismic projects within trends and delineated potential
drilling locations. The Company believes that this experience is a major factor
in the Company's success to date and that this knowledge base differentiates the
Company from its competitors. The Company's knowledge base assists in
identifying geologic trends where Brigham believes it can find and develop large
volumes of natural gas and oil at a low relative cost.
The Company has experience in a wide range of reservoir types and geologic
trapping styles, both stratigraphic and structural (including reefs, salt domes,
channel sands, complex faulted and fractured reservoirs and pinchout plays). The
Company seeks to supplement its knowledge base with the best local geologic
expertise available for a particular geologic trend by hiring new
explorationists, engaging consultants and entering into joint ventures with
industry participants. In addition, if the targeted geologic trend is extensive,
the Company typically acquires a digital data base for integration on the
Company's CAEX workstations, including digital land grids, well information, log
curves, production information, geologic studies, geologic top data bases and
existing 2-D seismic data.
The Company uses its knowledge base, local geological expertise and
acquired digital data bases to create 3-D maps of producing reservoirs. The
Company believes its maps are more accurate than previous reservoir maps (which
generally were based on subsurface geological information and surface surveys),
enabling the Company to more precisely evaluate recoverable reserves and the
economic feasibility of projects and drilling locations.
Brigham acquires most of its raw 3-D seismic data on a proprietary basis
using vendors. Additionally, the Company acquires data through alliances
affording it the exclusive right to interpret and use data. Occasionally the
Company participates in non-proprietary group shoots of 3-D data. In its
proprietary acquisitions and alliances, Brigham selects the sites of projects,
primarily guided by its knowledge and experience in the core provinces it
explores; establishes and monitors the seismic parameters of each project for
which data is shot; and typically selects the equipment that will be used. Data
is generally priced on the basis of square miles shot. See "Business and
Properties -- Industry Alliances."
PRIMARY EXPLORATION PROVINCES
Brigham's exploration activities are concentrated primarily in three
provinces: the Anadarko Basin, the Gulf Coast and the West Texas region. Brigham
is accelerating 3-D seismic activity in the Anadarko Basin and the Gulf Coast
and will continue such activity in those geologic trends of the West Texas
region where it has achieved its best results historically. Brigham is focusing
its 3-D seismic exploration efforts in provinces where it believes 3-D
technology may be effectively applied and the Company believes offer large
potential reserve volumes per well and per field, high potential production
rates and multiple producing objectives.
Although the Company is acquiring 3-D seismic data within the provinces
listed below and has identified approximately 900 potential drilling locations
yet to be drilled in those provinces, there can be no assurance that any of the
seismic data will be acquired or will generate additional drilling locations or
that any potential drilling locations will be drilled at all or within the
expected time frame. The final determination with respect to the drilling of any
well, including those currently budgeted, will depend on a number of factors,
including (i) the results of exploration efforts and the review and analysis of
the seismic data, (ii) the availability of
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<PAGE> 32
sufficient capital resources by the Company and other participants for drilling
prospects, (iii) economic and industry conditions at the time of drilling,
including prevailing and anticipated prices for natural gas and oil and the
availability of drilling rigs and crews, (iv) the financial resources and
results of the Company and (v) the availability of leases on reasonable terms
and permitting for the potential drilling location. There can be no assurance
that the budgeted wells will, if drilled, encounter reservoirs of commercial
quantities of natural gas or oil.
<TABLE>
<CAPTION>
ADDITIONAL 3-D 1997
SEISMIC DATA ADDITIONAL BUDGETED ESTIMATED
3-D SEISMIC BUDGETED FOR TOTAL GROSS POTENTIAL WELLS 1997
DATA ACQUIRED/ ACQUISITION WELLS DRILLED DRILLING ------------ CAPITAL
PROVINCE INTERPRETED(1) IN 1997 THROUGH 1996 LOCATIONS(2) GROSS NET EXPENDITURES(3)
-------- -------------- -------------- ------------- ------------ ----- ---- ---------------
(SQUARE MILES) (SQUARE MILES) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Anadarko Basin........ 1,043/942 493 31 325 41 12.3 $15,000
Gulf Coast............ 533/154 191 1 31 7 2.2 7,000
West Texas Region..... 1,552/1,552 68 255 508 41 8.2 4,000
Other(4).............. 215/189 60 11 30 2 1.1 1,000
----------- --- --- --- -- ---- -------
Total................. 3,343/2,837 812(5) 298 894 91 23.8 $27,000
=========== === === === == ==== =======
</TABLE>
- ---------------
(1) 3-D seismic data that had been or was being acquired/interpreted on February
15, 1997.
(2) The potential drilling locations that had been identified from the portion
of the 3-D seismic data that had been interpreted by February 15, 1997.
(3) 3-D seismic and land acquisition costs and drilling expenditures.
(4) Colorado, Kansas and Montana.
(5) The Company has budgeted approximately 1,400 square miles of 3-D seismic
data for acquisition in 1997, 582 of which had been acquired or were being
acquired on February 15, 1997.
Anadarko Basin. The Anadarko Basin is a prolific natural gas province that
the Company believes has been relatively under explored, particularly with
regard to deep, high potential objectives. The Anadarko Basin contains numerous
historically elusive stratigraphic targets, such as the Red Fork, Morrow and
Springer channel sands, and structural targets, such as the Hunton and Arbuckle
carbonates, which are well-suited to 3-D seismic imaging. In some cases, these
objectives have produced in excess of 30 Bcf of natural gas from a single well
at rates up to 30 MMcf of natural gas per day.
The Company has assembled an extensive digital data base in this province,
including geologic studies, basin wide geologic tops, production data, well
data, geographic data and over 7,400 miles of 2-D seismic data. Working with
consulting regional geologists, the Company's explorationists integrate this
data with their extensive expertise and knowledge base to generate 3-D projects
in the Anadarko Basin.
Following its initial 3-D seismic acquisition in the province in 1991 (12.5
square miles), the Company acquired 51 square miles of 3-D seismic in 1993. Over
the last several years the Company has accelerated its activity in the Anadarko
Basin, acquiring 151 square miles of 3-D seismic in 1994, 195 square miles in
1995 and 457 square miles in 1996. The Company retained a 33% average working
interest in the 3-D seismic data it acquired in this province in 1996. The
Company believes its increased level of activity in the Anadarko Basin will be a
significant factor in the Company's growth. On February 15, 1997, the Company
had acquired or was acquiring 1,043 square miles (667,520 acres) of 3-D seismic
data in 24 projects in the Anadarko Basin.
An example of the Company's success in the Anadarko Basin is the Foster
well, drilled late in 1996 in Lipscomb County, Texas. Identified through the
Company's interpretation of its 34 square mile 3-D program, the Foster well was
drilled to a depth of 10,550 feet, where it encountered 54 feet of gross pay, 33
feet net. The well, in which Brigham has a 22.5% working interest, is currently
producing approximately 3.0 MMcf of gas per day. The field in which the well is
producing is estimated to have total recoverable reserves of 13.2 Bcf of natural
gas from the Foster well and two proved undeveloped locations that the Company
plans to drill in 1997. Brigham is currently completing an exploratory test well
on an analogous prospect in the same project and plans to test other analogous
prospects in 1997. The Company is currently processing a 43 square mile 3-D
project, in which it currently has retained a 37.5% project working interest,
adjacent to the Foster well.
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In 1997, the Company plans to drill at least three exploratory wells to
test 3-D delineated Hunton structural prospects in which the Company's working
interest currently ranges from 25% to 42%. These prospects are adjacent to
prolific production from the Hunton formation in fields such as Buffalo Wallow
(approximately 350 Bcfe), Mathers Ranch (approximately 186 Bcfe) and Wheeler Pan
(approximately 130 Bcfe).
As of February 15, 1997, the Company had acquired 1,043 square miles
(667,520 acres) in 24 projects in the Anadarko Basin. As of December 31, 1996,
Brigham had completed 23 wells in 31 attempts (a 74% success rate) in this
province and had found cumulative proved reserves of 53.4 Bcf of natural gas and
1.7 MMBbls of oil, or an aggregate of 63.4 Bcfe, with 16.3% attributable to the
Company's interest. From inception to December 31, 1996, the Company incurred
drilling costs in this province of $.48 per Mcfe. In 1996, the Company completed
14 wells in 20 attempts, adding 38.8 Bcfe of proved reserves, with 6.7 Bcfe
attributable to the Company's interest, at a drilling cost of $.27 per Mcfe. As
of February 15, 1997, the Company had 325 3-D delineated potential drilling
locations in the Anadarko Basin, of which the Company intends to drill 41 gross
(12.3 net) wells in 1997.
Gulf Coast. The Gulf Coast is a high potential, multi-pay province that
lends itself to 3-D seismic exploration due to its substantial structural and
stratigraphic complexity. The Company has assembled a digital data base
including geographical, production, geophysical and geological information that
the Company evaluates on its CAEX workstations. Working with consulting regional
geologists the Company's explorationists integrate this data with their
extensive expertise and knowledge base to generate 3-D projects in the Gulf
Coast. Brigham's commitment to this province is evidenced by the Company's staff
additions, the opening of its Houston office and the addition of ten new 3-D
seismic projects in 1996 and 1997.
Brigham initiated its Gulf Coast effort in 1995 with the Esperson Dome
Project in Liberty County, Texas where the Company and its partners currently
control approximately 9,600 gross acres (7,500 net) through leases and farmouts
and have acquired 39 square miles of seismic data. Brigham is not required to
invest capital for its interest until payout, when it earns a variable back-in
working interest of 12% to 20%. Because payout has not yet occurred, no reserves
or production are attributed to this project. The Esperson Dome Field has
produced in excess of 59 MMBbl of oil and 60 Bcf of natural gas to date from a
section of sands in the Miocene, Vicksburg and Yegua/Cook Mountain series
ranging in depth from 1,200 feet to 10,000 feet. The Company has drilled six
wells in the project to date (one Yegua/Cook Mountain and five Vicksburg)
yielding three discoveries. The most significant of these discoveries was
drilled and completed in January 1997 and found over 70 feet of gross pay (65
feet net pay) in a Vicksburg sand at a depth of 5,300 feet. This well tested for
352 Bbls of oil and 400 Mcf of natural gas per day from approximately 20 feet of
perforations. Gross reserves attributed to this discovery and one development
well (plus an additional undrilled development location) are approximately 1.5
MMBbls of oil with associated natural gas. An additional three Vicksburg
prospects have been identified in the project. Brigham also plans to drill
additional wells testing potential prospects in the shallower Miocene sands and
the deeper Yegua/Cook Mountain Sands in the Esperson Dome Project.
In 1996 the Company initiated the Welder Ranch Project in the South Texas
Expanded Wilcox geologic trend where the Company currently controls 18,000 gross
acres (17,950 net). In and immediately adjacent to the project area production
has been established from prospective pay zones ranging in depth from 1,600 feet
in the Queen City sands to over 15,500 feet in the Lower Wilcox sands. The East
Seven Sisters Field located on the north end of the project area is producing
from the Lower Wilcox and has cumulative production exceeding 360 Bcf of natural
gas. Recent exploration by Sonat, Inc. on a 1,000 acre block located in the
interior of the Company's acreage block has yielded two Lower Wilcox wells.
Brigham is currently in the process of acquiring a 50 square mile 3-D survey
over the Welder Ranch Project that it expects to begin processing in the second
quarter of 1997 and in which the Company currently holds at least a 70% working
interest. In addition to the extensive exploration potential associated with
this project, Brigham also expects to delineate several development locations
adjacent to the recent Sonat activity. The Company is also participating in a
356 square mile 3-D seismic program immediately adjacent to the Welder Ranch
Project.
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The Company is also undertaking exploratory projects in the prolific
Miocene trend in South Louisiana. The Company's Tigre Point Project is located
immediately south of the developing Freshwater Bayou Field where Unocal and
others have seven wells currently producing over 245 MMcf of natural gas per day
(an average of over 35 MMcf of natural gas per day from each well) from a lower
Miocene sand. This project also offers several shallower objectives as
attractive secondary targets.
As of February 15, 1997, the Company had acquired or was acquiring 533
square miles (341,120 acres) of 3-D seismic data in six projects in the onshore
Gulf Coast. The Company anticipates acquiring 191 square miles (122,240 acres)
of additional 3-D seismic data in 1997.
The Company anticipates that its increased project assemblage and 3-D
seismic acquisition activity in the Gulf Coast will generate accelerated
drilling in the province in 1997 and 1998. The Company is currently assembling
projects in the Expanded Wilcox, Expanded Vicksburg and Yegua trends in South
Texas, the Miocene trend in South Texas and South Louisiana, the Lower and
Middle Frio trends of the upper Gulf Coast of Texas. The Company has thirty-one
3-D delineated potential drilling locations in the Gulf Coast and intends to
drill 7 gross (2.2 net) wells in 1997.
West Texas Region. The Company's 3-D seismic drilling activity in the West
Texas region has been focused in the Horseshoe Atoll, the Midland Basin and the
Eastern Shelf of the Permian Basin and the Hardeman Basin. The Company plans to
continue drilling its locations in these areas. Recently the Company initiated
an exploration program in the Delaware Basin and increased its activity in
portions of geologic trends that the Company believes offer greater potential
for lower finding costs and higher returns, including the Ellenberger and
Devonian formations of the Delaware Basin and the Fusselman formation of the
Midland Basin.
One area in which the Company increased its activity is the Midland Basin,
where the Company has drilled five Fusselman discoveries and has acquired or
intends to acquire 3-D seismic in four additional projects, in which it expects
to retain working interests in excess of 50%. Currently the most significant of
these discoveries is the Elizabeth Rose Field, with gross proved reserves
estimated by Cawley Gillespie at December 31, 1996 at 2.1 MMBbls of oil. The
Company has drilled three wells in this Fusselman field that are producing a
total of approximately 500 Bbls of oil per day. Brigham's working interest in
the five Fusselman discoveries ranges from 18.75% to 38.5%. In addition, the
Company owns a 25% to 100% working interest in an additional fifty 3-D defined
potential drilling locations in the adjoining four projects. In 1997 the Company
also plans to acquire 26 square miles of 3-D seismic data in three additional
3-D projects adjacent to the Elizabeth Rose Field and to retain working
interests of 75% to 100% in these projects.
Among Brigham's higher potential West Texas Region projects is the Longhorn
Project, located in the Delaware Basin, in which the Company owns a 25% working
interest. From its 40 square mile 3-D program acquired in the third quarter of
1996, the Company has identified twenty-three 3-D potential drilling locations
and has leased 6,400 gross acres (1,600 net). The project is surrounded by
prolific production from the Devonian and Ellenberger formations at depths of
15,000 feet to 21,000 feet, in fields such as Evetts (approximately 600 Bcf of
natural gas to date from 16 wells) and War Wink South (approximately 295 Bcf of
natural gas to date from eight wells). The Company plans to spud its first deep
test in the second quarter of 1997.
As of February 15, 1997, the Company had acquired 1,552 square miles
(993,280 acres) of 3-D seismic in 73 projects in the West Texas region. As of
December 31, 1996, the Company had completed 164 wells in 255 attempts (a 64%
success rate) and had found cumulative proved reserves of 16.7 Bcf of natural
gas and 20.6 MMBbls of oil, or an aggregate of 139.8 Bcfe, with 13.0%
attributable to the Company's interest. From inception to December 31, 1996, the
Company incurred drilling costs in this province of $.76 per Mcfe. In 1996 the
Company completed 28 wells in 43 attempts in this province, adding 29.8 Bcfe of
proved reserves, with 5.7 Bcfe attributable to the Company's interest, at a
drilling cost of $.42 per Mcfe. The Company has 508 3-D delineated potential
drilling locations in the West Texas region and intends to drill 41 gross (8.2
net) wells in 1997.
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<PAGE> 35
NATURAL GAS AND OIL RESERVES
The Company's estimated total proved reserves of natural gas and oil as of
December 31, 1994, 1995 and 1996 and the present values attributable to these
reserves as of those dates were as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------
1994 1995 1996(1)
------- ------- -------
<S> <C> <C> <C>
Estimated proved reserves
Natural gas (MMcf)................................... 3,579 4,257 10,257
Oil (MBbls).......................................... 1,022 1,672 1,940
Natural gas equivalent (MMcfe)....................... 9,710 14,288 21,895
Proved developed reserves as a percentage of proved
reserves............................................. 76% 80% 67%
Present Value of Future Net Revenues(2)
(in thousands)....................................... $10,240 $18,222 $44,506
</TABLE>
- ---------------
(1) Net of a sale by the Company in January 1996 of its interest in certain
properties that accounted for 299 MMcf of natural gas and 272 MBbls of oil
(1,931 MMcfe of proved reserves) as of December 31, 1995.
(2) The Present Value of Future Net Revenues attributable to the Company's
reserves was prepared using prices in effect at the end of the respective
periods presented discounted at 10% per annum on a pre-tax basis. The
estimated pro forma income taxes, discounted at 10% per annum, are
approximately $12.1 million, resulting in pro forma discounted net cash
flows of approximately $32.4 million as of December 31, 1996. The effects of
the Company's hedging activities were immaterial.
The average prices for the Company's reserves were $1.83 per Mcf of natural
gas and $16.19 per Bbl of oil as of December 31, 1994, $1.85 per Mcf of natural
gas and $18.22 per Bbl of oil as of December 31, 1995, and $3.62 per Mcf of
natural gas and $24.66 per Bbl of oil as of December 31, 1996. The reserve
estimates reflected above for 1996 were prepared by Cawley Gillespie, the
Company's petroleum consultants, and are part of a report on the Company's
natural gas and oil properties prepared by Cawley Gillespie, a summary of which
is Appendix A to this Prospectus.
In accordance with applicable requirements of the SEC, estimates of the
Company's proved reserves and future net revenues are made using sales prices
estimated to be in effect as of the date of such reserve estimates and are held
constant throughout the life of the properties (except to the extent a contract
specifically provides for escalation). Estimated quantities of proved reserves
and future net revenues therefrom are affected by natural gas and oil prices,
which have fluctuated widely in recent years. At December 31, 1996, the date
Cawley Gillespie estimated the Company's reserves and present value data, the
prices of natural gas and oil on the NYMEX were $2.76 per MMBtu and $25.92 per
Bbl, respectively. At March 31, 1997, the prices were $1.93 per MMBtu and $20.41
per Bbl, respectively. There are numerous uncertainties inherent in estimating
natural gas and oil reserves and their estimated values, including many factors
beyond the control of the Company. The reserve data set forth in this Prospectus
represents only estimates. Reservoir engineering is a subjective process of
estimating underground accumulations of natural gas and oil that cannot be
measured in an exact manner. The accuracy of any reserve estimate is a function
of the quality of available data and of engineering and geologic interpretation
and judgment. As a result, estimates of different engineers, including those
used by the Company, may vary. In addition, estimates of reserves are subject to
revision based upon actual production, results of future development and
exploration activities, prevailing natural gas and oil prices, operating costs
and other factors. The revisions may be material. Accordingly, reserve estimates
are often different from the quantities of natural gas and oil that are
ultimately recovered and are highly dependent upon the accuracy of the
assumptions upon which they are based. The Company's estimated proved reserves
have not been filed with or included in reports to any federal agency. See "Risk
Factors -- Uncertainty of Reserve Information and Future Net Revenue Estimates."
Estimates with respect to proved reserves that may be developed and
produced in the future are often based upon volumetric calculations and upon
analogy to similar types of reserves rather than actual production history.
Estimates based on these methods are generally less reliable than those based on
actual production
34
<PAGE> 36
history. Subsequent evaluation of the same reserves based upon production
history will result in variations in the estimated reserves that may be
substantial.
DRILLING ACTIVITIES
The Company drilled, or participated in the drilling of, the following
number of wells during the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1994 1995 1996
------------ ------------ ------------
GROSS NET GROSS NET GROSS NET
----- ---- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Exploratory Wells:
Natural gas................................. 6 1.8 5 1.2 4 .9
Oil......................................... 34 8.3 37 8.1 24 5.4
Non-productive.............................. 26 5.9 32 8.7 24 7.1
-- ---- -- ---- -- ----
Total............................... 66 16.0 74 18.0 52 13.4
== ==== == ==== == ====
Development Wells:
Natural gas................................. -- -- -- -- 9 1.3
Oil......................................... 5 .2 4 .6 6 1.2
Non-productive.............................. 2 .6 -- -- 1 .1
-- ---- -- ---- -- ----
Total............................... 7 .8 4 .6 16 2.6
== ==== == ==== == ====
</TABLE>
At December 31, 1996, the Company was in the process of drilling 2 gross
(.6 net) wells that are not reflected in the table.
The Company does not own any drilling rigs, and the majority of its
drilling activities are conducted by industry participant operators or
independent contractors under standard drilling contracts.
PRODUCTIVE WELLS AND ACREAGE
Productive Wells
The following table sets forth the Company's ownership interest as of
December 31, 1996 in productive natural gas and oil wells in the areas
indicated.
<TABLE>
<CAPTION>
NATURAL GAS OIL TOTAL
----------- ------------ ------------
PROVINCE GROSS NET GROSS NET GROSS NET
-------- ----- --- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Anadarko Basin................................. 15 3.0 2 .2 17 3.2
Gulf Coast..................................... -- -- -- -- -- --
West Texas Region.............................. 3 1.1 75 17.3 78 18.4
Other.......................................... -- -- 1 .5 1 .5
-- --- -- ---- -- ----
Total................................ 18 4.1 78 18.0 96 22.1
== === == ==== == ====
</TABLE>
Productive wells consist of producing wells and wells capable of
production, including wells waiting on pipeline connection. Wells that are
completed in more than one producing horizon are counted as one well. Of the
gross wells reported above, none had multiple completions.
Acreage
Undeveloped acreage includes leased acres on which wells have not been
drilled or completed to a point that would permit the production of commercial
quantities of oil and gas, regardless of whether or not such acreage contains
proved reserves. A gross acre is an acre in which an interest is owned. A net
acre is deemed to exist when the sum of fractional ownership interests in gross
acres equals one. The number of net acres is the sum of the fractional interests
owned in gross acres expressed as whole numbers and fractions thereof. The
35
<PAGE> 37
following table sets forth the approximate developed and undeveloped acreage in
which the Company held a leasehold mineral or other interest at December 31,
1996:
<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED TOTAL
-------------- ---------------- ----------------
PROVINCE GROSS NET GROSS NET GROSS NET
-------- ------ ----- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Anadarko Basin.................... 5,646 1,536 45,037 13,669 50,683 15,205
Gulf Coast........................ -- -- 3,738 3,226 3,738 3,226
West Texas Region................. 5,087 1,307 38,106 11,380 43,193 12,687
Other............................. -- -- 161,420 58,513 161,420 58,513
------ ----- ------- ------ ------- ------
Total........................... 10,733 2,843 248,301 86,788 259,034 89,631
====== ===== ======= ====== ======= ======
</TABLE>
In addition, the Company has preseismic lease options to acquire an
additional 107,711 acres, substantially all of which expire within one year.
All the leases for the undeveloped acreage summarized in the preceding
table will expire at the end of their respective primary terms unless the
existing leases are renewed or production has been obtained from the acreage
subject to the lease prior to that date, in which event the lease will remain in
effect until the cessation of production. The following table sets forth the
minimum remaining terms of leases for the gross and net undeveloped acreage:
<TABLE>
<CAPTION>
ACRES EXPIRING
-----------------
GROSS NET
------- ------
<S> <C> <C>
Twelve Months Ending:
December 31, 1997......................................... 59,133 19,695
December 31, 1998......................................... 114,661 41,469
December 31, 1999......................................... 48,928 5,609
Thereafter................................................ 25,579 20,015
------- ------
Total............................................. 248,301 86,788
======= ======
</TABLE>
VOLUMES, PRICES AND PRODUCTION COSTS
The following table sets forth the production volumes, average prices
received and average production costs associated with the Company's sale of
natural gas and oil for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Production:
Natural gas (MMcf)...................................... 165 271 698
Oil (MBbls)............................................. 140 177 227
Natural gas equivalent (MMcfe).......................... 1,002 1,332 2,060
Average sales price:
Natural gas (per Mcf)................................... $ 1.76 $ 1.62 $ 2.30
Oil (per Bbl)........................................... 16.30 17.76 19.98
Average production expenses and taxes (per Mcfe).......... $ .62 $ .69 $ .53
</TABLE>
36
<PAGE> 38
COSTS INCURRED AND CAPITALIZED COSTS
The costs incurred in natural gas and oil acquisition, exploration and
development activities follow (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------- -------
<S> <C> <C>
Costs incurred for the year:
Exploration............................................... $ 6,893 $10,527
Property acquisition...................................... 1,885 6,195
Development............................................... 713 1,328
Proceeds from participants................................ (1,296) (4,111)
------- -------
$ 8,195 $13,939
======= =======
</TABLE>
Costs incurred represent amounts incurred by the Company for exploration,
property acquisition and development activities. Periodically, the Company will
receive proceeds from participants subsequent to project initiation for an
assignment of an interest in the project. These payments are represented by
proceeds from participants.
EXPLORATION STAFF
Over the last six years the Company has assembled an exploration staff that
includes nine geophysicists, six geologists, one petroleum engineer, three
computer applications specialists, three geophysical/geological/engineering
technicians, four landmen and three lease and division order analysts. Brigham's
nine geophysicists have different but complementary backgrounds, and their
diversity of experience in varied geological and geophysical settings, combined
with various technical specializations (from hardware and systems to software
and seismic data processing), provide the Company with valuable technical
intellectual resources. The Company's team of explorationists have over 200
years of exploration experience and approximately 65 years of 3-D CAEX
workstation experience, most of which was acquired at Brigham and various major
and large independent oil companies. The Company complements and leverages its
exploration staff by seeking out alliances or retainer relationships with
geologists having extensive experience in a particular area of interest.
3-D SEISMIC TECHNOLOGY
The Company's strategy is to use 3-D seismic and other advanced
technologies, including CAEX, to systematically explore and develop domestic
onshore natural gas and oil provinces. In general, 3-D seismic is the process of
acquiring seismic data along multiple lines and grids. The primary advantage of
3-D seismic over 2-D seismic is that it provides information with respect to
multiple horizontal and vertical points within a geologic formation instead of
information on a single vertical line or multiple vertical lines within the
formation. Acquiring larger amounts of data relating to a geologic formation
allows a user to better correlate the data and, in some cases, obtain a greater
understanding and image of the formation. Although it is impossible to predict
with certainty the specific configuration or composition of any underground
geologic formation, the use of 3-D seismic data provides clearer and more
accurate projected images of complex geologic formations, which can assist a
user in evaluating whether to drill for natural gas and oil reserves. If a
decision to drill is made, 3-D seismic data can also help in determining the
optimal location to drill.
CAEX is the process of accumulating and analyzing the various seismic,
production and other data obtained relating to a geographic area. In general,
CAEX involves accumulating various 2-D and 3-D seismic data with respect to a
potential drilling location, correlating that data with historical well control
and production data from similar properties and analyzing the available data
through computer programs and modeling techniques to project the likely geologic
composition of a potential drilling location and potential locations of
undiscovered natural gas and oil reserves. This process relies on a comparison
of actual data with respect to the potential drilling location and historical
data with respect to the density and sonic characteristics
37
<PAGE> 39
of different types of rock formations, hydrocarbons and other subsurface
minerals, resulting in a projected three dimensional image of the subsurface.
This modeling is performed through the use of advanced interactive computer
workstations and various combinations of available computer programs that have
been developed solely for this application.
Brigham has invested extensively in the advanced computer hardware and
software necessary for 3-D seismic exploration. The Company has both Landmark
and Geoquest CAEX workstations. This workstation flexibility provides the
Company the opportunity to interpret a project on the particular CAEX
workstation that it believes is best suited for defining those particular
geologic objectives. Brigham's explorationists can access a diverse software
tool kit including SeisWorks, StratWorks, SeisCube, SurfCube, ZAP, Zmap+, ARIES,
SynTool, Poststack, Continuity Cube, TDQ, AutoPix, MapView, GeoViz, Voxels,
SynView, CSA (Computed Seismic Attributes), Surface Slice, Hampson -- Russell
AVO Analysis and Modeling and ZEH Graphics CGMage Builder (graphics montage
tool).
The Company believes that its use of 3-D seismic technology provides it
with a number of benefits in the exploration, delineation and development
process that are not generally available to those who only use 2-D seismic data
and conventional processing methods. In particular, the Company believes that it
obtains clearer and more accurate projected images of underground formations
through computer modeling, and is therefore better able to identify potential
locations of hydrocarbon accumulations based on the characteristics of the
formations and analogies made with nearby fields and formations where
hydrocarbons have been found. This enhanced data has been used to assist the
Company in eliminating potential drilling locations that might otherwise have
been drilled had the Company relied solely on 2-D seismic data. This data has
also been used to assist the Company in attempting to identify the most
desirable location for the wellbore to increase the prospects of a successful
exploratory or development well and production from the reservoir.
INDUSTRY ALLIANCES
Pursuant to an alliance with Veritas Seismic Ltd., Brigham has acquired
approximately 400 square miles of 3-D seismic data in the Anadarko Basin and has
agreed to acquire from 700 to 1,375 additional square miles of data to be
divided among numerous projects in that province. In exchange for the Company's
commitment to Veritas, the Company and its assignees only pay a portion of the
3-D acquisition costs as the data is acquired. As the Company leases acreage or
drills wells, it pays Veritas the balance of the costs in the form of leasing
and drilling fees. Veritas has agreed to make a designated 3-D seismic crew
available to the Company on a continuous basis and, as long as the Company has a
project area ready for surveying and field seismic acquisition, to send the crew
from one project area to the next without interruption. If the Company does not
have a project area designated upon completion of one project, and Veritas has
not been able to secure an intervening project from a third party, the Company
is obligated to pay Veritas a stand-by fee. The Company has never incurred a
stand-by fee to Veritas. These arrangements afford the Company access to 3-D
seismic data acquisition in a compressed cycle time, providing the Company with
operational efficiencies.
In addition, Veritas currently maintains and operates two seismic data
processing workstations in Brigham's offices. Supervised by Brigham's
geophysicists, the vendor's employees process in the Company's offices most of
the Company's 3-D data. The associated improvement in communication and
integration, from field data acquisition to processing, reduces project cycle
times, and therefore costs, while improving the quality of the data for
Brigham's subsequent interpretation.
The Company has entered into alliances with Vintage Petroleum, Inc.
("Vintage") and Stephens Production Company ("Stephens") providing for their
participation with Brigham in all projects that the Company conducts within the
3-D seismic program that it is now completing with Veritas in the Anadarko
Basin. Under that program, the Company and its participants have acquired 400
square miles of data and may acquire up to 275 more. Vintage and Stephens bear a
disproportionate share of all pre-seismic and certain seismic costs on all
projects in the program. Net of the interests of Vintage and Stephens, the
Company holds a 37.5% interest in the program. The Company believes that this
leveraging of its costs is possible because of the expertise and knowledge that
the Company has developed, enabling the Company to build its revenue and cash
flow base at a time when it has been capital constrained. With respect to a
subsequent program with
38
<PAGE> 40
Veritas anticipated to start in July 1997 -- in which the Company plans to
acquire from 500 to 1,100 square miles of 3-D seismic data -- the Company plans
to retain at least a 75% working interest.
In order to participate in wells drilled by the Company between April 1,
1996 and March 31, 1997, each of Gasco Limited Partnership ("Gasco") and Middle
Bay Oil Company, Inc. ("Middle Bay") agreed to fund 25% of the Company's
drilling costs and 12.5% of its completion cost for each well. In return, the
Company assigned to each an undivided 12.5% of the Company's interest in the
leasehold allocated to each completed well. As a result, the Company pays for
50% of costs attributable to its working interest to casing point, and 75% of
its completion costs, for 75% of its original working interest. The Company is
currently in discussions with Gasco to renew its agreement, although the
percentages of costs borne and interest assigned may vary under any renewal or
extension of this agreement. The Company believes that these agreements have
been beneficial because they have allowed the Company to leverage its working
interests in its properties by requiring it to bear a smaller proportion of
costs than it has retained in working interests.
NATURAL GAS AND OIL MARKETING AND MAJOR CUSTOMERS
Most of the Company's natural gas and oil production is sold by its
operators under price sensitive or spot market contracts. The revenues generated
by the Company's operations are highly dependent upon the prices of and demand
for natural gas and oil. The price received by the Company for its natural gas
and oil production depends on numerous factors beyond the Company's control,
including seasonality, the condition of the United States economy, foreign
imports, political conditions in other oil-producing and natural gas-producing
countries, the actions of the Organization of Petroleum Exporting Countries and
domestic government regulation, legislation and policies. Decreases in the
prices of natural gas and oil could have an adverse effect on the carrying value
of the Company's proved reserves and the Company's revenues, profitability and
cash flow. Although the Company is not currently experiencing any significant
involuntary curtailment of its oil or natural gas production, market, economic
and regulatory factors may in the future materially affect the Company's ability
to sell its oil or natural gas production. See "Risk Factors -- Volatility of
Natural Gas and Oil Prices" and "Risk Factors -- Marketability of Production"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations." For the year ended December 31, 1996, sales to Cobra Oil and Gas
Corporation, Maynard Oil Company and Scurlock Permian Corporation were
approximately 16%, 12% and 10%, respectively, of the Company's natural gas and
oil revenues. Due to the availability of other markets and pipeline connections,
the Company does not believe that the loss of any single natural gas or oil
customer would have a material adverse effect on the Company's results of
operations.
COMPETITION
The oil and gas industry is highly competitive in all of its phases. The
Company encounters competition from other oil and gas companies in all areas of
its operations, including the acquisition of seismic options and lease options
on properties. The Company's competitors include major integrated oil and
natural gas companies and numerous independent oil and natural gas companies,
individuals and drilling and income programs. Many of its competitors are large,
well established companies with substantially larger operating staffs and
greater capital resources than the Company's and which, in many instances, have
been engaged in the exploration and production business for a much longer time
than the Company. Such companies may be able to pay more for seismic and lease
options on natural gas and oil properties and exploratory prospects and to
define, evaluate, bid for and purchase a greater number of properties and
prospects than the Company's financial or human resources permit. The Company's
ability to acquire additional properties and to discover reserves in the future
will be dependent upon its ability to evaluate and select suitable properties
and to consummate transactions in a highly competitive environment. See "Risk
Factors -- Competition" and "Risk Factors -- Substantial Capital Requirements."
OPERATING HAZARDS AND UNINSURED RISKS
Drilling activities are subject to many risks, including the risk that no
commercially productive reservoirs will be encountered. There can be no
assurance that new wells drilled by the Company will be productive or that the
Company will recover all or any portion of its investment. Drilling for natural
gas and oil may involve
39
<PAGE> 41
unprofitable efforts, not only from dry wells, but from wells that are
productive but do not produce sufficient net revenues to return a profit after
drilling, operating and other costs. The cost of drilling, completing and
operating wells is often uncertain. The Company's drilling operations may be
curtailed, delayed or canceled as a result of numerous factors, many of which
are beyond the Company's control, including title problems, weather conditions,
compliance with governmental requirements and shortages or delays in the
delivery of equipment and services. The Company's future drilling activities may
not be successful and, if unsuccessful, such failure may have a material adverse
effect on the Company's future results of operations and financial condition.
See "Risk Factors -- Dependence on Exploratory Drilling Activities."
In addition, the Company's use of 3-D seismic technology requires greater
pre-drilling expenditures than traditional drilling strategies. Although the
Company believes that its use of 3-D seismic technology will increase the
probability of success, unsuccessful wells are likely to occur. There can be no
assurance that the Company's drilling program will be successful or that
unsuccessful drilling efforts will not have a material adverse effect on the
Company.
The Company's operations are subject to hazards and risks inherent in
drilling for and producing and transporting natural gas and oil, such as fires,
natural disasters, explosions, encountering formations with abnormal pressures,
blowouts, cratering, pipeline ruptures and spills, any of which can result in
the loss of hydrocarbons, environmental pollution, personal injury claims and
other damage to properties of the Company and others. The Company maintains
insurance against some but not all of the risks described above. In particular,
the insurance maintained by the Company does not cover claims relating to
failure of title to natural gas and oil leases, trespass during 3-D survey
acquisition or surface change attributable to seismic operations, business
interruption or loss of revenues due to well failure. In certain circumstances
in which insurance is available the Company may not purchase it. The occurrence
of an event that is not covered, or not fully covered, by insurance could have a
material adverse effect on the Company's financial condition and results of
operations.
EMPLOYEES
On February 15, 1997, the Company had 33 full-time employees. None is
represented by any labor union. The Company believes its relations with its
employees are good. The Company also relies on several regional broker service
companies to provide field landmen to the Company. One of these companies,
Brigham Land Management, is owned by Vincent M. Brigham, who is the brother of
Ben M. Brigham, the Company's President, Chief Executive Officer and Chairman of
the Board. See "Certain Transactions."
OTHER FACILITIES
Through August 1997, the Company has leased approximately 17,000 square
feet of office space in Dallas, Texas, where its principal offices are located.
When the Company's lease expires, the Company plans to relocate its principal
executive offices to Austin, Texas, where it has leased approximately 28,000
square feet of office space at 6300 Bridgepoint Parkway, Building 2, Suite 500,
Austin, Texas 78730. The Company also leases a 4,100 square foot office at 450
Gears Road, Suite 240, Houston, Texas 77067.
TITLE TO PROPERTIES
The Company believes it has satisfactory title to all of its producing
properties in accordance with standards generally accepted in the oil and gas
industry. The Company's properties are subject to customary royalty interests,
liens incident to operating agreements, liens for current taxes and other
burdens which the Company believes do not materially interfere with the use of
or affect the value of such properties. The Company's Revolving Credit Facility
is secured by substantially all of the Company's natural gas and oil properties.
GOVERNMENTAL REGULATION
The Company's natural gas and oil exploration, production and related
operations are subject to extensive rules and regulations promulgated by federal
and state agencies. Failure to comply with such rules and
40
<PAGE> 42
regulations can result in substantial penalties. The regulatory burden on the
oil and gas industry increases the Company's cost of doing business and affects
its profitability. Although the Company believes it is in substantial compliance
with all applicable laws and regulations, because those laws and regulations are
frequently amended or reinterpreted, the Company is unable to predict the future
cost or impact of complying with such laws.
The State of Texas and many other states require permits for drilling
operations, drilling bonds and reports concerning operations and impose other
requirements relating to the exploration and production of natural gas and oil.
These states also have statutes or regulations addressing conservation matters,
including provisions for the unitization or pooling of natural gas and oil
properties, the establishment of maximum rates of production from wells and the
regulation of spacing, plugging and abandonment of such wells.
The Federal Energy Regulatory Commission ("FERC") regulates interstate
natural gas transportation rates and service conditions, which affect the
marketing of gas produced by the Company, as well as the revenues received by
the Company for sales of such production. Since the mid-1980s, FERC has issued a
series of orders, culminating in Order Nos. 636, 636-A and 636-B ("Order 636"),
that have significantly altered the marketing and transportation of gas. Order
636 mandates a fundamental restructuring of interstate pipeline sales and
transportation service, including the unbundling by interstate pipelines of the
sale, transportation, storage and other components of the city-gate sales
services such pipelines previously performed. One of FERC's purposes in issuing
the order was to increase competition within all phases of the natural gas
industry. Numerous parties have filed petitions for review of Order 636, as well
as orders in individual pipeline restructuring proceedings. In July 1996, Order
636 was generally upheld on appeal, and the portions remanded for further action
do not appear to materially affect the Company. Because Order 636 may be
modified as a result of the appeals, it is difficult to predict the ultimate
impact of the orders on the Company and its gas marketing efforts. Generally,
Order 636 has eliminated or substantially reduced the interstate pipelines'
traditional role as wholesalers of natural gas and has substantially increased
competition and volatility in natural gas markets.
The price the Company receives from the sale of natural gas liquids and oil
is affected by the cost of transporting products to markets. Effective January
1, 1995, FERC implemented regulations establishing an indexing system for
transportation rates for oil pipelines, which, generally, would index such rates
to inflation, subject to certain conditions and limitations. The Company is not
able to predict with certainty the effect, if any, of these regulations on its
operations. However, the regulations may increase transportation costs or reduce
well head prices for natural gas liquids and oil. See "Risk Factors --
Compliance with Government Regulations."
ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to extensive and
changing federal, state and local laws and regulations relating to environmental
protection, including the generation, storage, handling, emission,
transportation and discharge of materials into the environment, and relating to
safety and health. The recent trend in environmental legislation and regulation
generally is toward stricter standards, and this trend will likely continue.
These laws and regulations may require the acquisition of a permit or other
authorization before construction or drilling commences and for certain other
activities; limit or prohibit construction, drilling and other activities on
certain lands lying within wilderness and other protected areas; and impose
substantial liabilities for pollution resulting from the Company's operations.
The permits required for various of the Company's operations are subject to
revocation, modification and renewal by issuing authorities. Governmental
authorities have the power to enforce compliance with their regulations, and
violations are subject to fines or injunction, or both. In the opinion of
management, the Company is in substantial compliance with current applicable
environmental laws and regulations, and the Company has no material commitments
for capital expenditures to comply with existing environmental requirements.
Nevertheless, changes in existing environmental laws and regulations or in
interpretations thereof could have a significant impact on the Company, as well
as the oil and gas industry in general. The Comprehensive Environmental
Response, Compensation and Liability Act and comparable state statutes impose
strict, joint and several liability on owners and operators of sites and on
persons who disposed of or arranged for the
41
<PAGE> 43
disposal of "hazardous substances" found at such sites. It is not uncommon for
the neighboring land owners and other third parties to file claims for personal
injury and property damage allegedly caused by the hazardous substances released
into the environment. The Resource Conservation and Recovery Act and comparable
state statutes govern the disposal of "solid waste" and "hazardous waste" and
authorize imposition of substantial fines and penalties for noncompliance.
Although CERCLA currently excludes petroleum from its definition of "hazardous
substance," state laws affecting the Company's operations impose clean-up
liability relating to petroleum and petroleum related products. In addition,
although RCRA classifies certain oil field wastes as "non-hazardous," such
exploration and production wastes could be reclassified as hazardous wastes
thereby making such wastes subject to more stringent handling and disposal
requirements.
Federal regulations require certain owners or operators of facilities that
store or otherwise handle oil, such as the Company, to prepare and implement
spill prevention, control countermeasure and response plans relating to the
possible discharge of oil into surface waters. The Oil Pollution Act of 1990
contains numerous requirements relating to the prevention of and response to oil
spills into waters of the United States. For onshore facilities that may affect
waters of the United States, the OPA requires an operator to demonstrate $10
million in financial responsibility, and for offshore facilities the financial
responsibility requirement is at least $35 million. Regulations are currently
being developed under federal and state laws concerning oil pollution prevention
and other matters that may impose additional regulatory burdens on the Company.
In addition, the Clean Water Act and analogous state laws require permits to be
obtained to authorize discharge into surface waters or to construct facilities
in wetland areas. With respect to certain of its operations, the Company is
required to maintain such permits or meet general permit requirements. The EPA
recently adopted regulations concerning discharges of storm water runoff. This
program requires covered facilities to obtain individual permits, participate in
a group or seek coverage under an EPA general permit. The Company believes that
it will be able to obtain, or be included under, such permits, where necessary,
and to make minor modifications to existing facilities and operations that would
not have a material effect on the Company.
The Company has acquired leasehold interests in numerous properties that
for many years have produced natural gas and oil. Although the previous owners
of these interests have used operating and disposal practices that were standard
in the industry at the time, hydrocarbons or other wastes may have been disposed
of or released on or under the properties. In addition, some of the Company's
properties are operated by third parties over whom the Company has no control.
Notwithstanding the Company's lack of control over properties operated by
others, the failure of the operator to comply with applicable environmental
regulations may, in certain circumstances, adversely impact the Company. See
"Risk Factors -- Compliance with Environmental Regulations" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Other Matters."
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
42
<PAGE> 44
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the executive
officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Ben M. Brigham............................ 37 President, Chief Executive Officer and
Chairman of the Board
Anne L. Brigham........................... 35 Executive Vice President, Secretary and
Director
Jon L. Glass.............................. 41 Vice President -- Exploration and Director
Craig M. Fleming.......................... 39 Chief Financial Officer
David T. Brigham.......................... 36 Vice President -- Legal
A. Lance Langford......................... 34 Vice President -- Operations
Harold D. Carter.......................... 58 Consultant and Director
Alexis M. Cranberg........................ 41 Director
Gary J. Milavec........................... 35 Director
Stephen P. Reynolds....................... 45 Director
</TABLE>
Set forth below is a description of the backgrounds of the executive
officers and directors of the Company.
Ben M. "Bud" Brigham has served as President, Chief Executive Officer and
Chairman of the Board of the Company since founding the Company in 1990. From
1984 to 1990, Mr. Brigham served as an exploration geophysicist with Rosewood
Resources, an independent oil and gas exploration and production company. Mr.
Brigham began his career in Houston as a seismic data processing geophysicist
for Western Geophysical, a provider of 3-D seismic services, after earning his
B.S. in Geophysics from the University of Texas.
Anne L. Brigham has served as Executive Vice President, Secretary and a
Director of the Company since its inception in 1990. Before joining the Company
full-time in 1991, Ms. Brigham practiced law in the oil and gas and real estate
sections of Thompson & Knight, P.C. Ms. Brigham worked as a geologist for Hunt
Petroleum Corporation, an independent oil and gas exploration and production
company, for over two years before attending law school. Ms. Brigham holds a
B.S. in Geology from the University of Texas and a J.D. from Southern Methodist
University.
Jon L. Glass joined the Company in 1992 and has served as Vice
President -- Exploration and a Director of the Company since 1995. From 1984 to
1992, Mr. Glass served in various capacities with Santa Fe Minerals, an oil and
gas exploration company, in a variety of staff and managerial positions mainly
focused on Santa Fe Minerals' exploration activities in the midcontinent and
Gulf of Mexico (onshore and offshore). During this time Mr. Glass also assisted
in the development of exploration and acquisition opportunities for Santa Fe
Minerals in Canada and South America. Mr. Glass' early geological experience
includes three years with Mid-America Pipeline Company and two years with Texaco
USA, serving mainly as a midcontinent exploration geologist. Mr. Glass holds a
B.S. and an M.S. in Geology from Oklahoma State University and an M.B.A. from
the University of Tulsa.
Craig M. Fleming has served as the Chief Financial Officer of the Company
since 1993. From 1990 to 1993, Mr. Fleming served as Controller of Odyssey
Petroleum Co., Ltd., an independent energy company. From 1988 to 1990, Mr.
Fleming served as Controller and Treasurer for Harken Exploration Company, an
independent energy company. Mr. Fleming began his career with Arthur Anderson &
Co. in the Oil and Gas Audit Division and is a Certified Public Accountant. Mr.
Fleming holds a B.B.A. in Accounting from Texas A&M University.
43
<PAGE> 45
David T. Brigham joined the Company in 1992 and has served as Vice
President -- Legal of the Company since 1994. From 1987 to 1992, Mr. Brigham was
an oil and gas attorney with Worsham, Forsythe, Sampels & Wooldridge. Before
attending law school, Mr. Brigham was a landman for Wagner & Brown Oil and Gas
Producers, an independent oil and gas exploration and production company. Mr.
Brigham holds a B.B.A. in Petroleum Land Management and a J.D. from Texas Tech
University.
A. Lance Langford joined the Company as Manager of Operations in 1995 and
has served as Vice President Operations since January 1997. From 1987 to 1995,
Mr. Langford served in various engineering capacities with Meridian Oil Inc.,
handling a variety of reservoir, production and drilling responsibilities. Mr.
Langford holds a B.S. in Petroleum Engineering from Texas Tech University.
Harold D. Carter has served as a Director of and consultant to the Company
since 1992. Mr. Carter has more than 30 years experience in the oil and gas
industry and has been an independent consultant since 1990. Prior to consulting,
Mr. Carter served as Executive Vice President of Pacific Enterprises Oil Company
(USA). Before that, Mr. Carter was associated for 20 years with Sabine
Corporation, ultimately serving as President and Chief Operating Officer from
1986 to 1989. Mr. Carter consults for Endowment Advisors, Inc. with respect to
its EEP Partnerships and Associated Energy Managers, Inc. with respect to its
Energy Income Fund, L.P. and is a director of Abraxas Petroleum Corporation. Mr.
Carter has a B.B.A. in Petroleum Land Management from the University of Texas
and has completed the Program for Management Development at the Harvard
University Business School.
Alexis M. Cranberg has served as a Director of the Company since 1992. Mr.
Cranberg is President of Aspect Management Corporation, an oil and gas
exploration and investment company. In addition, Mr. Cranberg is a Director for
Westport Oil and Gas Company, Inc. and a past Director of General Atlantic
Resources, Inc. and United Meridian Corporation. He holds a B.S. in Petroleum
Engineering from the University of Texas and an M.B.A. from Stanford University.
Gary J. Milavec has served as a Director of the Company since 1995. Mr.
Milavec is a Senior Vice President of RIMCO, a full service investment
management firm specializing in the energy industry. Prior to joining RIMCO in
1990, Mr. Milavec spent two years in the corporate finance department of
Rauscher Pierce Refsnes, Inc. and three years as a geological engineer with
Shell Western E&P, Inc. He also serves as a director of Universal Seismic
Associates, Inc. and Texoil, Inc. Mr. Milavec holds B.S. in Geology from the
University of Rochester, an M.S. in Geology from the University of Oklahoma and
an M.B.A. from the University of Houston.
Stephen P. Reynolds has served as a Director of the Company since 1996. Mr.
Reynolds is a managing member of General Atlantic Partners, LLC ("GAP LLC") and
has been with GAP LLC or its predecessor entities since April 1980. Mr. Reynolds
is also President of GAP III Investors, Inc., the general partner of General
Atlantic Partners III, L.P., and is a general partner and limited partner of
GAP-Brigham Partners, L.P. Mr. Reynolds is on the board of directors of Solo
Serve Corporation, a publicly traded off-price soft goods retail company, and
Computer Learning Centers, Inc., a publicly traded company providing technology
related training. Mr. Reynolds holds a B.A. in Economics from Amherst College
and a Masters degree in Accounting from New York University.
All directors are elected to serve until the next annual meeting of
stockholders and until their successors are elected and qualified. Executive
officers are generally elected annually by the Board of Directors to serve,
subject to the discretion of the Board of Directors, until their successors are
elected or appointed.
There is no family relationship between any of the directors or between any
director and any executive officer of the Company except that Ben M. Brigham and
Anne L. Brigham are married and David T. Brigham is the brother of Ben M.
Brigham. For information regarding certain business relationships between the
Company and certain of its directors, see "Certain Transactions."
COMMITTEES OF THE BOARD
Upon completion of the Offering, the Company will establish two standing
committees of the Board of Directors: an Audit Committee and a Compensation
Committee. Messrs. Carter, Cranberg and Milavec are
44
<PAGE> 46
expected to be members of the Audit Committee and Compensation Committee
following completion of the Offering. The Audit Committee will review the
functions of the Company's management and independent accountants pertaining to
the Company's financial statements and perform such other related duties and
functions as are deemed appropriate by the Audit Committee or the Board of
Directors. The Compensation Committee will recommend to the Board of Directors
the base salaries, bonuses and other incentive compensation for the Company's
officers. The Board of Directors has designated the Compensation Committee as
the administrator of the Company's 1997 Incentive Plan. See
"Management -- Employee Benefit Plans -- 1997 Incentive Plan."
DIRECTOR COMPENSATION
Fees and Expenses; Other Arrangements. Directors who are also employees of
the Company are not separately compensated for serving on the Board of
Directors. Directors who are not employees of the Company receive $5,000 per
year and $500 per meeting for their services as directors. In addition, the
Company reimburses Directors for the expenses incurred in connection with
attending meetings of the Board of Directors and its committees.
Pursuant to a consulting agreement with Harold D. Carter that expires May
1, 1997, the Company pays Mr. Carter $7,200 per month to spend approximately 50%
of his working time performing such consulting and advisory services regarding
the operations of the Company as the Company requests, including service on the
Management Committee of the Company's predecessor partnership.
Alexis M. Cranberg and Stephen P. Reynolds served on the management
committee of the Company's predecessor partnership pursuant to the terms of an
agreement with General Atlantic, and Gary J. Milavec served on the committee
pursuant to the terms of an agreement with RIMCO. The Company is not obligated
to nominate any of the three to serve as a Director of the Company in the
future.
Director Stock Options. The Company's stockholders have approved the 1997
Director Stock Option Plan, pursuant to which each newly elected nonemployee
director shall be granted an option to purchase 1,000 shares of Common Stock and
each nonemployee director will receive an option to purchase 500 shares of
Common Stock on December 31 of each year. The options under the plan are granted
at fair market value on the grant date and become exercisable, subject to
certain conditions, in five equal annual installments on the first five
anniversaries of the grant date. The options terminate ten years from the grant
date, unless terminated sooner. 25,000 shares of Common Stock have been
authorized and reserved for issuance pursuant to the plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
In accordance with Section 102(b)(7) of the Delaware General Corporation
Law ("DGCL"), the Company's Certificate of Incorporation includes a provision
that, to the fullest extent permitted by law, eliminates the personal liability
of members of its Board of Directors to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director. Such provision does
not eliminate or limit the liability of a director (1) for any breach of a
director's duty of loyalty to the Company or its stockholders, (2) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of a law, (3) for paying an unlawful dividend or approving an illegal
stock repurchase (as provided in Section 174 of the DGCL) or (4) for any
transaction from which the director derived an improper personal benefit.
The Company has entered into indemnity agreements with each of its
executive officers and directors that provide for indemnification in certain
instances against liability and expenses incurred in connection with proceedings
brought by or in the right of the Company or by third parties by reason of a
person serving as an officer or director of the Company.
The Company believes that these provisions and agreements will assist the
Company in attracting and retaining qualified individuals to serve as directors
and officers.
45
<PAGE> 47
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee is or has been an
employee of the Company. Mr. Carter is and has been since 1992 a consultant to
the Company. No executive officer of the Company serves as a member of the Board
of Directors or compensation committee of any entity that has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee. All of the Company's directors, or their affiliates,
have acquired capital stock of the Company. See "Certain Transactions."
EXECUTIVE COMPENSATION
The following table sets forth all compensation paid for the last fiscal
year to the Company's Chief Executive Officer and each of the Company's other
executive officers whose annual salary exceeded $100,000 for the fiscal year
ended December 31, 1996. The table does not include perquisites and other
personal benefits because the aggregate amount of such compensation does not
exceed the lesser of (i) $50,000 or (ii) 10% of individual combined salary and
bonus for the named executive officers in each year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------------------
ANNUAL COMPENSATION RESTRICTED SHARES
NAME AND -------------------------- STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(1) AWARDS OPTIONS(2) COMPENSATION(3)
------------------ ---- -------- -------- ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Ben M. Brigham............... 1996 $144,000 $15,000 -- -- $4,817
President, Chief Executive
Officer and Chairman of
the Board
Jon L. Glass................. 1996 109,782 3,223 -- -- --
Vice
President -- Exploration
Craig M. Fleming............. 1996 102,919 8,063 -- -- --
Chief Financial Officer
David T. Brigham............. 1996 94,874 10,505 -- -- --
Vice President -- Legal
</TABLE>
- ---------------
(1) Includes, for Jon L. Glass, Craig M. Fleming and David T. Brigham, bonuses
earned under the Company's Incentive Bonus Plan of $3,223, $4,202 and
$5,496, respectively. See "Employment Benefit Plans -- Incentive Bonus
Plan."
(2) Does not include options to purchase Common Stock granted in February 1997
at an exercise price of $5.00 in the amount of 208,333 shares for Jon L.
Glass, 69,444 shares for Craig M. Fleming and 69,444 shares for David T.
Brigham.
(3) Consists of premiums paid by the Company under life and disability insurance
plans of $1,404 and $3,413, respectively.
Employment Agreements
The Company employs Ben M. Brigham under an Employment Agreement (the
"Employment Agreement") as President and Chief Executive Officer of the Company
for a five year term that began in February 1997. The Employment Agreement
contains rollover provisions so that at all times the term of the Employment
Agreement shall be not less than three years. The agreement provides for an
annual salary of $275,000, which the Board of Directors may further increase
from time to time. Mr. Brigham is also entitled to an annual cash bonus, not to
exceed 75% of his then current salary, determined based on criteria established
by the Board of Directors. Under the Employment Agreement, Mr. Brigham is
entitled to participate in any employee benefit programs that the Company
provides to its executive officers. The only employee benefit programs that the
Company offers to its officers and employees are group insurance coverage and
participation
46
<PAGE> 48
in the Company's 401(k) Retirement Plan, the 1997 Incentive Plan and the
Incentive Bonus Plan. If Mr. Brigham terminates his employment for good reason,
which includes a material reduction of Mr. Brigham's position without cause or
his written consent, breach of a material provision of the Employment Agreement
or improper notice of termination, or if the Company terminates Mr. Brigham
without cause, the Company must pay Mr. Brigham a sum equal to the amount of his
annual base salary that he would have received during the remainder of his
employment term plus the average of his annual bonuses received in the preceding
two years times the number of years in the remainder of his employment term. Mr.
Brigham's agreement also contains a three-year non-compete and confidentiality
clause with standard terms.
Each of the other executive officers of the Company is a party to a
confidentiality and noncompete agreement contained in agreements relating to the
officers' restricted stock. See "Management -- Employee Benefit
Plans -- Employees' Restricted Stock."
EMPLOYEE BENEFIT PLANS
Employees' Restricted Stock. In February 1997, the Company, in connection
with the Exchange, issued 66,964 shares, 44,643 shares and 44,643 shares of
restricted stock to Jon L. Glass, Craig M. Fleming and David T. Brigham,
respectively, in exchange for restricted limited partnership interests issued to
them in 1994. Each agreement relating to the restricted stock contains
confidentiality, noncompete and vesting provisions. The shares awarded Messrs.
Brigham and Fleming vest over a three-year period -- 30% in each of July 1997
and 1998 and 40% in July 1999. 16.67% of Mr. Glass's shares have already vested,
28.33% vest in each of July 1997 and 1998, and 26.67% vest in July 1999.
1997 Incentive Plan. The Board of Directors and the stockholders of the
Company approved the adoption of the Company's 1997 Incentive Plan (the "1997
Incentive Plan") as of February 27, 1997. The Compensation Committee selects
participants in the 1997 Incentive Plan are selected by the Compensation
Committee from among those key employees and others who hold positions of
responsibility with the Company and whose performance may have a significant
effect on the success of the Company. An aggregate of 1,588,169 shares of Common
Stock have been authorized and reserved for issuance pursuant to the 1997
Incentive Plan. In March 1997, options were granted to purchase a total of
644,097 shares of Common Stock at an exercise price per share of $5.00. These
options vest over six years. Jon L. Glass, Craig M. Fleming and David T. Brigham
were granted options to purchase 208,334 shares, 69,445 shares and 69,445 shares
of Common Stock, respectively. Their options vest as follows: 30% on July 1,
1998; 20% on July 1, 1999; 16.66% on July 1, 2000; 16.67% on July 1, 2001; and
the balance on July 1, 2002.
Subject to the provisions of the 1997 Incentive Plan, the Compensation
Committee is authorized to determine the type or types of awards made to each
participant and the terms, conditions and limitations applicable to each award.
In addition, the Compensation Committee has the exclusive power to interpret the
1997 Incentive Plan and to adopt rules and regulations that it may deem
necessary or appropriate, in keeping with the objectives of the 1997 Incentive
Plan.
Pursuant to the 1997 Incentive Plan, participants will be eligible to
receive awards consisting of stock options, stock appreciation rights, stock,
restricted stock, cash or any combination of the foregoing. Stock options may be
either incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, or nonqualified stock options.
Incentive Bonus Plan. In connection with the Exchange, the Company has
adopted the Incentive Bonus Plan (the "Incentive Bonus Plan") previously
established by the Company's predecessor partnership. The Incentive Bonus Plan
is designed to pay cash compensation and bonuses to eligible employees of the
Company. Under the Incentive Bonus Plan, the Company maintains an incentive
account for each calendar year (each an "Incentive Account") and a discretionary
bonus account (the "Discretionary Bonus Account"). Prior to the beginning of
each calendar year the President of the Company designates the employees of the
Company who are eligible to participate in the Incentive Account being
established for such year, and each such employee's percentage of interest (an
"Account Percentage") in such Incentive Account. Subject to certain adjustments
provided under the Incentive Bonus Plan, each Incentive Account is credited with
an
47
<PAGE> 49
amount equal to one-half of the net revenue received by the Company which is
equivalent to a one percent interest in the Company's net revenue interest in
the oil and gas produced from each Company well drilled or reentered after April
30, 1992, and the Discretionary Bonus Account is credited with an amount equal
to the amount credited to each Incentive Account. The President has discretion
to allocate a greater interest to the accounts. Within thirty days after each
March 31 and September 30, an employee who has been designated to have an
Account Percentage in the Incentive Account established for a particular year
receives cash compensation equal to his or her Account Percentage in such
Incentive Account multiplied by the amount credited to that Incentive Account
for the six-month period then ended. In addition, the President of the Company
has the discretion to award cash bonuses to any Company employee from the
amounts credited to the Discretionary Bonus Account. The participation of an
employee under the Incentive Bonus Plan terminates when he or she ceases to be
an employee of the Company for any reason. The President of the Company may
amend or terminate the Incentive Bonus Plan at any time.
CERTAIN TRANSACTIONS
In connection with the land work necessary prior to and during 3-D seismic
acquisitions, the Company engages Brigham Land Management ("BLM"), an
independent company owned and managed by Vincent M. Brigham, a brother of Ben M.
Brigham, who is the Company's President, Chief Executive Officer and Chairman of
the Board. BLM specializes in conducting the field land work necessary prior to
and during 3-D seismic acquisitions. BLM's regional expertise is in the Anadarko
Basin and the Texas Panhandle, and to a lesser extent, West Texas. BLM performs
these services for the Company using BLM's employees and independent
contractors. BLM performs approximately one-third of the Company's work in the
Anadarko Basin. In 1994, 1995 and 1996, the Company paid BLM $310,000, $382,000
and $596,000, respectively. Other participants in the Company's 3-D seismic
projects reimbursed the Company for most of these amounts. Based on its
experience with other firms in the area, the Company believes that BLM's charges
are at or below those of other firms.
In 1994, the Company, through its subsidiary Quest Resources, L.L.C.,
formed Venture Acquisitions, L.P. ("Venture") with affiliates of RIMCO, a holder
of in excess of 5% of the Common Stock, to provide the Company with the capital
to acquire interests in potential drilling locations, producing properties and
3-D seismic projects. The RIMCO affiliates have contributed $5.2 million to
Venture, and the Company has contributed $286,138. Until the first payout under
the Venture limited partnership agreement, the Company's share of all capital
costs is 5%, and the Company's share of revenues and related production expenses
and costs is 10%. Between the first and second payout levels, the Company's
share of capital costs and revenues and related production expenses and costs is
25% and thereafter increases to 50%. Venture acquired an interest in (i) a 3-D
project, including a 3-D delineated producing well, for approximately $525,000
in 1994, (ii) a 3-D project for approximately $75,000 in 1995 and (iii) two 3-D
delineated potential drilling locations and 3-D seismic data for approximately
$83,000 in 1996. The Company billed Venture approximately $3,200 in 1994,
$14,924 in 1995 and $16,500 in 1996 for its proportionate share of exploration
and overhead costs. Because RIMCO was not an affiliate of the Company when the
Venture partnership was formed, the Company believes that the terms of the
Venture partnership are no less favorable than could be obtained from an
unaffiliated third party. Gary J. Milavec, a director of the Company, is
employed by RIMCO.
In November 1994, the Company, certain RIMCO affiliates and other unrelated
industry participants entered into a geophysical exploration agreement creating
an area of mutual interest in its Esperson Dome Project in Liberty and Harris
Counties, Texas. The Company financed its participation in this project by
assigning its interest, and obligation to bear costs, to Vaquero Gas Company,
Inc. ("Vaquero"), a RIMCO affiliate, subject to a 5% net profits overriding
royalty interest and the right to receive up to 50% of Vaquero's interest on the
occurrence of certain payouts. The Company also retained responsibility for
managing the 3-D seismic data acquisition and interpretation of the data after
it had been acquired. During 1995 and 1996, the Company received approximately
$25,000 and $123,000, respectively, from the RIMCO affiliates, including
Vaquero, for workstation time and geoscientists' time in interpreting the 3-D
seismic data that were acquired. Because RIMCO was not an affiliate of the
Company when the project was initiated and the interest to
48
<PAGE> 50
Vaquero was transferred, it believes that the terms of the arrangement are no
less favorable than could be obtained from an unaffiliated third party.
In January 1997, the Company, RIMCO and Tigre Energy Corporation ("Tigre")
entered into an agreement under which the Company has been initially assigned an
undivided 25% interest (subject to a proportionately reduced 3% overriding
royalty interest) in a project located in Vermillion Parish, Louisiana in return
for paying certain costs of acquiring 3-D seismic and land within the project
area. The Company also has the option to acquire an additional 12.5% working
interest from RIMCO and an additional 37.5% working interest from Tigre in parts
of the project. The Company believes that the arrangements with RIMCO affiliates
relating to Tigre Point are on terms no less favorable than could be obtained
from an unaffiliated third party, because RIMCO and Tigre, an unaffiliated third
party, are participants in the project on substantially similar terms.
The Company and an affiliate of Universal Seismic Associates, Inc. ("USA"),
a public company in which RIMCO affiliates beneficially own approximately 18% of
the outstanding common stock, have entered into a geophysical exploration
agreement covering an area of mutual interest on the Gulf Coast. Under the terms
of the agreement, USA will conduct a 3-D seismic program established by the
Company and USA and process the data acquired under the program at cost, and the
Company will interpret the resulting seismic data for the benefit of the Company
and USA at no charge to USA. Subject to a party electing not to participate in
an acquired interest, the Company and USA will each own an undivided 50%
interest in all land interests acquired within the area of mutual interest.
Through December 31, 1996, the Company had not incurred any costs under those
arrangements. Based on its experience in acquiring 3-D seismic data, the Company
believes that it will acquire 3-D seismic data under this agreement on terms,
and that the arrangement is on terms, no less favorable than could be obtained
from an unaffiliated third party. The Company is currently negotiating with an
affiliate of USA for participation in another South Texas project in which USA
would conduct any 3-D seismic programs within the project area at USA's cost and
the Company would interpret the resulting seismic data for the benefit of the
Company and USA.
In 1993 and 1994 the Company issued to RIMCO 10% Notes in a principal
amount of $3.0 million and $4.9 million, respectively. In 1995 the Company
issued RIMCO additional 10% Notes in a principal amount of $2.6 million, and in
the same year, issued RIMCO 5% Notes in a principal amount of $16.0 million,
$10.5 million of which was used to repay all the outstanding 10% Notes. The 5%
Notes have been exchanged for 1,754,464 shares of Common Stock in the Exchange.
In 1994, 1995 and 1996, the Company paid RIMCO $591,826, $631,989 and $809,332,
respectively, in interest payments on the 5% Notes and the 10% Notes. In 1994,
1995 and 1996, the Company distributed to RIMCO $52,900, $102,107 and $82,097,
respectively for RIMCO's overriding royalty interest in certain natural gas and
oil properties. As part of the Exchange, the Company has agreed to pay to RIMCO
an amount equal to the interest the Company would have been currently paid on
the 5% Notes through the earlier to occur the date of the closing of the
Offering or September 30, 1997.
Pursuant to a consulting agreement with Harold D. Carter that expires May
1, 1997, the Company pays Mr. Carter $7,200 per month to spend approximately 50%
of his working time performing such consulting and advisory services regarding
the operations of the Company as the Company requests, including service on the
Management Committee of the Company's predecessor partnership. Pursuant to this
agreement, Mr. Carter received $72,000 in 1994, $72,000 in 1995 and $79,200 in
1996.
In 1995 and 1996, the Company paid $35,000 and $110,000 to Aspect and
affiliates of Alexis Cranberg, a director of the Company, to acquire interests
in a project in Grady County, Oklahoma and a project in Hardeman and Wilbarger
Counties, Texas and Jackson County, Oklahoma. Based on its experience in the
industry, the Company believes that these transactions are on terms no less
favorable than could be obtained from an unaffiliated third party. The Company
billed Aspect and other affiliates of Alexis Cranberg $201,000 in 1994, $13,000
in 1995 and $68,000 in 1996 for its proportionate share of exploration costs
related to the projects.
The Company has entered into a Registration Rights Agreement with General
Atlantic Partners III, L.P., GAP-Brigham Partners, L.P., RIMCO Partners, L.P.
II, RIMCO Partners, L.P. III and RIMCO
49
<PAGE> 51
Partners, L.P. IV, Ben M. Brigham, Anne L. Brigham, Harold D. Carter, Craig M.
Fleming, David T. Brigham and Jon L. Glass. Pursuant to the Registration Rights
Agreement, Anne and Ben Brigham, acting together, the RIMCO entities, acting
together, and the General Atlantic entities, acting together, each may
separately require the Company to register securities, on one occasion, if the
shares to be registered have an estimated aggregate offering price to the public
of at least $3.0 million. One additional registration is allowed if any
registrable securities requested to be included in a previous registration
statement were not disposed of in accordance with that previous registration.
The Registration Rights Agreement also provides "piggyback" registration rights
after the Offering for all registrations of registrable securities for the
Company or another security holder. In an underwritten offering, however, the
Company may exclude all or a portion of the securities being registered pursuant
to "piggyback" registration rights if the managing underwriter determines that
including those securities would raise a substantial doubt about whether the
proposed offering could be consummated. The Registration Rights Agreement
contains customary indemnity by the Company in favor of persons selling
securities in a registration governed by the Registration Rights Agreement, and
by those persons in favor of the Company, relating to the information included
in or omitted from the Registration Statement.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of February 27, 1997, by (i) each
person the Company knows to be the beneficial owner of 5% or more of the
outstanding shares of Common Stock, (ii) each named executive officer, (iii)
each director of the Company and (iv) all executive officers and directors of
the Company as a group. Except as indicated in the footnotes to this table and
pursuant to applicable community property laws, the Company believes that each
stockholder named in this table has sole investment and voting power with
respect to the shares set forth opposite such stockholder's name.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERING(1) OFFERING(1)
------------------- -------------------
BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
---------------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Ben M. Brigham(2)................................ 3,848,824 43.11% 3,848,824 32.27%
5949 Sherry Lane, Suite 1616
Dallas, Texas 75225
Anne L. Brigham(2)............................... 3,848,824 43.11% 3,848,824 32.27%
5949 Sherry Lane, Suite 1616
Dallas, Texas 75225
General Atlantic Partners III, L.P.(3)........... 2,807,143 31.44% 2,807,143 23.53%
Three Pickwick Plaza, Suite 200
Greenwich, Connecticut 06830
Resource Investors Management Company Limited
Partnership(4)................................. 1,754,464 19.65% 1,754,464 14.71%
600 Travis Street, Suite 6875
Houston, Texas 77002
Craig M. Fleming(5).............................. 44,643 * 44,643 *
Jon L. Glass(6).................................. 66,964 * 66,964 *
David T. Brigham(7).............................. 45,643 * 45,643 *
Harold D. Carter................................. 341,893 3.83% 341,893 2.87%
Gary J. Milavec(8)............................... -- -- -- --
Alexis M. Cranberg............................... -- -- -- --
Stephen P. Reynolds(9)........................... -- -- -- --
All directors and executive officers as a group
(10 persons)(5)(6)(7)(8)(9)(10)................ 4,346,967 48.69% 4,346,967 36.44%
</TABLE>
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<PAGE> 52
- ---------------
* Represents less than 1%.
(1) Shares beneficially owned and percentage of ownership are based on
8,928,574 shares of Common Stock outstanding before the Offering and
11,928,574 shares of Common Stock outstanding after the closing. Beneficial
ownership is determined in accordance with the rules of the SEC and
generally includes voting or disposition power with respect to securities.
(2) Includes 1,923,914 shares owned by Ben M. Brigham and 1,923,910 shares
owned by Anne L. Brigham, who are husband and wife; and 1,000 shares held
by David T. Brigham, as custodian for Elizabeth R. Brigham under the Texas
Uniform Transfers to Minors Act. If the Underwriters' over-allotment option
is exercised in full, (i) Anne L. Brigham and Ben M. Brigham will each sell
47,619 shares pursuant to options granted to the Underwriters and (ii) the
number and percentage of outstanding shares beneficially owned by Anne L.
Brigham and Ben M. Brigham will be 3,753,587 and 30.56%, respectively.
(3) Includes 2,679,418 shares held by General Atlantic Partners III, L.P. ("GAP
III"); and 127,725 shares held by GAP-Brigham Partners, L.P.
("GAP-Brigham"). Stephen P. Reynolds is the general partner and a limited
partner in GAP-Brigham and is President of GAP III Investors, Inc., the
general partner of GAP III.
(4) Includes 612,308 shares held by RIMCO Partners, L.P. II, 307,031 shares
held by RIMCO Partners, L.P. III and 835,125 shares held by RIMCO Partners,
L.P. IV (collectively, the "RIMCO Partnerships"). RIMCO is the general
partner of each of the RIMCO Partnerships. The general partner of RIMCO is
RIMCO Associates, Inc.
(5) Includes 44,643 shares of restricted stock, which vest as follows: 30% in
July 1997, 30% in July 1998 and 40% in July 1999.
(6) Includes 66,964 shares of restricted stock, which vest as follows: 28.33%
in July 1997, 28.33% in July 1998 and 26.67% in July 1999.
(7) Includes 44,643 shares of restricted stock, which vest as follows: 30% in
July 1997, 30% in July 1998 and 40% in July 1999.
(8) Gary J. Milavec is a Senior Vice President of RIMCO, the general partner of
each of the RIMCO Partnerships, and is a Vice President of RIMCO
Associates, Inc., the general partner of RIMCO. As such, Mr. Milavec may be
deemed to share voting and investment power with respect to the 612,308
shares held by RIMCO Partners, L.P. II, the 307,031 shares held by RIMCO
Partners, L.P. III and the 835,125 shares held by RIMCO Partners, L.P. IV.
Mr. Milavec disclaims beneficial ownership of shares beneficially owned by
RIMCO and the RIMCO Partnerships.
(9) Stephen P. Reynolds is the general partner and a limited partner in
GAP-Brigham and is President of GAP III Investors, Inc., the general
partner of GAP III. As such, Mr. Reynolds may be deemed to share voting and
investment power with respect to the 2,679,418 shares held by GAP III and
the 127,725 shares held by GAP-Brigham. Mr. Reynolds disclaims beneficial
ownership of shares owned by GAP III and GAP-Brigham except to the extent
of his pecuniary interest therein.
(10) If the Underwriters' over-allotment is exercised in full, (i) all directors
and officers as a group will sell 95,238 shares pursuant to options granted
to the Underwriters and (ii) the number and percentage of outstanding
shares beneficially owned by all directors and officers as a group will be
4,251,726 and 34.61%, respectively.
51
<PAGE> 53
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30 million shares
of Common Stock, par value $.01 per share, and 10 million shares of preferred
stock, par value $.01 per share ("Preferred Stock"). 11,928,574 shares of Common
Stock will be issued and outstanding upon completion of the Offering (12,283,336
shares if the Underwriters exercise their over-allotment option in full). As of
March 31, 1997, the Company had outstanding 8,928,574 shares of Common Stock
held of record by 11 stockholders and stock options for an aggregate of 644,097
shares.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to the stockholders. The Certificate of
Incorporation of the Company does not allow the stockholders to take action by
less than unanimous consent. Each share of Common Stock is entitled to
participate equally in dividends, if, as and when declared by the Company's
Board of Directors, and in the distribution of assets in the event of
liquidation, subject in all cases to any prior rights of outstanding shares of
Preferred Stock. The Company has never paid cash dividends on its Common Stock.
The shares of Common Stock have no preemptive or conversion rights, redemption
rights, or sinking fund provisions. The outstanding shares of Common Stock are,
and the shares of Common Stock offered hereby upon issuance and sale will be,
duly authorized, validly issued, fully paid, and nonassessable.
PREFERRED STOCK
The Company has no outstanding Preferred Stock. The Company is authorized
to issue 10 million shares of Preferred Stock. The Company's Board of Directors
may establish, without stockholder approval, one or more classes or series of
Preferred Stock having the number of shares, designations, relative voting
rights, dividend rates, liquidation and other rights, preferences, and
limitations that the Board of Directors may designate. The Company believes that
this power to issue Preferred Stock will provide flexibility in connection with
possible corporate transactions. The issuance of Preferred Stock, however, could
adversely affect the voting power of holders of Common Stock and restrict their
rights to receive payments upon liquidation of the Company. It could also have
the effect of delaying, deferring or preventing a change in control of the
Company. The Company does not currently plan to issue Preferred Stock.
DELAWARE LAW PROVISIONS
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. Generally, Section 203 prohibits the Company
from engaging in a "business combination" (as defined in Section 203) with an
"interested stockholder" (defined generally as a person owning 15% or more of
the Company's outstanding voting stock) for three years following the date that
person becomes an interested stockholder, unless (a) before that person became
an interested stockholder, the Company's Board of Directors approved the
transaction in which the interested stockholder became an interested stockholder
or approved the business combination; (b) upon completion of the transaction
that resulted in the interested stockholder's becoming an interested
stockholder, the interested stockholder owns at least 85% of the voting stock
outstanding at the time the transaction commenced (excluding stock held by
directors who are also officers of the Company and by employee stock plans that
do not provide employees with the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer);
or (c) following the transaction in which that person became an interested
stockholder, the business combination is approved by the Company's Board of
Directors and authorized at a meeting of stockholders by the affirmative vote of
the holders of at least two-thirds of the outstanding voting stock not owned by
the interested stockholder.
Under Section 203, these restrictions also do not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of one of certain extraordinary transactions involving the Company
and a person who was not an interested stockholder during the previous three
years or who became an interested stockholder with the approval of a majority of
the Company's directors, if that
52
<PAGE> 54
extraordinary transaction is approved or not opposed by a majority of the
directors who were directors before any person became an interested stockholder
in the previous three years or who were recommended for election or elected to
succeed such directors by a majority of such directors then in office.
REGISTRATION RIGHTS
The Company has entered into a Registration Rights Agreement with General
Atlantic Partners III, L.P., GAP-Brigham Partners, L.P., RIMCO Partners, L.P.
II, RIMCO Partners, L.P. III and RIMCO Partners, L.P. IV, Ben M. Brigham, Anne
L. Brigham, Harold D. Carter, Craig M. Fleming, David T. Brigham and Jon L.
Glass. Pursuant to the Registration Rights Agreement, Anne and Ben Brigham,
acting together, the General Atlantic entities, acting together, and the RIMCO
entities, acting together, each may separately require the Company to register
securities, on one occasion, if the shares to be registered have an estimated
aggregate offering price to the public of at least $3 million. One additional
registration is allowed if any registrable securities requested to be included
in a previous registration statement were not disposed of in accordance with
that previous registration. The Registration Rights Agreement also provides
"piggyback" registration rights after the Offering for all registrations of
registrable securities for the Company or another security holder. In an
underwritten offering, however, the Company may exclude all or a portion of the
securities being registered pursuant to "piggyback" registration rights if the
managing underwriter determines that including those securities would raise a
substantial doubt about whether the proposed offering could be consummated. The
Registration Rights Agreement contains customary indemnity by the Company in
favor of persons selling securities in a registration governed by the
Registration Rights Agreement, and by those persons in favor of the Company,
relating to the information included in or omitted from the Registration
Statement.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 11,928,574 shares of
Common Stock outstanding (12,283,336 shares if the Underwriters exercise their
over-allotment option in full). Of these 11,928,574 shares, the shares of Common
Stock offered hereby will be freely transferable without restriction under the
Securities Act unless they are held by the Company's affiliates, as that term is
used in Rule 144 under the Securities Act. The Company issued the remaining
8,928,574 shares of Common Stock in reliance on exemptions from the registration
requirements of the Securities Act, and those shares are "restricted" securities
under Rule 144. Those shares may not be sold publicly unless they are registered
under the Securities Act, sold in compliance with Rule 144, or sold in a
transaction that is exempt from registration. The Company believes that the
earliest date on which the 8,928,574 shares of its Common Stock currently
outstanding will be eligible for sale under Rule 144 is February 27, 1998.
Therefore, no shares will be eligible for immediate sale in the public market
without restriction under Rule 144(k), and no shares will be eligible for
immediate sale under the volume and other limitations of Rule 144. Beginning
February 27, 1998, all of the shares of Common Stock currently outstanding will
become eligible for sale under Rule 144, based on current SEC rules and subject
to compliance with the volume and other requirements of Rule 144. Beginning
February 27, 1999, all of those shares of Common Stock will become eligible for
sale under Rule 144(k) if they are not held by affiliates of the Company.
In general, under Rule 144 a person (or persons whose sales are
aggregated), including an affiliate, who has beneficially owned shares for at
least one year is entitled to sell in broker transactions, within any three-
month period commencing 90 days after the Offering, a number of shares that does
not exceed the greater of (i) 1% of the then outstanding Common Stock
(approximately 119,000 shares immediately after the Offering) or (ii) the
average weekly trading volume in the Common Stock during the four calendar weeks
preceding the sale, subject to the filing of a Form 144 with respect to the sale
and other limitations. In addition, a person who was not an affiliate of the
Company during the three months preceding a sale and who
53
<PAGE> 55
has beneficially owned the shares proposed to be sold for at least two years is
entitled to sell the shares under Rule 144(k) without regard to the
manner-of-sale, volume and other limitations of Rule 144. The SEC has proposed
modifications to Rule 144 that could change some of these requirements. All
shares of Common Stock, other than those offered hereby, are subject to lock-up
agreements with the Underwriters for 180 days after the date of this Prospectus.
See "Underwriting."
The holders of approximately 8,421,431 shares of Common Stock and their
permitted transferees are entitled to demand registration of those shares under
the Securities Act beginning 180 days after the date of this Prospectus, and the
holders of approximately 8,928,574 shares of Common Stock are entitled to
"piggyback" registration rights. See "Description of Capital
Stock -- Registration Rights."
Approximately 8,907,574 shares of Common Stock are subject to "lock-up"
agreements; these shares will be released from such agreements 180 days after
the date of this Prospectus. See "Underwriting."
Options covering 644,097 shares of Common Stock have been issued, with an
exercise price of $5.00 per share, subject to vesting.
Prior to the Offering, there has been no public market for the securities
of the Company. No prediction can be made of the effect, if any, that the sale
or availability for sale of shares of additional Common Stock will have on the
market price of the Common Stock. Nevertheless, sales of substantial numbers of
shares by existing stockholders or by stockholders purchasing in the Offering
could have a negative effect on the market price of the Common Stock.
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Bear, Stearns &
Co. Inc., Howard, Weil, Labouisse, Friedrichs Incorporated and Rauscher Pierce
Refsnes, Inc. are acting as Representatives (the "Representatives"), have
severally agreed, subject to the terms and conditions of the Underwriting
Agreement, to purchase from the Company the aggregate number of shares of Common
Stock set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Bear, Stearns & Co. Inc. ...............
Howard, Weil, Labouisse, Friedrichs
Incorporated..........................
Rauscher Pierce Refsnes, Inc. ..........
---------
Total......................... 3,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters thereunder are subject to the approval of certain legal matters by
their counsel and to various other conditions. The nature of the obligations of
the Underwriters is such that they are committed to purchase all of the shares
of Common Stock offered hereby if any are purchased.
The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock offered hereby directly to the
public at the initial public offering price set forth on the cover page of this
Prospectus. The Underwriters may allow a selected dealer concession of not more
than $ per share, and the Underwriters may allow, and such dealers may
reallow, concessions not in excess of $ per share to certain other dealers.
After the initial public offering, the public offering price and concessions and
reallowances to dealers may be changed by the Representatives.
54
<PAGE> 56
The Company and the Selling Stockholders have granted an option to the
Underwriters, exercisable at any time during the 30-day period after the date of
this Prospectus, to purchase from the Company and the Selling Stockholders up to
an additional 450,000 shares of Common Stock at the initial public offering
price set forth on the cover page of this Prospectus, less the underwriting
discount. Of this amount, an option to purchase 354,762 shares has been granted
by the Company, 47,619 shares by Anne L. Brigham and 47,619 shares by Ben M.
Brigham. The Underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, made in connection with the sale of the shares
of Common Stock offered hereby. To the extent that the Underwriters exercise
this option, each Underwriter will be committed, subject to certain conditions,
to purchase a number of the additional shares of Common Stock proportionate to
such Underwriter's purchase obligations set forth in the table set forth above.
In the event of a partial exercise of the option, the option shall be satisfied
first from the shares of Anne L. Brigham and Ben M. Brigham.
During and after the Offering, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the Offering. The Underwriters may also impose a
penalty bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the Common Stock sold in the Offering for their
account may be reclaimed by the syndicate if such Common Stock is repurchased by
the syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Common Stock,
which may be higher than the price that might otherwise prevail in the open
market, and, if commenced, may be discontinued at any time.
The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act, or will contribute
to payments the Underwriters may be required to make in respect thereof.
Each of the Company, its officers, directors, and optionholders, and the
holders of all but 21,000 shares of its outstanding Common Stock, have entered
into "lock-up" agreements with the Underwriters with respect to the sale of
shares of Common Stock. Under these agreements, the Company, its officers,
directors, certain stockholders and optionholders have agreed not to offer,
sell, agree to sell, grant any option for the sale of or otherwise dispose of,
directly or indirectly, any shares of Common Stock (or any security convertible
into, exercisable for or exchangeable for Common Stock) without the consent of
Bear, Stearns & Co. Inc. for a period of 180 days after the date of this
Prospectus, except that the Company may issue shares of Common Stock upon the
exercise of options granted under its stock option plans. After the expiration
of the "lock-up" agreements, such persons will be entitled to sell, distribute
or otherwise dispose of the Common Stock that they hold subject to the
provisions of applicable securities laws.
The Underwriters are reserving up to 150,000 shares of Common Stock in the
Offering for sales to officers, directors and employees of the Company and their
friends and relatives at the initial public offering price. Any shares of Common
Stock not purchased by those persons will be sold to the general public in the
Offering.
The Representatives have informed the Company that they do not expect sales
to discretionary accounts by the Underwriters to exceed five percent of the
total number of shares of Common Stock offered by them.
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price will be determined by negotiation
between the Company and the Representatives. Among the factors which will be
considered in these negotiations are the Company's history, capital structure
and financial condition, its past and present earnings and the trend of such
earnings, prospects for the Company and its industry, the present state of the
Company's development, the recent market prices of publicly-held companies that
the Company and the Representatives believe to be comparable to the Company and
general conditions prevailing in the securities markets at the time of the
Offering.
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<PAGE> 57
LEGAL MATTERS
Certain legal matters in connection with the Common Stock being offered
hereby will be passed upon for the Company by Thompson & Knight, P.C., Dallas,
Texas. Certain legal matters will be passed upon for the Underwriters by Vinson
& Elkins L.L.P., Dallas, Texas.
EXPERTS
The financial statements of Brigham Oil and Gas, L.P. as of December 31,
1996 and 1995 and for each of the three years in the period ended December 31,
1996 and the Balance Sheet of Brigham Exploration Company as of February 26,
1997 included in this Prospectus have been so included in reliance on the
reports of Price Waterhouse LLP, independent accountants, given on authority of
said firm as experts in auditing and accounting.
The letter of Cawley, Gillespie & Associates, Inc., independent oil and gas
consultants, set forth in this Prospectus as Appendix A has been included herein
in reliance upon the firm as expert with respect to the matters contained in
that letter. In addition, the information with respect to the reserve reports
prepared by Cawley Gillespie has been included herein in reliance upon by the
firm as experts with respect to such information.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (as amended and together with all exhibits thereto, the "Registration
Statement") under the Securities Act, with respect to the shares of Common Stock
offered by this Prospectus. This Prospectus constitutes a part of the
Registration Statement and does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted from this
Prospectus as permitted by the rules and regulations of the SEC. Statements in
this Prospectus about the contents of any contract or other document are not
necessarily complete; reference is made in each instance to the copy of the
contract or other document filed as an exhibit to the Registration Statement.
Each such statement is qualified in all respects by such reference. The
Registration Statement and accompanying exhibits and schedules may by inspected
and copies may be obtained (at prescribed rates) at the public reference
facilities of the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. Copies of the Registration Statement may also be
inspected at the SEC's regional offices at 7 World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. In addition, the Common Stock will be listed on
the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C. 20006-1500,
where such material may also be inspected and copied.
As a result of the Offering, the Company will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
of 1934, and, in accordance therewith, will file periodic reports, proxy
statements and other information with the SEC. Such periodic reports, proxy
statements and other information will be available for inspection and copying at
the public reference facilities and regional offices referred to above. In
addition, these reports, proxy statements and other information may also be
obtained from the web site that the SEC maintains at http://www.sec.gov.
The Company intends to furnish its shareholders annual reports containing
consolidated financial statements certified by its independent auditors and
quarterly reports for each of the first three quarters of each fiscal year
containing unaudited financial information.
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<PAGE> 58
GLOSSARY OF CERTAIN OIL AND GAS TERMS
The following are abbreviations and definitions of certain terms commonly
used in the oil and gas industry and this Prospectus.
Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein
in reference to oil or other liquid hydrocarbons.
Bcf. One billion cubic feet.
Bcfe. One billion cubic feet of natural gas equivalent. In reference to
natural gas, natural gas equivalents are determined using the ratio of 6 Mcf of
natural gas to 1 Bbl of oil, condensate of natural gas liquids.
Completion. The installation of permanent equipment for the production of
oil or natural gas.
Developed Acreage. The number of acres which are allocated or assignable to
producing wells or wells capable of production.
Development Well. A well drilled within the proved area of an oil or
natural gas reservoir to the depth of a stratigraphic horizon known to be
productive.
Drilling Costs. The costs associated with drilling and completing a well
(exclusive of seismic and land acquisition costs for that well and future
development costs associated with proved undeveloped reserves added by the well)
divided by total proved reserve additions.
Dry Well. A well found to be incapable of producing either oil or natural
gas in sufficient quantities to justify completion of an oil or gas well.
Exploratory Well. A well drilled to find and produce oil or natural gas in
an unproved area, to find a new reservoir in a field previously found to be
productive of oil or gas in another reservoir, or to extend a known reservoir.
Finding and Development Costs. Capital costs incurred in the acquisition,
exploration and development of proved oil and natural gas reserves divided by
proved reserve additions.
Gross Acres or Gross Wells. The total acres or wells, as the case may be,
in which the Company has a working interest.
MBbl. One thousand barrels of oil or other liquid hydrocarbons.
Mcf. One thousand cubic feet of natural gas.
Mcfe. One thousand cubic feet of natural gas equivalent.
MMBbl. One million barrels of oil or other liquid hydrocarbons.
MMBtu. One million Btu, or British Thermal Units. One British Thermal Unit
is the quantity of heat required to raise the temperature of one pound of water
by one degree Fahrenheit.
MMcf. One million cubic feet of natural gas.
MMcfe. One million cubic feet of natural gas equivalent.
Net Acres or Net Wells. Gross acres or wells multiplied, in each case, by
the percentage working interest owned by the Company.
Net Production. Production that is owned by the Company less royalties and
production due others.
Oil. Crude oil or condensate.
Operator. The individual or company responsible for the exploration,
development, and production of an oil or gas well or lease.
Present Value of Future Net Revenues or PV-10. The pretax present value of
estimated future revenues to be generated from the production of proved reserves
calculated in accordance with SEC guidelines, net of
57
<PAGE> 59
estimated production and future development costs, using prices and costs as of
the date of estimation without future escalation, without giving effect to
non-property related expenses such as general and administrative expenses, debt
service and depreciation, depletion and amortization, and discounted using an
annual discount rate of 10%.
Proved Developed Reserves. Reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods.
Proved Reserves. The estimated quantities of crude oil, natural gas and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.
Proved Undeveloped Reserves. Reserves that are expected to be recovered
from new wells on undrilled acreage or from existing wells where a relatively
major expenditure is required for recompletion.
Royalty. An interest in an oil and gas lease that gives the owner of the
interest the right to receive a portion of the production from the leased
acreage (or of the proceeds of the sale thereof), but generally does not require
the owner to pay any portion of the costs of drilling or operating the wells on
the leased acreage. Royalties may be either landowner's royalties, which are
reserved by the owner of the leased acreage at the time the lease is granted, or
overriding royalties, which are usually reserved by an owner of the leasehold in
connection with a transfer to a subsequent owner.
Spud. Start drilling a new well (or restart).
Success Rate. The number of wells on which production casing has been run
for a completion attempt as a percentage of the number of wells drilled.
2-D Seismic. The method by which a cross-section of the earth's subsurface
is created through the interpretation of reflecting seismic data collected along
a single source profile.
3-D Seismic. The method by which a three dimensional image of the earth's
subsurface is created through the interpretation of reflection seismic data
collected over surface grid. 3-D seismic surveys allow for a more detailed
understanding of the subsurface than do conventional surveys and contribute
significantly to field appraisal, development and production.
Working Interest. An interest in an oil and gas lease that gives the owner
of the interest the right to drill for and produce natural gas and oil on the
leased acreage and requires the owner to pay a share of the costs of drilling
and production operations.
58
<PAGE> 60
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Unaudited Pro Forma Financial Statements of Brigham
Exploration Company....................................... F1-2
Unaudited Pro Forma Balance Sheet......................... F1-3
Unaudited Pro Forma Statement of Operations............... F1-4
Notes to the Unaudited Pro Forma Financial Statements..... F1-5
Balance Sheet of Brigham Exploration Company
Report of Independent Accountants......................... F2-1
Balance Sheet as of February 26, 1997..................... F2-2
Notes to the Balance Sheet................................ F2-3
Financial Statements of Brigham Oil & Gas, L.P.
Report of Independent Accountants......................... F3-1
Balance Sheets as of December 31, 1995 and 1996........... F3-2
Statements of Operations for the Years Ended December 31,
1994, 1995, and 1996................................... F3-3
Statements of Partners' Capital as of December 31, 1994,
1995, and 1996......................................... F3-4
Statements of Cash Flows for the Years Ended December 31,
1994, 1995, and 1996................................... F3-5
Notes to the Financial Statements......................... F3-6
</TABLE>
F1-1
<PAGE> 61
BRIGHAM EXPLORATION COMPANY
(A NEWLY FORMED DELAWARE CORPORATION)
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following Unaudited Pro Forma Financial Statements of the Company have
been prepared to give effect to the Exchange described below, the issuance of
employee stock options under the 1997 Incentive Plan and the issuance of Common
Stock pursuant to the Offering (and the application of the estimated net
proceeds therefrom) as if these events had taken place on December 31, 1996 for
purposes of the Unaudited Pro Forma Balance Sheet and as if these events had
taken place on January 1, 1996 for purposes of the Unaudited Pro Forma Statement
of Operations.
Under the Exchange Agreement, effective February 27, 1997, the following
transactions occurred: (i) GAP III and the limited partners of the Partnership
transferred all their partnership interests to the Company in exchange for an
aggregate of 3,314,286 shares of Common Stock, (ii) the stockholders of Brigham,
Inc. transferred all of the issued and outstanding stock of Brigham, Inc. to the
Company in exchange for an aggregate of 3,859,821 shares of Common Stock and
(iii) Resource Investors Management Company ("RIMCO") exchanged all of the 5%
Convertible Unsecured Subordinated Notes of the Partnership for 1,754,464 shares
of Common Stock. These transactions are referred to herein as the "Exchange." As
a result of the Exchange, Brigham Exploration Company owns, directly or
indirectly, all the partnership interests in the Partnership and conducts its
active business operations through the Partnership. No instruments, agreements
or rights exist which may be converted, exchanged into, or otherwise become
interests in the Partnership. Brigham, Inc.'s only asset is its investment in
the Partnership.
The Unaudited Pro Forma Financial Statements of the Company are not
necessarily indicative of the results for the periods presented had the
Exchange, the issuance of employee stock options under the 1997 Incentive Plan
and the issuance of Common Stock pursuant to the Offering (and the application
of the estimated net proceeds therefrom) taken place on January 1, 1996. In
addition, future results may vary significantly from the results reflected in
the accompanying Unaudited Pro Forma Financial Statements because of normal
production declines, changes in product prices, and the success of future
exploration and development activities, among other factors. This information
should be read in conjunction with the Balance Sheet of Brigham Exploration
Company and the Financial Statements of Brigham Oil & Gas, L.P., and the notes
thereto, all included elsewhere herein.
F1-2
<PAGE> 62
BRIGHAM EXPLORATION COMPANY
UNAUDITED PRO FORMA BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
BRIGHAM OIL PRO FORMA OFFERING PRO FORMA
AND GAS, L.P. ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 1,447 $ -- $ 1,447 $28,545(d) $21,992
(8,000)(e)
Accounts receivable............................ 2,696 -- 2,696 -- 2,696
Prepaid expenses............................... 152 -- 152 -- 152
------- -------- ------- ------- -------
Total current assets..................... 4,295 -- 4,295 20,545 24,840
------- -------- ------- ------- -------
Natural gas and oil properties, at cost, net..... 28,005 -- 28,005 -- 28,005
Other property and equipment, at cost, net....... 532 -- 532 -- 532
Drilling advances paid........................... 419 -- 419 -- 419
Other noncurrent assets.......................... 363 -- 363 -- 363
------- -------- ------- ------- -------
$33,614 $ -- $33,614 $20,545 $54,159
======= ======== ======= ======= =======
LIABILITIES AND PARTNERS' CAPITAL/STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................... $ 2,937 $ -- $ 2,937 $ -- $ 2,937
Accrued drilling costs......................... 915 -- 915 -- 915
Participant advances received.................. 1,137 -- 1,137 -- 1,137
Other current liabilities...................... 628 -- 628 -- 628
------- -------- ------- ------- -------
Total current liabilities................ 5,617 -- 5,617 -- 5,617
------- -------- ------- ------- -------
Notes payable.................................... 8,000 -- 8,000 (8,000)(e) --
Subordinated notes payable -- related party...... 16,000 (16,000)(b) -- -- --
Deferred interest payable -- related party....... 433 (433)(b) -- -- --
Other noncurrent liabilities..................... 320 -- 320 -- 320
Deferred income tax liability.................... -- 5,112(a) 5,112 -- 5,112
Partners' capital/stockholders' equity:
Partners' capital:
General partners............................. 3,190 (3,190)(b) -- -- --
Limited partners............................. 54 (54)(b) -- -- --
Stockholders' equity:
Preferred stock, $.01 par value, 10 million
shares authorized.......................... -- -- -- -- --
Common stock, $.01 par value, 30 million
shares authorized.......................... -- 89(b) 89 30(d) 119
Additional paid-in-capital................... -- 19,588(b) 22,486 28,515(d) 51,001
2,898(c)
Unearned stock compensation.................. -- (2,898)(c) (2,898) -- (2,898)
Accumulated deficit.......................... -- (5,112)(a) (5,112) -- (5,112)
------- -------- ------- ------- -------
Total partners' capital/stockholders'
equity................................. 3,244 11,321 14,565 28,545 43,110
------- -------- ------- ------- -------
$33,614 $ -- $33,614 $20,545 $54,159
======= ======== ======= ======= =======
</TABLE>
The Company uses the full cost method to account for its natural gas and oil
properties.
See accompanying notes to the Unaudited Pro Forma Financial Statements.
F1-3
<PAGE> 63
BRIGHAM EXPLORATION COMPANY
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
BRIGHAM OIL PRO FORMA OFFERING PRO FORMA
AND GAS, L.P. ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Natural gas and oil sales............. $6,141 $ -- $6,141 $ -- $6,141
Workstation revenue................... 627 -- 627 -- 627
------ ------- ------ ------ ------
6,768 -- 6,768 -- 6,768
------ ------- ------ ------ ------
Costs and expenses:
Lease operating....................... 726 -- 726 -- 726
Production taxes...................... 362 -- 362 -- 362
General and administrative............ 2,199 -- 2,199 -- 2,199
Amortization of stock compensation.... -- 516(c) 516 -- 516
Depletion of natural gas and oil
properties......................... 2,323 51(c) 2,374 -- 2,374
Depreciation and amortization......... 487 -- 487 -- 487
------ ------- ------ ------ ------
6,097 567 6,664 -- 6,664
------ ------- ------ ------ ------
Operating income (loss)....... 671 (567) 104 -- 104
------ ------- ------ ------ ------
Other income (expense):
Interest income....................... 52 -- 52 -- 52
Interest expense...................... (373) -- (373) 373(e) --
Interest expense -- related party..... (800) 800(b) -- -- --
------ ------- ------ ------ ------
Net income (loss) before income taxes... (450) 233 (217) 373 156
Income tax benefit...................... -- 161(a) 161 (127)(a) 34
------ ------- ------ ------ ------
Net income (loss)..................... $ (450) $ 394 $ (56) $ 246 $ 190
====== ======= ====== ====== ======
Net income (loss) per common share.... $ 0.00 $ 0.02
====== ======
Weighted average number of common
shares outstanding................. 9,266 12,266
====== ======
</TABLE>
See accompanying notes to the Unaudited Pro Forma Financial Statements.
F1-4
<PAGE> 64
BRIGHAM EXPLORATION COMPANY
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying Unaudited Pro Forma Financial Statements of the Company
have been prepared to give effect to the Exchange, the issuance of employee
stock options under the 1997 Incentive Plan and the issuance of Common Stock
pursuant to the Offering (and the application of the estimated net proceeds
therefrom) as if such transactions had taken place on December 31, 1996 for
purposes of the Unaudited Pro Forma Balance Sheet and as if the transactions had
taken place on January 1, 1996 for purposes of the Unaudited Pro Forma Statement
of Operations. The Company was formed in February 1997 with a capitalization of
$30. As the Exchange is the conversion of a partnership to a corporation, the
Exchange has been accounted for as a reorganization.
2. PRO FORMA ADJUSTMENTS AND PRO FORMA OFFERING ADJUSTMENTS
The Unaudited Pro Forma Financial Statements reflect the following pro
forma adjustments related to the consummation of the Exchange, the issuance of
employee stock options under the 1997 Incentive Plan and the issuance of Common
Stock pursuant to the Offering (and the application of the estimated net
proceeds therefrom).
a. To record current and deferred federal income tax expense as if the
Partnership had been a taxable entity.
b. To record (i) the issuance of 3,859,821 shares of Common Stock of the
Company in exchange for all of the issued and outstanding stock of
Brigham, Inc., (ii) the issuance of 3,314,286 shares of Common Stock of
the Company in exchange for all of the partnership interests of the
Partnership's other general partner and its limited partners and (iii)
the issuance of 1,754,464 shares of Common Stock of the Company in
exchange for all of the subordinated notes payable.
c. To record unearned compensation and the amortization thereon related to
employee stock options granted under the 1997 Incentive Plan in March
1997. A portion of the amortization of the unearned compensation was
capitalized as part of the Company's amortizable base of the full cost
pool to the extent that this cost was directly attributable to
acquisition, exploration and development activities. Depletion of
natural gas and oil properties was adjusted accordingly.
d. To reflect the issuance of 3,000,000 shares of Common Stock at the
assumed initial public offering price of $10.50 per share for estimated
proceeds of $28,545,000, net of estimated underwriting discounts and
expenses of this Offering.
e. To record the partial use of the estimated net proceeds of the Offering
to fully repay borrowings under the Revolving Credit Facility.
3. INCOME TAXES
Upon consummation of the Exchange, the Company will record a deferred tax
liability or asset for temporary differences between the financial statement and
tax bases of assets and liabilities at the Exchange date given the provisions of
enacted tax laws. Assuming the Exchange had occurred on December 31, 1996, the
Company would have incurred an estimated charge of $5.1 million to record a
deferred tax liability primarily reflecting the difference between the tax bases
and the financial statement bases of the Partnership's natural gas and oil
properties. As this will be a nonrecurring charge, it has not been included in
the Unaudited Pro Forma Statement of Operations. The ultimate tax bases and
related difference from financial statement bases cannot be ultimately
determined until consummation of the Exchange, and such basis differences will
change depending upon the level and nature of operations and the amount of
taxable income and deductions allocated to the partners through the date of the
Exchange. Such basis differences could vary materially from this estimate.
F1-5
<PAGE> 65
BRIGHAM EXPLORATION COMPANY
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (Continued)
4. NET LOSS PER COMMON SHARE
Pro forma net loss per common share is presented giving effect to the
number of shares outstanding subsequent to the Exchange (8,928,574 shares) and
giving effect to 644,097 stock options issued under the 1997 Incentive Plan on
February 28, 1997. These options, which have an exercise price of $5.00 per
share, are treated as Common Stock equivalents. The number of equivalent shares
was determined by the treasury stock method based on the offering price of
$10.50 per share. In addition to the effect of these events, pro forma, as
adjusted, net loss per common share gives effect to the 3,000,000 shares of
Common Stock issued pursuant to the Offering.
5. STOCK COMPENSATION
In March 1997 the Compensation Committee of the Board of Directors of the
Company granted 644,097 stock options to key employees of the Company. These
options have an exercise price of $5.00 per share, expire in 2004, and will vest
in varying amounts through 2003. In accordance with SFAS 123, the Company has
elected to follow the accounting provisions of Accounting Principles Board
Opinion No. 25 for stock-based compensation and record unearned compensation, a
deduction from stockholders' equity, for the difference between the market value
of the Company's stock on the grant date and the exercise price of the options.
This amount, which the Company estimates will be $2.9 million, will be amortized
over the appropriate vesting period (see Note 2.c).
As provided under SFAS 123, the Company estimates that the fair value of
these options on their grant date, using the Black-Sholes Option Pricing Model,
will be $4.6 million ($7.19 per option). This valuation has been determined
using the following assumptions: risk free interest rate of 6.24%; volatility
factor of the expected market price of the Company's common stock of 38%; no
expected dividends; and weighted average option lives of 7.3 years. If this
valuation method were elected for accounting purposes, the estimated fair value
of $4.6 million would be amortized over the appropriate vesting periods of the
options through 2003, resulting in a pro forma net loss for the year ended
December 31, 1996 of $281,000, or $0.03 per common share, and a pro forma, as
adjusted, net loss of $35,000, or $0.00 per common share.
F1-6
<PAGE> 66
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of Brigham Exploration Company
In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of Brigham Exploration Company at
February 26, 1997, in conformity with generally accepted accounting principles.
This balance sheet is the responsibility of the Company's management; our
responsibility is to express an opinion on the balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the balance sheet is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
Houston, Texas
February 26, 1997, except as to Notes 1 and 3,
which are as of February 27, 1997
F2-1
<PAGE> 67
BRIGHAM EXPLORATION COMPANY
(A NEWLY FORMED DELAWARE CORPORATION)
BALANCE SHEET
FEBRUARY 26, 1997
<TABLE>
<S> <C>
Assets:
Cash.................................. $30
===
Stockholders' equity:
Preferred stock, $.01 par value, 10
million shares authorized, none
issued and outstanding............. $--
Common stock, $.01 par value, 30
million shares authorized, 3 shares
issued and outstanding............. --
Additional paid-in capital............ 30
---
Total stockholders' equity.... $30
===
</TABLE>
See accompanying notes to the balance sheet.
F2-2
<PAGE> 68
BRIGHAM EXPLORATION COMPANY
(A NEWLY FORMED DELAWARE CORPORATION)
NOTES TO THE BALANCE SHEET
FEBRUARY 26, 1997
1. ORGANIZATION AND BUSINESS PURPOSE
Brigham Exploration Company (the "Company") is a Delaware corporation
formed on February 25, 1997 for the purpose of exchanging its common stock for
the common stock of Brigham, Inc. and the partners' interests in Brigham Oil &
Gas, L.P. (the "Partnership"). Subsequent to the Exchange, which occurred on
February 27, 1997, the Company and its subsidiary hold all Partnership
interests. Additionally, the Company exchanged shares with the holder of the
Partnership's subordinated convertible notes which would otherwise be
convertible into a 19.65% interest in the Partnership. These transactions are
referred to as the "Exchange". In completing the Exchange, the Company issued
8,928,571 shares of common stock to the stockholders of Brigham, Inc., the
partners of the Partnership and the holder of the Partnership's subordinated
notes payable. As the Exchange is the conversion of a partnership into a
corporation, the Exchange has been accounted for as a reorganization.
The Company expects to initiate a public issuance of common stock in early
1997.
2. STOCKHOLDERS' EQUITY
The Board of Directors of the Company is empowered, without approval of
stockholders, to cause shares of preferred stock to be issued in one or more
series. The Board of Directors is authorized to fix and determine variations in
designations, preferences and relative, participating, optional or other special
rights and the limitations or restrictions of such rights and voting powers.
Holders of common stock are entitled to one vote per share in the election
of directors and on all other matters submitted to a vote of common
stockholders. The common stock does not have cumulative voting rights. Holders
of common stock are entitled to receive dividends, if any, as may be declared by
the Board of Directors out of funds legally available therefore, subject to any
preferential dividend rights of holders of outstanding preferred stock.
3. STOCK COMPENSATION
The Board of Directors and stockholders of the Company anticipate the
adoption of an incentive plan, to be effective upon completion of the Exchange,
which will provide for the issuance of stock options, stock appreciation rights,
stock, restricted stock, cash or any combination of the foregoing. The objective
of this plan will be to reward key employees whose performance may have a
significant effect on the success of the Company. The Compensation Committee of
the Board of Directors will determine the type of awards made to each
participant and the terms, conditions and limitations applicable to each award.
An aggregate of 1,588,169 shares of common stock will be reserved for issuance
pursuant to this plan with 644,097 shares subject to initial grants of stock
options at an exercise price of $5.00 per share. The Company estimates that the
fair value of these options on their grant date, using the Black-Scholes
option-pricing model, will be $4.6 million. In accordance with SFAS No. 123, the
Company has elected to follow the accounting provisions of Accounting Principles
Board Opinion No. 25 for stock-based compensation and record unearned
compensation, a deduction from stockholders' equity, for the difference between
the market value of the Company's stock on the grant date and the exercise price
of the options. This amount, which the Company estimates will be $2.9 million,
will be amortized over the appropriate vesting period.
The Board of Directors and stockholders of the Company also anticipate the
adoption of the 1997 Director Stock Option Plan, pursuant to which each newly
elected nonemployee director shall be granted an option to purchase 1,000 shares
of common stock and each nonemployee director will receive an option to purchase
500 shares of common stock on December 31 of each year. An aggregate of 25,000
shares of common stock will be reserved for issuance pursuant to this plan. The
exercise price of options granted under
F2-3
<PAGE> 69
this plan will be equal to the fair market value of the underlying common stock
on the date of grant. No compensation expense will result from options granted
under this plan.
On February 27, 1997, in connection with the Exchange (see Note 1), three
employees who had been granted restricted interests in the Partnership in 1994
transferred, upon the initial filing of a registration statement with the SEC
for a public offering of common stock, these partnership interests to the
Company in exchange for 156,250 shares of restricted common stock. The terms of
the restricted stock and the restricted partnership interests are substantially
the same. The shares vest over a three year period ending in 1999. No
compensation expense will result from this exchange.
F2-4
<PAGE> 70
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Brigham Oil & Gas, L.P.
In our opinion, the accompanying balance sheets and the related statements
of operations, of partners' capital and of cash flows present fairly, in all
material respects, the financial position of Brigham Oil & Gas, L.P. at December
31, 1996 and 1995, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Partnership's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Houston, Texas
February 26, 1997, except as to Notes 1 and 4,
which are as of February 27, 1997
F3-1
<PAGE> 71
BRIGHAM OIL & GAS, L.P.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 1,802 $ 1,447
Accounts receivable................... 1,256 2,696
Prepaid expenses...................... 177 152
------- -------
Total current assets.......... 3,235 4,295
------- -------
Natural gas and oil properties, at cost,
net (including $3,460 and $7,068,
respectively, not subject to
depletion)............................ 18,538 28,005
Other property and equipment, at cost,
net................................... 684 532
Drilling advances paid.................. 127 419
Other noncurrent assets................. 332 363
------- -------
$22,916 $33,614
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable...................... $ 1,318 $ 2,937
Accrued drilling costs................ 588 915
Participant advances received......... 333 1,137
Other current liabilities............. 689 628
------- -------
Total current liabilities..... 2,928 5,617
------- -------
Notes payable........................... -- 8,000
Subordinated notes payable -- related
party................................. 16,000 16,000
Deferred interest payable -- related
party................................. 113 433
Other noncurrent liabilities............ 181 320
Commitments and contingencies
Partners' capital:
General partners...................... 3,620 3,190
Limited partners...................... 74 54
------- -------
Total partners' capital....... 3,694 3,244
------- -------
$22,916 $33,614
======= =======
</TABLE>
The Partnership uses the full cost method to account for its natural gas and oil
properties.
See accompanying notes to the financial statements.
F3-2
<PAGE> 72
BRIGHAM OIL & GAS, L.P.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1995 1996
------- ------- ------
<S> <C> <C> <C>
Revenues:
Natural gas and oil sales................................. $ 2,565 $ 3,578 $6,141
Workstation revenue....................................... 815 635 627
------- ------- ------
3,380 4,213.. 6,768
------- ------- ------
Costs and expenses:
Lease operating........................................... 491 761 726
Production taxes.......................................... 126 165 362
General and administrative................................ 1,785 1,897 2,199
Depletion of natural gas and oil properties............... 1,104 1,626 2,323
Depreciation and amortization............................. 561 533 487
------- ------- ------
4,067 4,982 6,097
------- ------- ------
Operating income (loss)........................... (687) (769) 671
------- ------- ------
Other income (expense):
Interest income........................................... 56 128 52
Interest expense.......................................... (76) (187) (373)
Interest expense -- related party......................... (592) (749) (800)
------- ------- ------
Net loss.......................................... $(1,299) $(1,577) $ (450)
======= ======= ======
Unaudited pro forma information (Notes 1 and 2)
Net loss.................................................. $ (450)
Pro forma Exchange adjustments............................ 233
------
Pro forma net loss before taxes........................... (217)
Pro forma income tax benefit.............................. 161
------
Pro forma net loss........................................ $ (56)
======
Pro forma net loss per common share....................... $ 0.00
======
Pro forma weighted average number of common shares
outstanding............................................ 9,266
======
</TABLE>
See accompanying notes to the financial statements.
F3-3
<PAGE> 73
BRIGHAM OIL & GAS, L.P.
STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
-------- -------- -------
<S> <C> <C> <C>
Balance at December 31, 1993................................ $ 6,364 $206 $ 6,570
Net loss.......................................... (1,239) (60) (1,299)
------- ---- -------
Balance at December 31, 1994................................ 5,125 146 5,271
Net loss.......................................... (1,505) (72) (1,577)
------- ---- -------
Balance at December 31, 1995................................ 3,620 74 3,694
Net loss.......................................... (430) (20) (450)
------- ---- -------
Balance at December 31, 1996................................ $ 3,190 $ 54 $ 3,244
======= ==== =======
</TABLE>
See accompanying notes to the financial statements.
F3-4
<PAGE> 74
BRIGHAM OIL & GAS, L.P.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(1,299) $ (1,577) $ (450)
Adjustments to reconcile net loss to cash provided by
operating activities:
Depletion of natural gas and oil properties............ 1,104 1,626 2,323
Depreciation and amortization.......................... 561 533 487
Changes in working capital and other items:
(Increase) decrease in accounts receivable........... 2,074 413 (1,440)
(Increase) decrease in prepaid expenses.............. (29) (107) 25
Increase (decrease) in accounts payable.............. (1,451) 128 1,619
Increase (decrease) in participant advances
received.......................................... (170) 92 804
Increase (decrease) in other current liabilities..... (121) 151 60
Increase in deferred interest payable -- related
party............................................. -- 113 320
Other noncurrent assets.............................. (43) (26) (224)
Other noncurrent liabilities......................... -- 37 186
------- -------- --------
Net cash provided by operating activities......... 626 1,383 3,710
------- -------- --------
Cash flows from investing activities:
Additions to natural gas and oil properties............... (5,445) (7,935) (13,612)
Proceeds from the sale of natural gas and oil
properties............................................. -- -- 2,149
Additions to other property and equipment................. (62) (51) (41)
(Increase) decrease in drilling advances paid............. 44 (19) (292)
------- -------- --------
Net cash used by investing activities............. (5,463) (8,005) (11,796)
------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of subordinated notes payable...... -- 16,000 --
Increase in notes payable................................. 4,950 2,560 8,000
Repayment of notes payable................................ -- (10,510) --
Principal payments on capital lease obligations........... (316) (326) (269)
------- -------- --------
Net cash provided by financing activities......... 4,634 7,724 7,731
------- -------- --------
Net increase (decrease) in cash and cash equivalents........ (203) 1,102 (355)
Cash and cash equivalents, beginning of year................ 903 700 1,802
------- -------- --------
Cash and cash equivalents, end of year...................... $ 700 $ 1,802 $ 1,447
======= ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest.................. $ 667 $ 654 $ 762
======= ======== ========
Supplemental disclosure of noncash investing and financing
activities:
Capital lease asset additions............................. $ 361 $ 208 $ 101
======= ======== ========
</TABLE>
See accompanying notes to the financial statements.
F3-5
<PAGE> 75
BRIGHAM OIL & GAS, L.P.
NOTES TO THE FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS
Brigham Oil & Gas, L.P. (the "Partnership") was formed in May 1992 to
explore and develop onshore domestic natural gas and oil properties using 3-D
seismic imaging and other advanced technologies. Since its inception, the
Partnership has focused its exploration and development of natural gas and oil
properties in the Permian and Hardeman Basins of West Texas, the Anadarko Basin
and the Gulf Coast.
Brigham, Inc. is the managing general partner of the Partnership and owned
a 54% interest in the Partnership. Brigham, Inc. generally directs all
activities of the Partnership. Until February 27, 1997, the other general
partner held a 38% interest in the Partnership, had participating rights in
certain Major Decisions, as defined, and had a preference in the allocation of
profits and other items.
Pursuant to an Exchange Agreement dated February 26, 1997 (the "Exchange
Agreement") and upon the initial filing on February 27, 1997 of a registration
statement with the Securities and Exchange Commission for a public offering of
common stock, the shareholders of Brigham, Inc. transferred all of the
outstanding stock of Brigham, Inc. to a newly formed entity, Brigham Exploration
Company (the "Company"), in exchange for shares of common stock of the Company.
Brigham, Inc. is a Texas corporation whose only asset is its ownership interest
in the Partnership. Pursuant to the Exchange Agreement, the Partnership's other
general partner and the limited partners also transferred all of their
partnership interests to the Company in exchange for shares of common stock of
the new entity. Furthermore, the holders of the subordinated convertible notes
(see Note 4) transferred these notes to the Company in exchange for shares of
common stock. As a result of these transactions, hereafter referred to as the
"Exchange," the Company now owns all the partnership interests in the
Partnership.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
Cash and Cash Equivalents
The Partnership considers all highly liquid financial instruments with an
original maturity of three months or less to be cash equivalents.
Property and Equipment
The Partnership uses the full cost method of accounting for its investment
in natural gas and oil properties. Under this method, all acquisition,
exploration and development costs, including leasehold acquisition costs,
geological and geophysical expenditures, dry hole costs and tangible and
intangible development costs, incurred for the purpose of finding natural gas
and oil reserves are capitalized. Included in the Partnership's investment in
natural gas and oil properties as of December 31, 1994, 1995 and 1996 are
general and administrative costs of $1,320,114, $1,640,196 and $1,826,013,
respectively. These capitalized general and administrative costs consist
primarily of the compensation and benefit costs of exploration department
personnel which are directly attributable to the Partnership's acquisition,
exploration and development activities. Other internal costs (primarily
including office rent and technical computer maintenance and support) are
capitalized to the extent they are attributable to the Partnership's natural gas
and oil property acquisition and exploration activities and would not otherwise
be incurred if such activities were not being undertaken.
F3-6
<PAGE> 76
BRIGHAM OIL & GAS, L.P.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
The capitalized costs of the Partnership's natural gas and oil properties
plus future development, dismantlement, restoration and abandonment costs (the
"Amortizable Base"), net of estimated salvage values, are amortized using the
unit-of-production method based upon estimates of total proved reserve
quantities. The Partnership's capitalized costs of its natural gas and oil
properties, net of accumulated depletion, are limited to the total of estimated
future net cash flows from proved natural gas and oil reserves, discounted at
ten percent, plus the cost of unevaluated properties. The Partnership's only
active cost center since inception has been the United States of America. There
are many factors, including global events, that may influence the production,
processing, marketing and valuation of natural gas and oil. A reduction in the
valuation of natural gas and oil properties resulting from declining prices or
production could adversely impact depletion rates and ceiling test limitations.
All costs directly associated with the acquisition and evaluation of
unproved properties are initially excluded from the Amortizable Base. Upon the
interpretation by the Partnership of the 3-D seismic data associated with
unproved properties, the geological and geophysical costs of acreage that is not
specifically identified as prospective are added to the Amortizable Base.
Geological and geophysical costs associated with prospective acreage, as well as
leasehold costs, are added to the Amortizable Base when the prospects are
drilled. Costs of prospective acreage are reviewed annually for impairment on a
property-by-property basis.
Effective January 1, 1996, the Partnership conformed its accounting policy
for the full cost method of accounting to that permitted by Rule 4-10 of the
Security and Exchange Commission's Regulation S-X. The financial statements of
prior years have been restated to apply the new accounting policy retroactively.
The accounting change reduced the Partnership's net loss as previously reported
in 1994 and 1995 by $1,186,005 and $1,389,840, respectively.
Other property and equipment, which primarily consists of 3-D seismic
interpretation workstations, are depreciated on a straight-line basis over the
estimated useful lives of the assets after considering salvage value. Estimated
useful lives are as follows:
<TABLE>
<S> <C>
Furniture and fixtures.................. 10 years
Machinery and equipment................. 5 years
3-D seismic interpretation workstations
and software.......................... 3 years
</TABLE>
Betterments and major improvements that extend the useful lives are
capitalized, while expenditures for repairs and maintenance of a minor nature
are expensed as incurred.
Revenue Recognition
Joint interest owners may take more or less than their ownership interest
of natural gas volumes from jointly owned reservoirs. The Partnership follows
the sales method of accounting for imbalances. Under this method, the
Partnership records a liability if its sales of natural gas volumes in excess of
its entitlements from a jointly owned reservoir exceed its interest in the
remaining estimated natural gas reserves of such reservoir. Volumetric
production is monitored to minimize imbalances, and such imbalances as of
December 31, 1994, 1995 and 1996 were not significant.
Net realized gains or losses arising from the Partnership's crude oil price
swaps (see Note 7) are recognized in the period incurred as a component of
natural gas and oil sales.
Industry participants in the Partnership's seismic programs are charged on
an hourly basis for the work performed by the Partnership on its 3-D seismic
interpretation workstations. The Partnership recognizes workstation revenue as
service is provided.
F3-7
<PAGE> 77
BRIGHAM OIL & GAS, L.P.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Federal and State Income Taxes
The financial statements include only those assets, liabilities and
operations that relate to the business of the Partnership. The financial
statements do not include any assets, liabilities or operations attributable to
the partners' individual activities. No provision has been made for income taxes
since these taxes are the responsibility of the partners.
Upon consummation of the Exchange, the Company will record a deferred tax
liability or asset for temporary differences between the financial statement and
tax bases of assets and liabilities at the Exchange date given the provisions of
enacted tax laws. Assuming the Exchange had occurred on December 31, 1996, the
Company would have incurred an estimated charge of $5.1 million to record a
deferred tax liability primarily reflecting the difference between the tax bases
and the financial statement bases of the Partnership's natural gas and oil
properties. The ultimate tax bases and related difference from financial
statement bases have not been determined and such basis differences will change
depending upon the level and nature of operations and the amount of taxable
income and deductions allocated to the partners through the date of the
Exchange. Such basis differences could vary materially from this estimate.
Unaudited Pro Forma Information
The Partnership's legal form has no relation to the capital structure of
the Company after the Exchange. As a result, historical loss per unit amounts
are not relevant and have not been presented.
Pro forma net loss for the year ended December 31, 1996 reflects the
Exchange, including income taxes that would have been recorded had the
Partnership been a taxable entity. Pro forma exchange adjustments primarily
represent the amortization of the compensation expense related to employee stock
options granted upon the formation of the Company (see Note 8), and the
reduction of interest expense related to the transfer of the subordinated notes
payable to the Company as part of the Exchange. Pro forma income taxes have been
included in the Statement of Operations pursuant to the rules and regulations of
the SEC for instances when a partnership becomes subject to federal income
taxes.
Pro forma net loss per common share is presented giving effect to the
number of shares outstanding subsequent to the Exchange (8,928,574 shares) and
giving effect to the shares to be issued under the anticipated February 1997
employee stock option grants (see Note 8). Pro forma net loss per common share
was calculated using the treasury stock method.
Reclassification of Prior Years
Prior year financial statements have been reclassified to conform to 1996
presentations.
F3-8
<PAGE> 78
BRIGHAM OIL & GAS, L.P.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment, at cost, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------- -------
<S> <C> <C>
Natural gas and oil properties.......... $25,765 $37,555
Accumulated depletion................... (7,227) (9,550)
------- -------
18,538 28,005
------- -------
Other property and equipment:
3-D seismic interpretation
workstations and software.......... 1,351 1,456
Office furniture and equipment........ 347 384
Accumulated depreciation.............. (1,014) (1,308)
------- -------
684 532
------- -------
$19,222 $28,537
======= =======
</TABLE>
On January 30, 1996, the Partnership sold its interest in certain producing
properties for $2.1 million. A gain or loss was not recognized on this
transaction because the Partnership applies the full cost method of accounting
for its investment in natural gas and oil properties.
4. NOTES PAYABLE AND SUBORDINATED NOTES PAYABLE
The notes payable pertain to a revolving credit facility, due 1999, entered
into by the Partnership in April 1996. This facility provides for borrowings up
to $25 million and is secured by the Partnership's natural gas and oil
properties. The Partnership's borrowings under the revolving credit facility are
limited to a borrowing base determined semiannually by the lender. This
determination is based upon the Partnership's proved natural gas and oil
properties.
The amounts outstanding under the revolving credit facility bear interest,
at the borrower's option, at the Base Rate or (i) LIBOR plus 1.75% if the
principal outstanding is less than or equal to 50% of the borrowing base, (ii)
LIBOR plus 2.0% if the principal outstanding is less than or equal to 75% but
more than 50% of the borrowing base, and (iii) LIBOR plus 2.25% if the principal
outstanding is greater than 75% of the borrowing base. The Base Rate is the
fluctuating of interest per annum established from time to time by the lender.
The Company also pays a quarterly commitment fee of 0.5% per annum for the
unused portion of the borrowing base.
The Company is subject to certain covenants under the terms of the
revolving credit facility. The financial ratios that the Partnership was
required to meet at December 31, 1996 were as follows: (i) the ratio of current
assets, as defined in the borrowing agreement, to current liabilities must be at
least 1.0 to 1.0, and (ii) the debt service coverage ratio of net cash flow to
debt service for the three months ended December 31, 1996 must be at least 2.25
to 1.0. The revolving credit facility contains certain other affirmative and
negative covenants, including limitations on additional indebtedness and
restrictions on the payment of dividends. The Partnership is currently in
compliance with all covenants.
The subordinated notes payable bear interest at 5% per annum and are due in
2002. The notes are convertible into a 19.65% interest in the Partnership at any
time prior to maturity and are unsecured. A representative of the holders of
these notes is a member of the Partnership's management committee. Interest
payments of 3% are due semi-annually and the remaining 2% is deferred until
maturity. As part of the Exchange (see Note 1), the holders of these notes
exchanged the notes for shares of the Company's common stock.
F3-9
<PAGE> 79
BRIGHAM OIL & GAS, L.P.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
5. CAPITAL LEASE OBLIGATIONS
Property under capital leases consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1996
----- -----
<S> <C> <C>
3-D seismic interpretation workstations
and software.......................... $ 668 $ 525
Office furniture and equipment.......... 58 17
----- -----
726 542
Accumulated depreciation and
amortization.......................... (324) (305)
----- -----
$ 402 $ 237
===== =====
</TABLE>
The obligations under capital leases are at fixed interest rates ranging
from 11% to 17% and are collateralized by property, plant and equipment. The
future minimum lease payments under the capital leases and the present value of
the net minimum lease payments at December 31, 1996 are as follows (in
thousands):
<TABLE>
<S> <C>
1997........................................................ $ 204
1998........................................................ 105
1999........................................................ 28
-----
Total minimum lease payments................................ 337
Estimated executory costs included in capital leases........ (74)
-----
Net minimum lease payments.................................. 263
Amounts representing interest............................... (32)
-----
Present value of net minimum lease payments................. 231
Less: current portion....................................... (133)
-----
Noncurrent portion.......................................... $ 98
=====
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
The Partnership is, from time to time, party to certain lawsuits and claims
arising in the ordinary course of business. While the outcome of lawsuits and
claims cannot be predicted with certainty, management does not expect these
matters to have a materially adverse effect on the financial condition, results
of operations or cash flows of the Partnership.
The Partnership leases office equipment and space under operating leases
expiring at various dates through 2007. The future minimum annual rental
payments under the noncancelable terms of these leases at December 31, 1996, are
as follows (in thousands):
<TABLE>
<S> <C>
1997........................................................ $ 526
1998........................................................ 610
1999........................................................ 610
2000........................................................ 543
2001........................................................ 543
Thereafter.................................................. 272
------
$3,104
======
</TABLE>
The Partnership has an option to cancel an office space lease at July 1,
2002. Additional rental payments of $2.6 million will be required for years 2002
through 2007 if the Partnership does not elect to cancel the lease.
F3-10
<PAGE> 80
BRIGHAM OIL & GAS, L.P.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Rental expense for the years ended December 31, 1994, 1995 and 1996 was
$202,923, $239,715 and $253,112, respectively.
Since the Partnership's major products are commodities, significant changes
in the prices of natural gas and oil could have a significant impact on the
Partnership's results of operations for any particular year.
As of December 31, 1996, there were no known environmental or other
regulatory matters related to the Partnership's operations which are reasonably
expected to result in a material liability to the Partnership. Compliance with
environmental laws and regulations has not had, and is not expected to have, a
material adverse effect on the Partnership's capital expenditures, earnings or
competitive position.
During 1996, approximately 16%, 12% and 10% of the Partnership's natural
gas and oil production was sold to three separate customers. During 1995,
approximately 14%, 11%, 10%, and 10% of the Partnership's natural gas and oil
production was sold to four separate customers. During 1994, approximately 15%,
15%, 13%, 13%, and 11% of the Partnership's natural gas and oil production was
sold to five separate customers. However, due to the availability of other
markets, the Partnership does not believe that the loss of any one of these
individual customers would adversely affect the Partnership's result of
operations.
7. FINANCIAL INSTRUMENTS
The Partnership periodically enters into crude oil price swap agreements
which require payments to (or receipts from) counterparties based on the
differential between a fixed price and a variable price for a fixed quantity of
crude oil without the exchange of the underlying crude oil volumes. The notional
amounts of these derivative financial instruments are based on planned
production from existing wells. The Partnership uses these derivative financial
instruments to manage market risks resulting from fluctuations in crude oil
prices. Crude oil price swaps are effective in minimizing these risks by
creating essentially equal and offsetting market exposures. The derivative
financial instruments held by the Partnership are not leveraged and are held for
purposes other than trading.
At December 31, 1996, the Partnership was a party to crude oil price swap
based on an average notional volume of 7,550 barrels of crude oil per month and
a fixed price of $22.70 per barrel. The contract expires in May 1997. The fair
market value of the crude oil price swap at December 31, 1996, based on the
market price of crude oil in December 1996, was $41,902.
The Partnership's non-derivative financial instruments include cash and
cash equivalents, accounts receivable, accounts payable and long-term debt. The
carrying amount of cash and cash equivalents, accounts receivable and accounts
payable approximate fair value because of their immediate or short maturities.
The carrying value of the Partnership's revolving credit facility (see Note 4)
approximates its fair market value since it bears interest at floating market
interest rates. At December 31, 1996, the carrying amount of the Partnership's
subordinated notes payable exceeded the fair market value by $1.9 million, based
on current rates offered to the Partnership for debt of the same remaining
maturity.
The Partnership's accounts receivable relate to natural gas and oil sales
to various industry companies, amounts due from industry participants for
expenditures made by the Partnership on their behalf and workstation revenues.
Credit terms, typical of industry standards, are of a short-term nature and the
Partnership does not require collateral. The Partnership's accounts receivable
at December 31, 1996 do not represent significant credit risks as they are
dispersed across many counterparties. Counterparties to the crude oil price
swaps are investment grade financial institutions. Accordingly, the Partnership
does not anticipate any material effect on its financial position or results of
operations as a result of nonperformance by the third parties on the crude oil
price swaps.
F3-11
<PAGE> 81
BRIGHAM OIL & GAS, L.P.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
8. EMPLOYEE BENEFIT PLANS
Retirement Savings Plan
During 1996 the Partnership adopted a defined contribution 401(k) plan for
substantially all of its employees. Eligible employees may contribute up to 15%
of their compensation to this plan. The 401(k) plan provides that the
Partnership may, at its discretion, match employee contributions. The
Partnership did not match employee contributions in 1996.
Stock Compensation
The Board of Directors and stockholders of the Company (see Note 1)
anticipate the adoption of an incentive plan, to be effective upon completion of
the Exchange (see Note 1), which will provide for the issuance of stock options,
stock appreciation rights, stock, restricted stock, cash or any combination of
the foregoing. The objective of this plan will be to reward key employees whose
performance may have a significant effect on the success of the Company. An
aggregate of 1,588,169 shares of the Company's common stock will be reserved for
issuance pursuant to this plan. The Compensation Committee of the Board of
Directors will determine the type of awards made to each participant and the
terms, conditions and limitations applicable to each award.
The Company's Board of Directors also anticipates that it will grant
644,097 stock options prior to the completion of the proposed initial public
offering (see Note 1). These options will be granted under the incentive plan
established as part of the Exchange and will have an exercise price less than
the public offering price. This grant will result in noncash compensation
expense which will be recognized over the appropriate vesting period.
In 1994 three employees were granted restricted interests in the
Partnership which vest in increments through July 1999. At the date of grant,
the value of these interests was immaterial. On February 26, 1997, in connection
with the Exchange Agreement (see Note 1), the three employees agreed to
transfer, upon the initial filing in early 1997 of a Registration Statement with
the SEC for a public offering of common stock, these partnership interests to
the Company in exchange for 156,250 shares of restricted common stock of the
Company. The terms of the restricted stock and the restricted partnership
interests are substantially the same. The shares vest over a three-year period
ending in 1999. No compensation expense will result from this exchange.
9. RELATED PARTY TRANSACTIONS
During the years ended December 31, 1994, 1995 and 1996, the Partnership
paid approximately $310,000, $382,000 and $596,000, respectively, in fees for
land acquisition services performed by a company owned by a brother of the
Partnership's President and Chief Executive Officer. Other participants in the
Partnership's 3-D seismic projects reimbursed the partnership for most of these
amounts.
The Partnership also participates in various industry projects with
affiliates of the holder of the subordinated notes payable (see Note 4). During
1995 and 1996, the Partnership received approximately $25,000 and $123,000,
respectively, for workstation time and geoscientists' time spent interpreting
3-D seismic data and workstation use. In addition, the Partnership sold to an
affiliate of the holders of the subordinated notes payable an interest in (i) a
3-D project for approximately $525,000 in 1994, (ii) a 3-D project for
approximately $75,000 in 1995 and (iii) two 3-D delineated potential drilling
locations and 3-D seismic data for approximately $83,000 in 1996.
In 1995 and 1996, the Partnership paid $35,000 and $110,000 for working
interests in natural gas and oil properties owned by affiliates of a member of
the Partnership's management committee. The Partnership
F3-12
<PAGE> 82
BRIGHAM OIL & GAS, L.P.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
billed the affiliates $201,000, $13,000 and $68,000 in 1994, 1995 and 1996,
respectively, for their proportionate share of the costs related to this
project.
A limited partner and member of the Partnership's management committee
served as a consultant to the Partnership on various aspects of the
Partnership's business and strategic issues. Fees paid for these services by the
Partnership were $72,000 for each of the twelve month periods ended December 31,
1994 and 1995 and $79,200 for the twelve month period ended December 31, 1996.
10. NATURAL GAS AND OIL EXPLORATION AND PRODUCTION ACTIVITIES
The tables presented below provide supplemental information about natural
gas and oil exploration and production activities as defined by SFAS No. 69,
"Disclosures about Oil and Gas Producing Activities."
Results of Operations for Natural Gas and Oil Producing Activities (in
thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Natural gas and oil sales.................................. $2,565 $3,578 $6,141
Costs and expenses:
Lease operating.......................................... 491 761 726
Production taxes......................................... 126 165 362
Depletion of natural gas and oil properties.............. 1,104 1,626 2,323
------ ------ ------
Total costs and expenses................................... 1,721 2,552 3,411
------ ------ ------
$ 844 $1,026 $2,730
====== ====== ======
Depletion per physical unit of production (equivalent Mcf
of gas).................................................. $ 1.10 $ 1.22 $ 1.13
====== ====== ======
</TABLE>
Natural gas and oil sales reflect the market prices of net production sold
or transferred, with appropriate adjustments for royalties, net profits interest
and other contractual provisions. Lease operating expenses include lifting costs
incurred to operate and maintain productive wells and related equipment,
including such costs as operating labor, repairs and maintenance, materials,
supplies and fuel consumed. Production taxes include production and severance
taxes. No provision has been made for income taxes since these taxes are the
responsibility of the partners (see Note 2). Depletion of natural gas and oil
properties relates to capitalized costs incurred in acquisition, exploration and
development activities. Results of operations do not include interest expense
and general corporate amounts.
Costs Incurred and Capitalized Costs
The costs incurred in natural gas and oil acquisition, exploration and
development activities follow (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------- -------
<S> <C> <C>
Costs incurred for the year:
Exploration............................................... $ 6,893 $10,527
Property acquisition...................................... 1,885 6,195
Development............................................... 713 1,328
Proceeds from participants................................ (1,296) (4,111)
------- -------
$ 8,195 $13,939
======= =======
</TABLE>
F3-13
<PAGE> 83
BRIGHAM OIL & GAS, L.P.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Costs incurred represent amounts incurred by the Partnership for
exploration, property acquisition and development activities. Periodically, the
Partnership will receive proceeds from participants subsequent to project
initiation for an assignment of an interest in the project. These payments are
represented by proceeds from participants.
Capitalized costs related to natural gas and oil acquisition, exploration
and development activities follow (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------- -------
<S> <C> <C>
Cost of natural gas and oil properties at year-end:
Proved.................................................... $22,305 $30,487
Unproved.................................................. 3,460 7,068
------- -------
Total capitalized costs................................... 25,765 37,555
Accumulated depletion..................................... (7,227) (9,550)
------- -------
$18,538 $28,005
======= =======
</TABLE>
Following is a summary of costs (in thousands) excluded from depletion at
December 31, 1996, by year incurred. At this time, the Partnership is unable to
predict either the timing of the inclusion of these costs and the related
natural gas and oil reserves in its depletion computation or their potential
future impact on depletion rates.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
PRIOR YEARS 1994 1995 1996 TOTAL
----------- ----- ----- ------- ------
<S> <C> <C> <C> <C> <C>
Property acquisition................... $1,418 $434 $694 $2,515 $5,061
Exploration............................ 480 51 234 1,242 2,007
------ ---- ---- ------ ------
Total.................................. $1,898 $485 $928 $3,757 $7,068
====== ==== ==== ====== ======
</TABLE>
11. NATURAL GAS AND OIL RESERVES AND RELATED FINANCIAL DATA (UNAUDITED)
Information with respect to the Partnership's natural gas and oil producing
activities is presented in the following tables. Reserve quantities as well as
certain information regarding future production and discounted cash flows were
determined by the Partnership's independent petroleum consultants and internal
petroleum reservoir engineer.
F3-14
<PAGE> 84
BRIGHAM OIL & GAS, L.P.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Natural Gas and Oil Reserve Data
The following tables present the Partnership's estimates of its proved
natural gas and oil reserves. The Partnership emphasizes that reserve estimates
are approximates and are expected to change as additional information becomes
available. Reservoir engineering is a subjective process of estimating
underground accumulations of natural gas and oil that cannot be measured in an
exact way, and the accuracy of any reserve estimate is a function of the quality
of available data and of engineering and geological interpretation and judgment.
Accordingly, there can be no assurance that the reserves set forth herein will
ultimately be produced nor can there be assurance that the proved undeveloped
reserves will be developed within the periods anticipated. A substantial portion
of the reserve balances were estimated utilizing the volumetric method, as
opposed to the production performance method.
<TABLE>
<CAPTION>
NATURAL GAS OIL
(MMCF) (MBBLS)
----------- -------
<S> <C> <C>
Proved reserves at December 31, 1993.... 227 336
Revisions to previous estimates....... 102 (26)
Extensions, discoveries and other
additions.......................... 3,415 852
Production............................ (165) (140)
------ -----
Proved reserves at December 31, 1994.... 3,579 1,022
Revisions to previous estimates....... (1,600) (214)
Extensions and discoveries............ 2,555 1,055
Sales of minerals-in-place............ (6) (14)
Production............................ (271) (177)
------ -----
Proved reserves at December 31, 1995.... 4,257 1,672
Revisions of previous estimates....... (1,005) (232)
Extensions, discoveries and other
additions.......................... 7,742 996
Purchase of minerals-in-place......... 260 3
Sales of minerals-in-place............ (299) (272)
Production............................ (698) (227)
------ -----
Proved reserves at December 31, 1996.... 10,257 1,940
====== =====
Proved developed reserves at December
31:
1994.................................. 1,849 915
1995.................................. 3,819 1,274
1996.................................. 6,034 1,453
</TABLE>
Proved reserves are estimated quantities of crude natural gas and oil which
geological and engineering data indicate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and
operating conditions. Proved developed reserves are proved reserves which can be
expected to be recovered through existing wells with existing equipment and
operating methods.
F3-15
<PAGE> 85
BRIGHAM OIL & GAS, L.P.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Standardized Measure of Discounted Future Net Cash Inflows and Changes Therein
The following table presents a standardized measure of discounted future
net cash inflows (in thousands) relating to proved natural gas and oil reserves.
Future cash flows were computed by applying year end prices of natural gas and
oil relating to the Partnership's proved reserves to the estimated year-end
quantities of those reserves. Future price changes were considered only to the
extent provided by contractual agreements in existence at year-end. Future
production and development costs were computed by estimating those expenditures
expected to occur in developing and producing the proved natural gas and oil
reserves at the end of the year, based on year-end costs. Actual future cash
inflows may vary considerably and the standardized measure does not necessarily
represent the fair value of the Partnership's natural gas and oil reserves.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Future cash inflows..................... $22,544 $ 38,333 $ 84,987
Future development and production
costs................................. (8,148) (12,543) (20,998)
------- -------- --------
Future net cash inflows................. $14,396 $ 25,790 $ 63,989
======= ======== ========
Standardized measure of future net cash
inflows discounted at 10% per annum... $10,240 $ 18,222 $ 44,506(1)
======= ======== ========
</TABLE>
- ---------------
(1) The earnings of the Partnership are not subject to income taxes as the
Partnership is a non-taxpaying entity (see Note 2). Once the Partnership
consummates the proposed Exchange (see Note 1), the successor entity will be
a taxable corporation. The estimated pro forma income taxes, discounted at
10%, are approximately $12,146,000 as of December 31, 1996, resulting in pro
forma discounted net cash flows of approximately $32,360,000 as of December
31, 1996.
The average natural gas and oil prices used to calculate the future net
cash inflows at December 31, 1996 were $3.62 per Mcf and $24.66 per barrel,
respectively. At December 31, 1996 and February 14, 1997, respectively, the
NYMEX price for oil was $25.92 per barrel and $22.41 per barrel and the NYMEX
price for natural gas was $2.76 per MMBtu and $1.97 per MMBtu.
Changes in the future net cash inflows (in thousands) discounted at 10% per
annum follow:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Beginning of period..................... $ 3,158 $10,240 $18,222
Sales of natural gas and oil produced,
net of production costs............ (1,948) (2,652) (5,053)
Development costs incurred............ 69 169 246
Extensions and discoveries............ 9,124 11,669 29,457
Purchases of minerals-in-place........ -- -- 384
Sales of minerals-in-place............ -- (198) (2,380)
Net change in prices and production
costs.............................. 139 1,394 7,023
Change in future development costs.... (619) 419 303
Changes in production rates and
other.............................. 36 (364) (342)
Revisions of quantity estimates....... (130) (3,479) (5,176)
Accretion of discount................. 411 1,024 1,822
------- ------- -------
End of period........................... $10,240 $18,222 $44,506
======= ======= =======
</TABLE>
F3-16
<PAGE> 86
APPENDIX A
February 14, 1997
Mr. Jon L. Glass
Brigham Oil & Gas, L.P.
5949 Sherry Lane, Suite 1616
Dallas, Texas 75225
Re: Evaluation
BRIGHAM OIL & GAS, L.P. INTERESTS
Proved Reserves
As of December 31, 1996
Pursuant to the Guidelines of the Securities and
Exchange Commission for Reporting Partnership
Reserves and Future Net Revenue
Dear Mr. Glass:
As requested, we are submitting our estimated proven reserves and future
net cash flows, as of December 31, 1996, attributable to the interests of
Brigham Oil & Gas, L.P. in certain oil and natural gas properties. The evaluated
properties are located in various counties in Kansas, New Mexico, Oklahoma and
Texas. This report was prepared using constant prices and costs and conforms to
the guidelines of the Securities and Exchange Commission (SEC).
Composite forecasts for the total proved, proved developed producing,
proved developed non-producing and proved undeveloped estimates are presented by
category in the accompanying Tables I-P, I-PDP, I-PDNP and I-PUD, respectively.
The estimated net proved reserves and future net cash flow for all three
categories are summarized as follows:
<TABLE>
<CAPTION>
NET RESERVES FUTURE NET CASH FLOW
-------------------------------------- -------------------------------------
OIL GAS PRESENT WORTH
CATEGORY (BARRELS) (MCF) TOTAL AT 10%
-------- ---------------- ------------------ -------------------- -------------
<S> <C> <C> <C> <C>
Proved Developed:
Producing...................... 1,293,456 4,880,441 $38,532,070 $28,543,340
Non-Producing.................. 159,238 1,153,825 5,649,492 2,395,028
Proved Undeveloped............. 487,216 4,222,257 19,806,950 13,567,850
--------- ---------- ----------- -----------
Total Proved........... 1,939,910 10,256,523 $63,988,512 $44,506,218
========= ========== =========== ===========
</TABLE>
Future revenue is prior to deducting state production taxes and ad valorem
taxes. Future net cash flow is after deducting these taxes, future capital costs
and operating expenses, but before consideration of federal income taxes. In
accordance with SEC guidelines, the future net cash flow has been discounted at
an annual rate of ten percent to determine its "present worth". The present
worth is shown to indicate the effort of time on the value of money and should
not be construed as being the fair market value of the properties.
The oil reserves include oil and condensate. Oil volumes are expressed in
barrels (42 U.S. gallons). Gas volumes are expressed in thousands of standard
cubic feet (Mcf) at contract temperature and pressure base.
Our estimates are for proved reserves only and do not include any probable
or possible reserves nor have any values been attributed to interests in acreage
beyond the location for which undeveloped reserves have been estimated.
Oil and gas prices being received at December 31, 1996 were utilized as
furnished. Direct lease operating expenses are based on historical data for 1995
and 1996 and do not include general and administrative
A-1
<PAGE> 87
overhead. Investments are capital costs for pumping unit installations,
work-overs and drilling costs and were utilized as furnished. All economic
factors were held constant in accordance with SEC guidelines.
An on-site field inspection of the properties has not been performed nor
have the mechanical operation or condition of the wells and their related
facilities been examined nor have the wells been tested by Cawley, Gillespie &
Associates, Inc. Possible environmental liability related to the properties has
not been investigated nor considered. The cost of plugging and the salvage value
of equipment at abandonment have not been included.
The reserve classifications and the economic considerations used herein
conform to the criteria of the Securities and Exchange Commission. The reserves
and economics are predicated on regulatory agency classifications, rules,
policies, laws, taxes and royalties currently in effect except as noted herein.
The possible effects of changes in legislation or other Federal or State
restrictive actions which could affect the reserves and economics have not been
considered.
The proved reserve estimates and economic forecasts were based upon
interpretations of data furnished by your office and available from our files.
All estimates represent our best judgment based on the data available at the
time of preparation. It should be realized that the reserve estimates, the
reserves actually recovered, the revenue derived therefrom and the actual costs
incurred could be more or less than the estimated amounts. Additionally, the
prices and costs may vary from those utilized which may increase or decrease
both the estimated proved reserve volumes and future net revenues therefrom.
Ownership interests in the oil and natural gas properties were accepted as
furnished by Brigham Oil & Gas, L.P., and has not been independently confirmed.
We are independent registered professional engineers and geologists. We do not
own an interest in the properties of Brigham Oil & Gas, L.P. and are not
employed on a contingent basis. Our workpapers and related data utilized in the
preparation of these estimates are available in our office.
Yours very truly,
Cawley, Gillespie & Associates, Inc.
/s/ AARON CAWLEY
-------------------------------------------
Aaron Cawley, P.E.
Executive Vice President
A-2
<PAGE> 88
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY
SECURITIES OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR
DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE
SHARES OF COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary....................... 3
Risk Factors............................. 10
The Company.............................. 16
Use of Proceeds.......................... 16
Dividend Policy.......................... 17
Dilution................................. 17
Capitalization........................... 19
Selected Financial Data.................. 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 22
Business and Properties.................. 28
Management............................... 43
Certain Transactions..................... 48
Principal Stockholders................... 50
Description of Capital Stock............. 52
Shares Eligible for Future Sale.......... 53
Underwriting............................. 54
Legal Matters............................ 56
Experts.................................. 56
Available Information.................... 56
Glossary of Certain Oil and Gas Terms.... 57
Index to Financial Statements............ F1-1
Letter of Cawley, Gillespie & Associates,
Inc.................................... A-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE SHARES OF THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
3,000,000 SHARES
[BRIGHAM EXPLORATION COMPANY LOGO]
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
BEAR, STEARNS & CO. INC.
HOWARD, WEIL,
LABOUISSE, FRIEDRICHS
INCORPORATED
RAUSCHER PIERCE REFSNES, INC.
, 1997
======================================================
<PAGE> 89
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses payable by Brigham Exploration Company (the
"Registrant" or the "Company") in connection with the registration of the
securities offered hereby, other than underwriting discounts and commissions,
are as follows:
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 16,553
NASD Filing Fee............................................. 5,963
Nasdaq National Market Listing Fee.......................... 48,208
Blue Sky Qualification Fees and Expenses.................... 5,000
Accounting Fees and Expenses................................ 200,000
Legal Fees and Expenses..................................... 250,000
Engineering Fees and Expenses............................... 10,000
Transfer Agent and Registrar Fees........................... 3,500
Printing and Engraving Expenses............................. 89,000
Miscellaneous............................................... 121,776
--------
Total............................................. $750,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
In accordance with Section 102(b)(7) of the Delaware General Corporation
Law ("DGCL"), the Company's Certificate of Incorporation includes a provision
that, to the fullest extent permitted by law, eliminates the personal liability
of members of its Board of Directors to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director. Such provision does
not eliminate or limit the liability of a director (1) for any breach of a
director's duty of loyalty to the Company or its stockholders, (2) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of a law, (3) for paying an unlawful dividend or approving an illegal
stock repurchase (as provided in Section 174 of the DGCL) or (4) for any
transaction from which the director derived an improper personal benefit.
Under Section 145 of the DGCL, the Registrant has the power to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (other than an
action by or in the right of the corporation) by reason of the fact that the
person is or was a director, officer, employee or agent of any corporation,
partnership, joint venture, trust or other enterprise, against any and all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement and reasonably incurred in connection with such action, suit or
proceeding. The power to indemnify applies only if the person acted in good
faith and in a manner the person reasonably believed to be in or not opposed to
the best interests of the corporation, and with respect to any criminal action
or proceeding, had no reasonable cause to believe the person's conduct was
unlawful.
In the case of an action by or in the right of the Registrant, no
indemnification may be made with respect to any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Registrant unless
and only to the extent that the court of chancery or the court in which such
action or suit was brought shall determine that despite the adjudication of
liability such person is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper. Section 145 of the DGCL further
provides that to the extent a director or officer of the Registrant has been
successful in the defense of any action, suit or proceeding referred to above or
in the defense of any claim, issue or matter therein, that person shall be
indemnified against expenses (including attorney's fees) actually and reasonably
incurred in connection therewith.
II-1
<PAGE> 90
The Registrant also has the power to purchase and maintain insurance on
behalf of any person covering any liability incurred in that person's capacity
as a director, officer, employee or agent of the corporation, or arising out of
that person's status as such, whether or not the corporation would have the
power to indemnify against the liability.
The Certificate of Incorporation and Bylaws provide that the Registrant
will indemnify its officers and directors and former officers and directors
against any expenses, judgments or settlement payments sustained or paid by such
persons as a result of having acted as an officer or director of the Registrant,
or, at the request of the Registrant, as an officer, director, agent or employee
of another business entity. The Certificate of Incorporation and Bylaws further
provide that the Registrant may, by action of its Board of Directors, provide
indemnification to employees and agents of the Registrant, individually or as a
group, with the same scope and effect as the indemnification of directors and
officers.
The form of Indemnity Agreement contained in Exhibit 10.28 provides for the
indemnification in certain instances against liability and expenses incurred in
connection with proceedings brought by or in the right of the Company or by
third parties by reason of a person serving as an officer or director of the
Company.
The form of Underwriting Agreement contained in Exhibit 1 provides for
indemnification of the directors and officers signing the Registration Statement
and certain controlling persons of the Company against certain liabilities
(including certain liabilities under the Securities Act of 1933, (the
"Securities Act")) in certain instances by the Underwriters.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information relates to all securities issued or sold by the
Registrant since inception and not registered under the Securities Act.
Unless otherwise specifically provided, each of the transactions described
below was conducted in reliance upon the exemption from registration provided in
Section 4(2) of the Securities Act and the rules and regulations promulgated
thereunder. Furthermore, each of the certificates representing the Registrant's
securities issued in connection with such transactions contains a restrictive
legend, as appropriate, requiring each person acquiring such securities from the
Registrant to furnish investment representations to the Registrant and stating
that no underwriters participated in such transactions.
The Registrant was formed on February 25, 1997. On February 26, 1997, the
Company sold three shares of the Registrant's Common Stock to Ben M. Brigham,
President of the Company. Pursuant to the terms of an Agreement and Plan of
Reorganization dated February 26, 1997 (the "Exchange Agreement") the Company
became the holding company for Brigham Oil & Gas, L.P., which will conduct the
Registrant's operations and was formed in May 1992 (the "Partnership"). Pursuant
to the terms of the Exchange Agreement, the limited partners of the Partnership
received 634,868 shares of the Registrant's common stock. In addition, the
general partners or their stockholders received 6,539,239 shares of the
Registrant's common stock for each share of common stock of the general partner
owned by such stockholder. Each certificate issued in connection with such
exchange contained an appropriate restrictive legend.
In August 1995, the Registrant issued $16 million principal amount of its
5% convertible subordinated notes (the "Notes") to Resource Investment
Management Company. Immediately after the consummation of the exchange described
above, RIMCO converted the Notes into 1,754,464 shares of the Registrant's
common stock. Each certificate issued in connection with that conversion
contained an appropriate restrictive legend.
The Registrant and its predecessor have granted options to purchase an
aggregate of 644,097 shares of Common Stock and issued 156,250 shares of
restricted stock to officers and key employees.
II-2
<PAGE> 91
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1 -- Form of Underwriting Agreement.
2.1+ -- Exchange Agreement.
3.1+ -- Certificate of Incorporation.
3.2+ -- Composite Bylaws, as currently in effect.
4.1+ -- Form of Common Stock Certificate.
5+ -- Opinion of Thompson & Knight, A Professional Corporation.
10.1+ -- Agreement of Limited Partnership, dated May 1, 1992,
between Brigham Exploration Company and General Atlantic
Partners III, L.P. as general partners, and Harold D.
Carter and GAP-Brigham Partners, L.P. as limited
partners.
10.1.1+ -- Amendment No. 1 to Agreement of Limited Partnership of
Brigham Oil & Gas, L.P., dated May 1, 1992, by and among
Brigham Exploration Company, General Atlantic Partners
III, L.P., GAP-Brigham Partners, L.P. and Harold D.
Carter.
10.1.2+ -- Amendment No. 2 to Agreement of Limited Partnership of
Brigham Oil & Gas, L.P., dated September 30, 1994, by and
among Brigham Exploration Company, General Atlantic
Partners III, L.P., GAP-Brigham Partners, L.P., Harold D.
Carter and the additional signatories thereto.
10.1.3+ -- Amendment No. 3 to Agreement of Limited Partnership of
Brigham Oil & Gas, L.P., dated August 24, 1995, by and
among Brigham Exploration Company, General Atlantic
Partners III, L.P., GAP-Brigham Partners, L.P., Harold D.
Carter, Craig M. Fleming, David T. Brigham and Jon L.
Glass.
10.2+ -- Agreement of Limited Partnership of Venture Acquisitions,
L.P., dated September 23, 1994, by and between Quest
Resources, L.L.C. and RIMCO Energy, Inc. as general
partners, and RIMCO Production Company, Inc., RIMCO
Exploration Partners, L.P. I and RIMCO Exploration
Partners, L.P. II, as limited partners.
10.3+ -- Regulations of Quest Resources, L.L.C.
10.4+ -- Management and Ownership Agreement, dated September 23,
1994, by and among Brigham Oil & Gas, L.P., Brigham
Exploration Company, General Atlantic Partners III, L.P.,
Harold D. Carter, Ben M. Brigham and GAP-Brigham
Partners, L.P.
10.5*+ -- Employment Agreement, dated May 1, 1992, by and between
Brigham Oil & Gas, L.P. and Ben M. Brigham.
10.6*+ -- Consulting Agreement, dated May 2, 1995, by and between
Brigham Oil & Gas, L.P. and Harold D. Carter.
10.7*+ -- Employment Agreement, by and between Brigham Exploration
Company and Ben M. Brigham.
10.8*+ -- Form of Brigham Oil & Gas, L.P. Phantom Royalty Account
Participating Agreement.
10.9*+ -- 1997 Incentive Plan of Brigham Exploration Company
10.9.1*+ -- Form of Option Agreement for certain executive officers.
10.9.2*+ -- Option Agreement dated as of March 4, 1997, by and
between Brigham Exploration Company and Jon L. Glass.
</TABLE>
II-3
<PAGE> 92
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.10*+ -- Incentive Bonus Plan dated as of February 28, 1997 of
Brigham, Inc. and Brigham Oil & Gas, L.P.
10.11+ -- Note Purchase Agreement, dated August 24, 1995, by and
among Brigham Oil & Gas, L.P., RIMCO Partners, L.P. II,
RIMCO Partners, L.P. III and RIMCO Partners, L.P.
10.11.1+ -- 5% Convertible Note Due September 1, 2002, dated August
24, 1995, executed by Brigham Oil & Gas, L.P. in favor of
RIMCO Partners, L.P. II in the principal sum of
$5,584,000.
10.11.2+ -- 5% Convertible Subordinated Note Due September 1, 2002,
dated August 24, 1995, executed by Brigham Oil & Gas,
L.P. in favor of RIMCO Partners, L.P. III in the
principal sum of $2,800,000.
10.11.3+ -- 5% Convertible Subordinated Note Due September 1, 2002,
dated August 24, 1995, executed by Brigham Oil & Gas,
L.P. in favor of RIMCO Partners, L.P. IV in the principal
sum of $7,616,000.
10.12+ -- Loan Agreement, dated April 1, 1996, by and between
Brigham Oil & Gas, L.P. and Bank One, Texas, N.A.
10.12.1+ -- Revolving Note, dated April 1, 1996, executed by Brigham
Oil & Gas, L.P., in favor of Bank One, Texas, N.A. in the
principle amount of $25,000,000.
10.12.2+ -- Form of Mortgage, Security Agreement, Assignment of
Production and Financing Statement for New Mexico, dated
as of April 1, 1996, by Brigham Oil & Gas, L.P. and Bank
One, Texas, N.A.
10.12.3+ -- Form of Mortgage, Security Agreement, Assignment of
Production and Financing Statement for Oklahoma, dated as
of April 1, 1996, by Brigham Oil & Gas, L.P. and Bank
One, Texas, N.A.
10.12.4+ -- Form of Deed of Trust, Security Agreement, Assignment of
Production and Financing Statement for Texas, dated as of
April 1, 1996, by Brigham Oil & Gas, L.P. and Bank One,
Texas, N.A.
10.13+ -- Office Lease, dated May 17, 1993, by and between Sterling
Plaza Ltd. and Brigham Oil & Gas, L.P.
10.13.1+ -- First Amendment to Office Lease, dated April 8, 1994, by
and between ZML-Sterling Plaza Limited Partnership by its
agent, Equity Office Properties, Inc., and Brigham Oil &
Gas, L.P.
10.13.2+ -- Second Amendment to Office Lease, dated June 29, 1994, by
and between ZML-Sterling Plaza Limited Partnership by its
agent, Equity Office Properties, Inc., and Brigham Oil &
Gas, L.P.
10.13.3+ -- Third Amendment to Office Lease, dated December 30, 1996,
by and between ZML-Sterling Plaza Limited Partnership by
its agent, Equity Office Holdings, L.L.C., and Brigham
Oil & Gas, L.P.
10.13.4+ -- Modification and Ratification of Lease, dated April 1,
1993.
10.13.5+ -- Modification and Ratification of Lease, dated May 12,
1993.
10.14+ -- Two Bridgepoint Lease Agreement, dated September 30,
1996, by and between Investors Life Insurance Company of
North America and Brigham Oil & Gas, L.P.
10.15+ -- Anadarko Basin Seismic Operations Agreement, dated
February 15, 1996, by and between Brigham Oil & Gas, L.P.
and Veritas Geophysical, Ltd.
10.15.1+ -- Letter Amendment to Anadarko Basin Seismic Operations
Agreement, dated June 10, 1996, between Brigham Oil &
Gas, L.P. and Veritas Geophysical, Ltd.
</TABLE>
II-4
<PAGE> 93
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.16+ -- Expense Allocation and Participation Agreement, dated
April 1, 1996, between Brigham Oil & Gas, L.P. and Gasco
Limited Partnership.
10.16.1+ -- Amendment to Expense Allocation and Participation
Agreement, dated October 21, 1996, between Brigham Oil &
Gas, L.P. and Gasco Limited Partnership.
10.17+ -- Expense Allocation and Participation Agreement, dated
April 1, 1996, between Brigham Oil & Gas, L.P. and Middle
Bay Oil Company, Inc.
10.17.1+ -- Amendment to Expense Allocation and Participation
Agreement, dated September 26, 1996, between Brigham Oil
& Gas, L.P. and Middle Bay Oil Company, Inc.
10.17.2+ -- Letter Amendment to Expense Allocation and Participation
Agreement, dated May 20, 1996, between Brigham Oil & Gas,
L.P. and Middle Bay Oil Company, Inc.
10.18+ -- Anadarko Basin Joint Participation Agreement, dated May
1, 1996, by and among Stephens Production Company and
Brigham Oil & Gas, L.P.
10.19+ -- Anadarko Basin Joint Participation Agreement, dated May
1, 1996, by and between Vintage Petroleum, Inc. and
Brigham Oil & Gas, L.P.
10.20+ -- Processing Alliance Agreement, dated July 20, 1993,
between Veritas Seismic Ltd. and Brigham Oil & Gas, L.P.
10.20.1+ -- Letter Amendment to Processing Alliance Agreement, dated
November 3, 1994, between Veritas Seismic Ltd. and
Brigham Oil & Gas, L.P.
10.21+ -- Agreement and Assignment of Interest, West Bradley
Project, dated September 1, 1995, by and between Aspect
Resources Limited Liability Company and Brigham Oil &
Gas, L.P.
10.22+ -- Agreement and Assignment of Interests in lands located in
Grady County, Oklahoma, West Bradley Project, dated
December 1, 1995, by and between Aspect Resources Limited
Liability Company, Brigham Oil & Gas, L.P. and Venture
Acquisitions, L.P.
10.23+ -- Agreement and Assignment of Interests, West Bradley
Project, dated December 1, 1995, by and between Aspect
Resources Limited Liability Company and Brigham Oil &
Gas, L.P.
10.24+ -- Geophysical Exploration Agreement, Hardeman Project,
Hardeman and Wilbarger Counties, Texas and Jackson
County, Oklahoma, dated March 15, 1993 by and among
General Atlantic Resources, Inc., Maynard Oil Company,
Ruja Muta Corporation, Tucker Scully Interests Ltd., JHJ
Exploration, Ltd., Cheyenne Petroleum Company, Antrim
Resources, Inc., and Brigham Oil & Gas, L.P.
10.25+ -- Agreement and Partial Assignment of Interests in OK13-P
Prospect Area, Jackson County, Oklahoma (Hardeman
Project), dated August 1, 1995, by and between Brigham
Oil & Gas, L.P. and Aspect Resources Limited Liability
Company.
10.26+ -- Agreement and Partial Assignment of Interests in Q140-E
Prospect Area, Hardeman County, Texas (Hardeman Project),
dated August 1, 1995, by and between Brigham Oil & Gas,
L.P. and Aspect Resources Limited Liability Company.
10.27+ -- Agreement and Partial Assignment of Interests in Hankins
#1 Chappel Prospect Agreement, Jackson County, Oklahoma
(Hardeman Project), dated March 21, 1996, by and between
Brigham Oil & Gas, L.P., NGR, Ltd. and Aspect Resources
Limited Liability Company.
</TABLE>
II-5
<PAGE> 94
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.28*+ -- Form of Indemnity Agreement between the Registrant and
each of its executive officers.
10.29+ -- Registration Rights Agreement dated February 26, 1997 by
and among Brigham Exploration Company, General Atlantic
Partners III L.P., GAP-Brigham Partners, L.P., RIMCO
Partners, L.P. II, RIMCO Partners L.P. III, and RIMCO
Partners, L.P. IV, Ben M. Brigham, Anne L. Brigham,
Harold D. Carter, Craig M. Fleming, David T. Brigham and
Jon L. Glass.
10.30+ -- 1997 Director Stock Option Plan.
10.31+ -- Form of Employee Stock Ownership Agreement.
10.32+ -- Unconditional Guaranty dated as of March 26, 1997, by
Brigham Exploration Company for the benefit of Bank One,
Texas, National Association.
10.33+ -- Agreement and Assignment of Interest in Geophysical
Exploration Agreement, Esperson Dome Project, dated
November 1, 1994, by and between Brigham Oil & Gas, L.P.
and Vaquero Gas Company.
10.34+ -- Geophysical Exploration Agreement, Southwest Danbury
Project, Brazoria County, Texas, dated as of July 1,
1996, by and among UNEXCO, Inc. and Brigham Oil & Gas,
L.P.
10.35+ -- Geophysical Exploration Agreement, Welder Project, Duval
County, Texas, dated as of October 1, 1996, by and among
UNEXCO, Inc. and Brigham Oil & Gas, L.P.
10.36+ -- Proposed Trade Structure, RIMCO/Tigre Project, Vermillion
Parish, Louisiana, among Brigham Oil & Gas, L.P., Tigre
Energy Corporation and Resource Investors Management
Company
10.36.1+ -- Letter relating to Proposed Trade Structure, RIMCO/Tigre
Project, dated January 31, 1997, from Resource Investors
Management Company to Brigham Oil & Gas, L.P.
10.37+ -- Anadarko Basin Seismic Operations Agreement II, dated as
of April 1, 1997, by and between Brigham Oil & Gas, L.P.
10.37.1+ -- Letter Amendment to Anadarko Basin Seismic Operations
Agreement II, dated March 20, 1997, between Brigham Oil &
Gas, L.P. and Veritas DGC Land, Inc.
11.1+ -- Computation of Pro Forma Net Loss Per Common Share.
21+ -- Subsidiaries of the Registrant.
23.1+ -- Consent of Thompson & Knight, A Professional Corporation
(included in Exhibit 5 above).
23.2 -- Consent of Price Waterhouse LLP, independent accountants.
23.3 -- Consent of Cawley, Gillespie & Associates, Inc.,
independent petroleum engineers.
24.1 -- Powers of Attorney (included on the first signature page
to this Registration Statement).
27 -- Financial Data Schedule.
</TABLE>
- ---------------
+ Previously filed.
* Management contract or compensatory plan.
(b) Financial Statement Schedules: None.
II-6
<PAGE> 95
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreements, certificates in such
denominations and registered in such names as required by the particular
Underwriter, to permit prompt delivery to each purchaser.
The undersigned Registrant also hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-7
<PAGE> 96
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Brigham
Exploration Company has duly caused this Amendment No. 1 to Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Dallas, Texas, on May 5, 1997.
BRIGHAM EXPLORATION COMPANY
By: /s/ BEN M. BRIGHAM
----------------------------------
Ben M. Brigham
President, Chief Executive Officer
and
Chairman of the Board
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ BEN M. BRIGHAM President, Chief Executive May 5, 1997
- ----------------------------------------------------- Officer and Chairman of the
Ben M. Brigham Board (principal executive
officer)
/s/ ANNE L. BRIGHAM* Executive Vice President and May 5, 1997
- ----------------------------------------------------- Director
Anne L. Brigham
/s/ CRAIG M. FLEMING* Chief Financial Officer May 5, 1997
- ----------------------------------------------------- (principal financial and
Craig M. Fleming accounting officer)
/s/ JON L. GLASS* Vice President -- Exploration May 5, 1997
- ----------------------------------------------------- and Director
Jon L. Glass
/s/ HAROLD D. CARTER* Consultant and Director May 5, 1997
- -----------------------------------------------------
Harold D. Carter
/s/ GARY J. MILAVEC* Director May 5, 1997
- -----------------------------------------------------
Gary J. Milavec
/s/ ALEXIS M. CRANBERG* Director May 5, 1997
- -----------------------------------------------------
Alexis M. Cranberg
/s/ STEPHEN P. REYNOLDS* Director May 5, 1997
- -----------------------------------------------------
Stephen P. Reynolds
*By: /s/ BEN M. BRIGHAM
------------------------------------------------
Ben M. Brigham
Attorney-in-fact
</TABLE>
II-8
<PAGE> 97
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
1 -- Form of Underwriting Agreement.
2.1+ -- Exchange Agreement.
3.1+ -- Certificate of Incorporation.
3.2+ -- Composite Bylaws, as currently in effect.
4.1+ -- Form of Common Stock Certificate.
5+ -- Opinion of Thompson & Knight, A Professional Corporation.
10.1+ -- Agreement of Limited Partnership, dated May 1, 1992,
between Brigham Exploration Company and General Atlantic
Partners III, L.P. as general partners, and Harold D.
Carter and GAP-Brigham Partners, L.P. as limited
partners.
10.1.1+ -- Amendment No. 1 to Agreement of Limited Partnership of
Brigham Oil & Gas, L.P., dated May 1, 1992, by and among
Brigham Exploration Company, General Atlantic Partners
III, L.P., GAP-Brigham Partners, L.P. and Harold D.
Carter.
10.1.2+ -- Amendment No. 2 to Agreement of Limited Partnership of
Brigham Oil & Gas, L.P., dated September 30, 1994, by and
among Brigham Exploration Company, General Atlantic
Partners III, L.P., GAP-Brigham Partners, L.P., Harold D.
Carter and the additional signatories thereto.
10.1.3+ -- Amendment No. 3 to Agreement of Limited Partnership of
Brigham Oil & Gas, L.P., dated August 24, 1995, by and
among Brigham Exploration Company, General Atlantic
Partners III, L.P., GAP-Brigham Partners, L.P., Harold D.
Carter, Craig M. Fleming, David T. Brigham and Jon L.
Glass.
10.2+ -- Agreement of Limited Partnership of Venture Acquisitions,
L.P., dated September 23, 1994, by and between Quest
Resources, L.L.C. and RIMCO Energy, Inc. as general
partners, and RIMCO Production Company, Inc., RIMCO
Exploration Partners, L.P. I and RIMCO Exploration
Partners, L.P. II, as limited partners.
10.3+ -- Regulations of Quest Resources, L.L.C.
10.4+ -- Management and Ownership Agreement, dated September 23,
1994, by and among Brigham Oil & Gas, L.P., Brigham
Exploration Company, General Atlantic Partners III, L.P.,
Harold D. Carter, Ben M. Brigham and GAP-Brigham
Partners, L.P.
10.5*+ -- Employment Agreement, dated May 1, 1992, by and between
Brigham Oil & Gas, L.P. and Ben M. Brigham.
10.6*+ -- Consulting Agreement, dated May 2, 1995, by and between
Brigham Oil & Gas, L.P. and Harold D. Carter.
10.7*+ -- Employment Agreement, by and between Brigham Exploration
Company and Ben M. Brigham.
10.8*+ -- Form of Brigham Oil & Gas, L.P. Phantom Royalty Account
Participating Agreement.
10.9*+ -- 1997 Incentive Plan of Brigham Exploration Company
10.9.1*+ -- Form of Option Agreement for certain executive officers.
10.9.2*+ -- Option Agreement dated as of March 4, 1997, by and
between Brigham Exploration Company and Jon L. Glass.
</TABLE>
<PAGE> 98
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
10.10*+ -- Incentive Bonus Plan dated as of February 28, 1997 of
Brigham, Inc. and Brigham Oil & Gas, L.P.
10.11+ -- Note Purchase Agreement, dated August 24, 1995, by and
among Brigham Oil & Gas, L.P., RIMCO Partners, L.P. II,
RIMCO Partners, L.P. III and RIMCO Partners, L.P.
10.11.1+ -- 5% Convertible Note Due September 1, 2002, dated August
24, 1995, executed by Brigham Oil & Gas, L.P. in favor of
RIMCO Partners, L.P. II in the principal sum of
$5,584,000.
10.11.2+ -- 5% Convertible Subordinated Note Due September 1, 2002,
dated August 24, 1995, executed by Brigham Oil & Gas,
L.P. in favor of RIMCO Partners, L.P. III in the
principal sum of $2,800,000.
10.11.3+ -- 5% Convertible Subordinated Note Due September 1, 2002,
dated August 24, 1995, executed by Brigham Oil & Gas,
L.P. in favor of RIMCO Partners, L.P. IV in the principal
sum of $7,616,000.
10.12+ -- Loan Agreement, dated April 1, 1996, by and between
Brigham Oil & Gas, L.P. and Bank One, Texas, N.A.
10.12.1+ -- Revolving Note, dated April 1, 1996, executed by Brigham
Oil & Gas, L.P., in favor of Bank One, Texas, N.A. in the
principle amount of $25,000,000.
10.12.2+ -- Form of Mortgage, Security Agreement, Assignment of
Production and Financing Statement for New Mexico, dated
as of April 1, 1996, by Brigham Oil & Gas, L.P. and Bank
One, Texas, N.A.
10.12.3+ -- Form of Mortgage, Security Agreement, Assignment of
Production and Financing Statement for Oklahoma, dated as
of April 1, 1996, by Brigham Oil & Gas, L.P. and Bank
One, Texas, N.A.
10.12.4+ -- Form of Deed of Trust, Security Agreement, Assignment of
Production and Financing Statement for Texas, dated as of
April 1, 1996, by Brigham Oil & Gas, L.P. and Bank One,
Texas, N.A.
10.13+ -- Office Lease, dated May 17, 1993, by and between Sterling
Plaza Ltd. and Brigham Oil & Gas, L.P.
10.13.1+ -- First Amendment to Office Lease, dated April 8, 1994, by
and between ZML-Sterling Plaza Limited Partnership by its
agent, Equity Office Properties, Inc., and Brigham Oil &
Gas, L.P.
10.13.2+ -- Second Amendment to Office Lease, dated June 29, 1994, by
and between ZML-Sterling Plaza Limited Partnership by its
agent, Equity Office Properties, Inc., and Brigham Oil &
Gas, L.P.
10.13.3+ -- Third Amendment to Office Lease, dated December 30, 1996,
by and between ZML-Sterling Plaza Limited Partnership by
its agent, Equity Office Holdings, L.L.C., and Brigham
Oil & Gas, L.P.
10.13.4+ -- Modification and Ratification of Lease, dated April 1,
1993.
10.13.5+ -- Modification and Ratification of Lease, dated May 12,
1993.
10.14+ -- Two Bridgepoint Lease Agreement, dated September 30,
1996, by and between Investors Life Insurance Company of
North America and Brigham Oil & Gas, L.P.
10.15+ -- Anadarko Basin Seismic Operations Agreement, dated
February 15, 1996, by and between Brigham Oil & Gas, L.P.
and Veritas Geophysical, Ltd.
10.15.1+ -- Letter Amendment to Anadarko Basin Seismic Operations
Agreement, dated June 10, 1996, between Brigham Oil &
Gas, L.P. and Veritas Geophysical, Ltd.
</TABLE>
<PAGE> 99
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
10.16+ -- Expense Allocation and Participation Agreement, dated
April 1, 1996, between Brigham Oil & Gas, L.P. and Gasco
Limited Partnership.
10.16.1+ -- Amendment to Expense Allocation and Participation
Agreement, dated October 21, 1996, between Brigham Oil &
Gas, L.P. and Gasco Limited Partnership.
10.17+ -- Expense Allocation and Participation Agreement, dated
April 1, 1996, between Brigham Oil & Gas, L.P. and Middle
Bay Oil Company, Inc.
10.17.1+ -- Amendment to Expense Allocation and Participation
Agreement, dated September 26, 1996, between Brigham Oil
& Gas, L.P. and Middle Bay Oil Company, Inc.
10.17.2+ -- Letter Amendment to Expense Allocation and Participation
Agreement, dated May 20, 1996, between Brigham Oil & Gas,
L.P. and Middle Bay Oil Company, Inc.
10.18+ -- Anadarko Basin Joint Participation Agreement, dated May
1, 1996, by and among Stephens Production Company and
Brigham Oil & Gas, L.P.
10.19+ -- Anadarko Basin Joint Participation Agreement, dated May
1, 1996, by and between Vintage Petroleum, Inc. and
Brigham Oil & Gas, L.P.
10.20+ -- Processing Alliance Agreement, dated July 20, 1993,
between Veritas Seismic Ltd. and Brigham Oil & Gas, L.P.
10.20.1+ -- Letter Amendment to Processing Alliance Agreement, dated
November 3, 1994, between Veritas Seismic Ltd. and
Brigham Oil & Gas, L.P.
10.21+ -- Agreement and Assignment of Interest, West Bradley
Project, dated September 1, 1995, by and between Aspect
Resources Limited Liability Company and Brigham Oil &
Gas, L.P.
10.22+ -- Agreement and Assignment of Interests in lands located in
Grady County, Oklahoma, West Bradley Project, dated
December 1, 1995, by and between Aspect Resources Limited
Liability Company, Brigham Oil & Gas, L.P. and Venture
Acquisitions, L.P.
10.23+ -- Agreement and Assignment of Interests, West Bradley
Project, dated December 1, 1995, by and between Aspect
Resources Limited Liability Company and Brigham Oil &
Gas, L.P.
10.24+ -- Geophysical Exploration Agreement, Hardeman Project,
Hardeman and Wilbarger Counties, Texas and Jackson
County, Oklahoma, dated March 15, 1993 by and among
General Atlantic Resources, Inc., Maynard Oil Company,
Ruja Muta Corporation, Tucker Scully Interests Ltd., JHJ
Exploration, Ltd., Cheyenne Petroleum Company, Antrim
Resources, Inc., and Brigham Oil & Gas, L.P.
10.25+ -- Agreement and Partial Assignment of Interests in OK13-P
Prospect Area, Jackson County, Oklahoma (Hardeman
Project), dated August 1, 1995, by and between Brigham
Oil & Gas, L.P. and Aspect Resources Limited Liability
Company.
10.26+ -- Agreement and Partial Assignment of Interests in Q140-E
Prospect Area, Hardeman County, Texas (Hardeman Project),
dated August 1, 1995, by and between Brigham Oil & Gas,
L.P. and Aspect Resources Limited Liability Company.
10.27+ -- Agreement and Partial Assignment of Interests in Hankins
#1 Chappel Prospect Agreement, Jackson County, Oklahoma
(Hardeman Project), dated March 21, 1996, by and between
Brigham Oil & Gas, L.P., NGR, Ltd. and Aspect Resources
Limited Liability Company.
</TABLE>
<PAGE> 100
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
10.28*+ -- Form of Indemnity Agreement between the Registrant and
each of its executive officers.
10.29+ -- Registration Rights Agreement dated February 26, 1997 by
and among Brigham Exploration Company, General Atlantic
Partners III L.P., GAP-Brigham Partners, L.P., RIMCO
Partners, L.P. II, RIMCO Partners L.P. III, and RIMCO
Partners, L.P. IV, Ben M. Brigham, Anne L. Brigham,
Harold D. Carter, Craig M. Fleming, David T. Brigham and
Jon L. Glass.
10.30+ -- 1997 Director Stock Option Plan.
10.31+ -- Form of Employee Stock Ownership Agreement.
10.32+ -- Unconditional Guaranty dated as of March 26, 1997, by
Brigham Exploration Company for the benefit of Bank One,
Texas, National Association.
10.33+ -- Agreement and Assignment of Interest in Geophysical
Exploration Agreement, Esperson Dome Project, dated
November 1, 1994, by and between Brigham Oil & Gas, L.P.
and Vaquero Gas Company.
10.34+ -- Geophysical Exploration Agreement, Southwest Danbury
Project, Brazoria County, Texas, dated as of July 1,
1996, by and among UNEXCO, Inc. and Brigham Oil & Gas,
L.P.
10.35+ -- Geophysical Exploration Agreement, Welder Project, Duval
County, Texas, dated as of October 1, 1996, by and among
UNEXCO, Inc. and Brigham Oil & Gas, L.P.
10.36+ -- Proposed Trade Structure, RIMCO/Tigre Project, Vermillion
Parish, Louisiana, among Brigham Oil & Gas, L.P., Tigre
Energy Corporation and Resource Investors Management
Company
10.36.1+ -- Letter relating to Proposed Trade Structure, RIMCO/Tigre
Project, dated January 31, 1997, from Resource Investors
Management Company to Brigham Oil & Gas, L.P.
10.37+ -- Anadarko Basin Seismic Operations Agreement II, dated as
of April 1, 1997, by and between Brigham Oil & Gas, L.P.
10.37.1+ -- Letter Amendment to Anadarko Basin Seismic Operations
Agreement II, dated March 20, 1997, between Brigham Oil &
Gas, L.P. and Veritas DGC Land, Inc.
11.1+ -- Computation of Pro Forma Net Loss Per Common Share.
21+ -- Subsidiaries of the Registrant.
23.1+ -- Consent of Thompson & Knight, A Professional Corporation
(included in Exhibit 5 above).
23.2 -- Consent of Price Waterhouse LLP, independent accountants.
23.3 -- Consent of Cawley, Gillespie & Associates, Inc.,
independent petroleum engineers.
24.1 -- Powers of Attorney (included on the first signature page
to this Registration Statement).
27 -- Financial Data Schedule.
</TABLE>
- ---------------
+ Previously filed.
* Management contract or compensatory plan.
<PAGE> 1
EXHIBIT 1
3,450,000 Shares of Common Stock
BRIGHAM EXPLORATION COMPANY
UNDERWRITING AGREEMENT
May __, 1997
BEAR, STEARNS & CO. INC.
HOWARD, WEIL, LABOUISSE,
FRIEDRICHS INCORPORATED
RAUSCHER PIERCE REFSNES, INC.
As Representatives of the
several Underwriters named in
Schedule I attached hereto
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, N.Y. 10167
Dear Sirs:
Brigham Exploration Company, a corporation organized and existing
under the laws of Delaware (the "Company"), proposes, subject to the terms and
conditions stated herein, to issue and sell to the several underwriters named
in Schedule I hereto (the "Underwriters") an aggregate of
<PAGE> 2
3,000,000 shares (the "Firm Shares") of its common stock, par value $.01 per
share (the "Common Stock"). In addition, for the sole purpose of covering
over-allotments in connection with the sale of the Firm Shares, the Company and
the undersigned selling stockholders of the Company named in Schedule II hereto
(the "Selling Stockholders") propose to sell to the Underwriters, at the option
of the Underwriters, up to an additional 450,000 shares of Common Stock (the
"Additional Shares"). The respective amounts of the Firm Shares to be so
purchased by the Underwriters are set forth opposite their names in Schedule I
hereto. The number of Additional Shares to be sold by the Company and each
Selling Stockholder is set forth opposite its name in Schedule II hereto. The
Firm Shares and any Additional Shares purchased by the Underwriters are herein
referred to as the "Shares."
The Shares are more fully described in the Registration Statement
referred to hereafter.
1. Representations and Warranties of the Company and the Selling
Stockholders.
A. The Company and each of the Selling Stockholders
jointly and severally represent and warrant to, and agree with, the
Underwriters that:
(a) The Company has filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and
may have filed an amendment or amendments thereto, on Form S-1 (No.
333- 22491), for the registration of the Shares under the Securities
Act of 1933 (the "Act"). Such registration statement, including the
prospectus, financial statements and schedules, exhibits and all other
documents filed as a part thereof, as amended at the time of
effectiveness of the registration statement, including any information
deemed to be a part thereof as of the time of effectiveness pursuant
to paragraph (b) of Rule 430A or Rule 434 of the Rules and Regulations
of the Commission under the Act (the "Regulations"), and any
additional related registration statement filed pursuant to Rule
462(b) of the Act, is herein called the "Registration Statement," and
the prospectus, in the form first filed with the Commission pursuant
to Rule 424(b) of the Regulations, or filed as part of the
Registration Statement at the time of effectiveness if no Rule 424(b)
or Rule 434 filing is required, is herein called the "Prospectus."
The term "preliminary prospectus" as used herein means a preliminary
prospectus as described in Rule 430 of the Regulations.
(b) At the time of effectiveness of the Registration
Statement or the effectiveness of any post-effective amendment to the
Registration Statement, when the Prospectus is first filed with the
Commission pursuant to Rule 424(b) or Rule 434
2
<PAGE> 3
of the Regulations, when any supplement to or amendment of the
Prospectus is filed with the Commission, and at the Closing Date and
the Additional Closing Date, if any (as hereinafter respectively
defined), the Registration Statement and the Prospectus and any
amendments thereof and supplements thereto complied or will comply in
all material respects with the applicable provisions of the Act and
the Regulations and do not or will not contain an untrue statement of
a material fact and does not or will not omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein (i) in the case of the Registration Statement, not
misleading, and (ii) in the case of the Prospectus, in light of the
circumstances under which they were made, not misleading. When any
related preliminary prospectus was first filed with the Commission
(whether filed as part of the registration statement for the
registration of the Shares or any amendment thereto or pursuant to
Rule 424(a) of the Regulations) and when any amendment thereof or
supplement thereto was first filed with the Commission, such
preliminary prospectus and any amendments thereof and supplements
thereto complied in all material respects with the applicable
provisions of the Act and the Regulations and did not contain an
untrue statement of a material fact and did not omit to state any
material fact required to be stated therein or necessary in order to
make the statements therein in light of the circumstances under which
they were made not misleading. No representation and warranty is made
in this subsection (b), however, with respect to any information
contained in or omitted from the Registration Statement or the
Prospectus or any related preliminary prospectus or any amendment
thereof or supplement thereto in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of any
Underwriter through you as herein stated or by or on behalf of any
Selling Stockholder insofar as it relates to such Selling Stockholder,
in each case expressly for use in connection with the preparation
thereof. If Rule 434 is used, the Company will comply with the
requirements of Rule 434.
(c) Price Waterhouse LLP, which has certified the
financial statements and supporting schedules included in the
Registration Statement, are independent public accountants with regard
to the Company as required by the Act and the Regulations.
(d) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
except as set forth in the Registration Statement and the Prospectus,
there has been no material adverse change or any development involving
a prospective material adverse change in the business,
3
<PAGE> 4
prospects, properties, operations, condition (financial or other) or
results of operations of the Company and its Subsidiaries (as defined
below) taken as a whole, whether or not arising from transactions in
the ordinary course of business, and since the date of the latest
balance sheet presented in the Registration Statement and the
Prospectus, neither the Company nor any of its Subsidiaries has
incurred or undertaken any liabilities or obligations, direct or
contingent, which are material to the Company and its subsidiaries
taken as a whole, except for liabilities or obligations which are
reflected in the Registration Statement and the Prospectus. Except as
disclosed in or contemplated by the Prospectus, since the date of the
last audited financial statements included in the Prospectus, there
has been no dividend or distribution of any kind declared, paid or
made by the Company on any class of its capital stock.
(e) This Agreement and the transactions contemplated
herein have been duly and validly authorized by the Company, and this
Agreement has been duly and validly executed and delivered by the
Company. This Agreement is a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms.
(f) The execution, delivery, and performance of this
Agreement and the consummation of the transactions contemplated hereby
do not and will not (i) conflict with or result in a breach of any of
the terms and provisions of, or constitute a default (or an event
which with notice or lapse of time, or both, would constitute a
default) or require consent under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any of its Subsidiaries, pursuant to the
terms of any agreement, instrument, franchise, license or permit to
which the Company or any of its Subsidiaries is a party or by which
any of such corporations or their respective properties or assets may
be bound or (ii) violate or conflict with any provision of the
organizational documents of the Company or any of its Subsidiaries or
any judgment, decree, order, statute, rule or regulation of any court
or any public, governmental or regulatory agency or body, domestic or
foreign, having jurisdiction over the Company or any of its
Subsidiaries or any of their respective properties or assets. No
consent, approval, authorization, order, registration, filing,
qualification, license or permit of or with any court or any public,
governmental or regulatory agency or body having jurisdiction over the
Company or any of its Subsidiaries or any of their respective
properties or assets is required for the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated hereby, including the issuance, sale
4
<PAGE> 5
and delivery of the Shares to be issued, sold and delivered by the
Company hereunder, except the registration under the Act of the Shares
and such consents, approvals, authorizations, orders, registrations,
filings, qualifications, licenses and permits as may be required under
state securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters. The Company has full
power and authority to authorize, issue and sell the Shares as
contemplated by this Agreement.
(g) All of the outstanding shares of Common Stock,
including all shares to be sold by the Selling Stockholders, are duly
and validly authorized and issued, fully paid and nonassessable and
were not issued and are not now in violation of or subject to any
preemptive rights. The Shares, when delivered and sold in accordance
with this Agreement, will be duly and validly issued and outstanding,
fully paid and nonassessable, and will not have been issued in
violation of or subject to any preemptive rights. The Company has an
authorized and outstanding capitalization as set forth in the
Registration Statement and the Prospectus. The Common Stock, the Firm
Shares and the Additional Shares conform to the descriptions thereof
contained in the Registration Statement and the Prospectus.
(h) Each of the Company and its corporate subsidiaries
has been duly organized and is validly existing as a corporation in
good standing under the laws of its jurisdiction of incorporation.
Each of the Company's subsidiaries that is a limited partnership has
been duly formed and is validly existing as a limited partnership
under the laws of the state of its formation. Each of the Company's
subsidiaries that is a limited liability company has been duly formed
and is validly existing as a limited liability company under the laws
of the state of its formation. (The corporate subsidiaries,
partnership subsidiaries and limited liability company subsidiaries
are hereinafter sometimes referred to as "Subsidiaries.") Each of the
Company and its Subsidiaries is duly qualified and in good standing as
a foreign corporation, limited partnership or limited liability
company in each jurisdiction in which the character or location of its
properties (owned, leased or licensed) or the nature or conduct of its
business makes such qualification necessary, except for those failures
to be so qualified or in good standing which will not in the aggregate
have a material adverse effect on the Company and its Subsidiaries
taken as a whole. Each of the Company and its Subsidiaries has all
requisite power and authority, and all necessary consents, approvals,
authorizations, orders, registrations, qualifications, licenses and
permits of and from all public, regulatory or governmental agencies
and bodies, to own, lease and operate its properties and conduct its
business as now being conducted and as
5
<PAGE> 6
described in the Registration Statement and the Prospectus, and no
such consent, approval, authorization, order, registration,
qualification, license or permit contains a materially burdensome
restriction not adequately disclosed in the Registration Statement and
the Prospectus. All of the issued and outstanding shares of capital
stock of each corporate subsidiary of the Company have been duly
authorized and validly issued and are fully paid and nonassessable and
are owned by the Company, directly or through its Subsidiaries, free
from liens, encumbrances, claims, security interests, restrictions on
transfer, stockholders' agreement, voting trust and any other defects
of title. All of the partnership interests of each partnership
subsidiary of the Company have been duly and validly authorized and
issued in accordance with the terms of the governing partnership
agreement and are owned by the Company, directly or through its
Subsidiaries, free from liens, encumbrances, claims, security
interests, restrictions on transfer, voting trusts or similar
agreements, and any other defect of title. All of the membership
interests of each limited liability company subsidiary of the Company
have been duly and validly authorized and issued in accordance with
the terms of the governing limited liability company agreement (or
regulations) and are owned by the Company, directly or through its
Subsidiaries, free from liens, encumbrances, claims, security
interests, restrictions on transfer, voting trusts or similar
agreements, and any other defect of title, with the exception of Quest
Resources, Inc., in which the Company holds a 99.55% interest in all
profits and losses and General Atlantic Partners III, L.P. holds a
0.45% interest.
(i) Except as described in or contemplated by the
Prospectus, there are no outstanding securities of the Company or any
Subsidiary convertible or exchangeable into or evidencing the right to
purchase or subscribe for any shares of Common Stock of the Company or
shares of capital stock, partnership interests or membership interests
of any Subsidiary, respectively, and there are no outstanding options,
warrants, or rights of any character obligating the Company or any
Subsidiary to issue any shares of its capital stock, any partnership
interests or any membership interests, as applicable, or any
securities convertible or exchangeable or evidencing the right to
purchase or subscribe therefor; and except as described in the
Prospectus, no holder of securities of the Company or any Subsidiary
or any other person has the right, contractual or otherwise, which has
not been satisfied or effectively waived, to cause the Company to sell
or otherwise issue to them, or to permit them to underwrite the sale
of, any of the Shares.
(j) Except as disclosed in the Prospectus, the Company
and its Subsidiaries have good and marketable title to all the oil and
gas properties described
6
<PAGE> 7
as being owned by them in the Prospectuses, free and clear of any
liens, encumbrances, equities, or claims of any nature, except for the
liens for taxes not yet due, liens, claims and encumbrances under gas
sales contracts, operating agreements, geophysical exploration
agreements, farm-out and farm-in agreements, participation agreements,
unitization and pooling agreements, and such other agreements as are
customarily found in connection with comparable exploration, drilling,
producing and marketing operations, or in connection with the
acquisition of properties, and other liens, claims, contracts,
encumbrances and title defects that are, singly and in the aggregate,
not material in amount and do not materially interfere with the
Company's or such Subsidiary's use and enjoyment of its oil and gas
properties.
(k) The written engineering reports prepared by Cawley,
Gillespie & Associates, Inc. ("Cawley, Gillespie"), an oil and gas
engineering consulting firm, as of December 31, 1996, setting forth
the engineering values attributed to the oil and gas properties of the
Company and its Subsidiaries accurately reflect in all material
respects the ownership interests of the Company and its Subsidiaries
in the properties therein as of December 31, 1996, except as otherwise
disclosed in the Prospectus. The information furnished to Cawley,
Gillespie upon which Cawley, Gillespie based its reports was, at the
time of delivery thereof, complete and accurate in all material
respects. No facts have arisen of which the Company has knowledge
that might cause a reasonable person to believe that any of the
information supplied to Cawley, Gillespie was incorrect or incomplete
in any material respect.
(l) Except as disclosed in the Prospectus, the Company
and its Subsidiaries possess adequate certificates, authorities or
permits issued by appropriate governmental agencies or bodies
necessary to conduct the business now operated by them, except for
such certificates, authorities or permits the failure of which to
obtain would not have a material adverse effect on the Company or any
of its Subsidiaries taken as a whole, and have not received any notice
of proceedings relating to the revocation or modification of any such
certificate, authority or permit that, if determined adversely to the
Company or any of its Subsidiaries, would individually or in the
aggregate have a material adverse effect on the Company and its
Subsidiaries taken as a whole.
(m) No labor dispute with the employees of the Company or
any Subsidiary exists or, to the knowledge of the Company, is imminent
that might have a material adverse effect on the Company and its
Subsidiaries taken as a whole.
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<PAGE> 8
(n) The Company and its Subsidiaries own, possess or
license adequate trademarks, trade names and other rights to
inventions, know-how, patents, copyrights, confidential information
and other intellectual property (collectively, "intellectual property
rights") necessary to conduct the business now operated by them, or
presently employed by them, and have not received any notice of
termination of any license or notice of infringement of or conflict
with asserted rights of others with respect to any intellectual
property rights that, if determined adversely to the Company or any of
its Subsidiaries, would individually or in the aggregate have a
material adverse effect on the Company and its Subsidiaries taken as a
whole.
(o) Except as disclosed in the Prospectus, neither the
Company nor any of its Subsidiaries is in violation of any statute,
any rule, regulation, decision or order of any governmental agency or
body or any court, domestic or foreign, relating to the use, disposal
or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to
hazardous or toxic substances (collectively, "environmental laws"),
owns or operates any real property contaminated with any substance
that is subject to any environmental laws, is liable for any off-site
disposal or contamination pursuant to any environmental laws, or is
subject to any claim relating to any environmental laws, which
violation, contamination, liability or claim would individually or in
the aggregate have a material adverse effect on the Company and its
Subsidiaries taken as a whole; and the Company is not aware of any
pending investigation which might lead to such a claim.
(p) Except as described in the Prospectus, there is no
litigation or governmental proceeding to which the Company or any of
its Subsidiaries is a party or to which any property of the Company or
any of its Subsidiaries is subject or which is pending or, to the
knowledge of the Company, contemplated against the Company or any of
its Subsidiaries which might result in any material adverse change or
any development involving a material adverse change in the business,
prospects, properties, operations, condition (financial or other) or,
results of operations of the Company and its Subsidiaries taken as a
whole or which is required to be disclosed in the Registration
Statement and the Prospectus.
(q) The Company has not taken and will not take, directly
or indirectly, any action designed to cause or result in, or which
constitutes or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the shares of Common
Stock to facilitate the sale or resale of the Shares.
8
<PAGE> 9
(r) The financial statements, including the notes
thereto, and supporting schedules included in the Registration
Statement and the Prospectus present fairly the financial position of
the Company and its Subsidiaries as of the dates indicated and the
results of its operations and cash flows for the periods specified;
except as otherwise stated in the Registration Statement, the
financial statements have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis; and the
supporting schedules included in the Registration Statement present
fairly the information required to be stated therein; and the
assumptions used in preparing the pro forma financial statements
included in the Registration Statement and the Prospectus provide a
reasonable basis for presenting the significant effects directly
attributable to the transactions or events described therein, the
related pro forma adjustments give appropriate effect to those
assumptions, and the pro forma columns therein reflect the proper
application of those adjustments to the corresponding historical
financial statement amounts.
(s) Except as described in the Prospectus, no holder of
securities of the Company has any rights to the registration of
securities of the Company because of the filing of the Registration
Statement or otherwise in connection with the sale of the Shares
contemplated hereby.
(t) The Company is not, and upon consummation of the
transactions contemplated hereby will not be, subject to registration
as an "investment company" under the Investment Company Act of 1940.
(u) The Shares have been approved for listing on the
Nasdaq National Market ("NASDAQ") subject to notice of issuance.
(v) The Company has obtained and delivered to you before
the date hereof the written agreements of each of its directors,
officers and securityholders (excluding those persons to whom, in
March 1997, (i) Ben M. Brigham and Anne L. Brigham made gifts
aggregating 12,000 shares of Common Stock and (ii) Harold D. Carter
made gifts aggregating 9,000 shares of Common Stock) that, for a
period of 180 days after the date of the final Prospectus filed with
the Commission pursuant to Rule 424(b), such persons will not offer,
sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the Commission a registration statement under
the Act relating to, any additional shares of the Company's Securities
or securities convertible into or exchangeable or exercisable for any
shares of the Company's Securities, or publicly disclose the intention
to make any such offer, sale,
9
<PAGE> 10
pledge, disposal or filing, without the prior written consent of Bear,
Stearns & Co. Inc.
(w) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
person that would give rise to a valid claim against the Company or
any Underwriter for a brokerage commission, finder's fee or other like
payment.
(y) There are no outstanding options, warrants, or rights
of any character obligating the Company to issue any shares of Common
Stock that are currently exercisable or will become exercisable within
180 days of the Closing Date or any Additional Closing Date.
B. Each Selling Stockholder represents and warrants to,
and agrees with, the several Underwriters that:
(a) Such Selling Stockholder has (i) caused a certificate
or certificates for the number of Additional Shares to be sold by such
Selling Stockholder hereunder to be delivered to Brigham Exploration
Company (the "Custodian"), endorsed in blank or with blank stock
powers duly executed, with signatures appropriately guaranteed, such
certificate or certificates to be held in escrow by Brigham
Exploration Company, in accordance with the terms of a custodian
agreement, for delivery pursuant to the provisions hereof on the
Closing Date, and (ii) granted an irrevocable power of attorney to Ben
M. Brigham, Anne L. Brigham and Craig M. Fleming, or any of them, as
such Selling Stockholder's attorney- in-fact (each, an
"Attorney-In-Fact") in the form heretofore delivered to you (the
custodian agreements, together with the irrevocable powers of
attorney, executed by all Selling Stockholders being hereinafter
collectively referred to as the "Custodian Agreement").
(b) The execution, delivery and performance of this
Agreement and the Custodian Agreement by or on behalf of such Selling
Stockholder and the consummation of the transactions contemplated
hereby and thereby will not (i) conflict with or result in the breach
of any of the terms and provisions of, or constitute a default (or an
event which with notice or lapse of time, or both, would constitute a
default) or require consent under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or
assets of such Selling Stockholder pursuant to the terms of any
agreement, instrument, franchise, license
10
<PAGE> 11
or permit to which such Selling Stockholder is a party or by which
such Selling Stockholder or any of such Selling Stockholder's property
or assets may be bound, or (ii) violate or conflict with any judgment,
decree, order, statute, rule or regulation of any court or any public,
governmental or regulatory agency or body having jurisdiction over
such Selling Stockholder or such Selling Stockholder's properties or
assets.
(c) Such Selling Stockholder has, and at the time of
delivery of the Shares to be sold by such Selling Stockholder such
Selling Stockholder will have, full legal right, power, authority and
capacity, and, except as required under the Act and state securities
and Blue Sky Laws, all necessary consents, approvals, authorizations,
orders, registrations, filings, qualifications, licenses and permits
of and from all public, regulatory or governmental agencies and
bodies, as are required for the execution, delivery and performance of
this Agreement and the Custodian Agreement and the consummation of the
transactions contemplated hereby and thereby, including the sale,
assignment, transfer and delivery of the Shares to be sold, assigned,
transferred and delivered by such Selling Stockholder hereunder.
(d) Each of this Agreement and the Custodian Agreement
has been duly and validly authorized, executed and delivered by such
Selling Stockholder and is a valid and binding obligation of such
Selling Stockholder, enforceable against such Selling Stockholder in
accordance with its terms, except to the extent that rights to
indemnity hereunder may be limited by applicable federal or state
securities laws or the public policy underlying such laws.
(e) Such Selling Stockholder has good, valid and
marketable title to the Shares to be sold by such Selling Stockholder
pursuant to this Agreement, free and clear of all liens, encumbrances,
claims, security interests, restrictions on transfer, stockholders'
agreements, voting trusts and other defects in title whatsoever, with
full power to deliver such Shares hereunder, and, upon the delivery of
and payment for such Shares as herein contemplated, each of the
Underwriters will receive good, valid and marketable title to the
Shares purchased by it from such Selling Stockholder, free and clear
of all liens, encumbrances, claims, security interests, restrictions
on transfer, stockholders agreements, voting trusts and other defects
in title whatsoever.
(f) Such Selling Stockholder has not taken and will not
take, directly or indirectly, any action which has constituted or
which was designed to constitute or
11
<PAGE> 12
which might be reasonably expected to cause or result in stabilization
or manipulation of the price of the shares of Common Stock.
(g) When the Registration Statement shall become
effective, when any amendment to the Registration Statement becomes
effective, when the Prospectus is first filed with the Commission
pursuant to Rule 424(b) of the Regulations, when any amendment of or
supplement to the Prospectus is filed with the Commission and at the
Closing Date, such parts of the Registration Statement and the
Prospectus and any amendments thereof and supplements thereto as
relate to such Selling Stockholder and are based upon information
furnished in writing to the Company by or on behalf of such Selling
Stockholder expressly for use therein will not contain an untrue
statement of a material fact and will not omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein not misleading; and when any related preliminary
prospectus was first filed with the Commission (whether filed as part
of the registration statement for the registration of the Shares or
any amendment thereto or pursuant to Rule 424(a) of the Regulations)
and when any amendment thereof or supplement thereto was first filed
with the Commission, such parts of such preliminary prospectus and any
amendments thereof and supplements thereto as relate to such Selling
Stockholder and are based on information furnished in writing to the
Company by or on behalf of such Selling Stockholder expressly for use
therein did not contain an untrue statement of a material fact and did
not omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading.
(h) The sale of the Shares by the Selling Stockholder
pursuant hereto is not prompted by any information concerning the
Company which is not set forth in the Registration Statement. The
information pertaining to the Selling Stockholder under the caption
"Principal Stockholders" in the Prospectus is complete and accurate in
all material respects. If there is any change in such information
with respect to the Selling Stockholder, the Selling Stockholder will
immediately notify you of such change.
2. Purchase, Sale and Delivery of the Shares.
(a) On the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms
and conditions herein set forth, the Company agrees to sell to the
several Underwriters and the Underwriters, severally and not jointly,
agree to purchase from the Company, at a purchase price
12
<PAGE> 13
of $____ per share, the number of Firm Shares set forth opposite the
respective names of the Underwriters in Schedule I hereto, in each
case plus any additional number of Shares that the Underwriter may
become obligated to purchase pursuant to the provisions of Section 9
hereof.
(b) Payment of the purchase price for, and delivery of
certificates for, the Firm Shares shall be made at the office of
Thompson & Knight, P.C., 1700 Pacific Avenue, Suite 3300, Dallas,
Texas, or such other place as shall be agreed upon by you and the
Company, at 9:00 A.M., Dallas, Texas time, on the third or fourth
business day (as permitted under Rule 15c6-1 under the Exchange Act)
(unless such time and date are postponed in accordance with the
provisions of Section 9 hereof) following the date the Registration
Statement becomes effective (or, if the Company has elected to rely
upon Rule 430A of the Regulations, the third or fourth business day
(as permitted under Rule 15c6-1 under the Exchange Act) after the
determination of the initial public offering price of the Shares), or
at such other time not later than ten business days after such date as
shall be agreed upon by you and the Company (such time and date of
payment and delivery being herein called the "Closing Date").
Delivery of the certificates for the Firm Shares shall be made to you
for the respective accounts of the several Underwriters against
payment by the several Underwriters through the Representatives of the
purchase price for the Firm Shares by wire transfer of federal (same
day) funds, to the account(s) designated by the Company.
(c) Certificates for the Firm Shares shall be registered
in such name or names and in such authorized denominations as you may
request in writing at least two full business days prior to the
Closing Date. The Company will permit you to examine and package such
certificates for delivery at least one full business day prior to the
Closing Date.
(d) In addition, the Company and the Selling Stockholders
hereby grant to the several Underwriters the option to purchase up to
450,000 Additional Shares at the same purchase price per share to be
paid by the several Underwriters to the Company for the Firm Shares as
set forth in this Section 2, for the sole purpose of covering
over-allotments in the sale of Firm Shares by the several
Underwriters. The maximum number of Additional Shares to be sold by
the Company and each Selling Stockholder is set forth opposite its
name on Schedule II hereto. This option may be exercised at any time
in whole or in part on or before the thirtieth day following the
effective date of the Registration Statement, by written notice by you
to the Company and the Custodian. Such notice shall set forth the
aggregate number of Additional
13
<PAGE> 14
Shares as to which the option is being exercised and the
date and time, as reasonably determined by you, when the Additional
Shares are to be delivered (each such date and time being herein
sometimes referred to as an "Additional Closing Date"); provided,
however, that the Additional Closing Date shall not be earlier than
the Closing Date or earlier than the second full business day after
the date on which the option shall have been exercised nor later than
the tenth full business day after the date on which the option shall
have been exercised (unless such time and date are postponed in
accordance with the provisions of Section 9 hereof). If the option is
exercised in part, the respective number of Additional Shares to be
sold by the Company and each Selling Stockholder listed on Schedule II
hereto shall be determined as follows: (i) first, the number of
Additional Shares being purchased shall be sold by the Selling
Stockholders, on a pro rata basis in accordance with the percentages
set forth opposite their names on Schedule II hereto, until each
Selling Stockholder has sold that number of Additional Shares set
forth opposite its name on Schedule II hereto, and (ii) then, the
Company shall sell that number of Additional Shares as may be needed
to satisfy the exercise of the option, in each case as adjusted by you
in such manner as to avoid fractional shares. Certificates for the
Additional Shares shall be registered in such name or names and in
such authorized denominations as you may request in writing at least
two full business days prior to the Additional Closing Date. The
Company and the Custodian will permit you to examine and package such
certificates for delivery at least one full business day prior to the
Additional Closing Date.
The number of Additional Shares to be sold to each Underwriter
shall be the number which bears the same ratio to the aggregate number
of Additional Shares being purchased as the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereto (or
such number increased as set forth in Section 9 hereof) bears to
3,000,000, subject, however, to such adjustments to eliminate any
fractional shares as you in your sole discretion shall make.
Payment for the Additional Shares shall be made by wire
transfer of federal (same day) funds, to the accounts designated by
the Company and the Custodian, upon delivery of the certificates for
the Additional Shares to you for the respective accounts of the
Underwriters at the offices of Thompson & Knight, P.C., 1700 Pacific
Avenue, Suite 3300, Dallas, Texas, or such other place as shall be
agreed upon by you and the Company.
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<PAGE> 15
(e) Certificates in negotiable form for the total number
of the Additional Shares that may be sold hereunder by each Selling
Stockholder have been placed in escrow with the Company as Custodian
pursuant to the Custodian Agreement executed by each Selling
Stockholder for delivery of all Additional Shares to be sold hereunder
by such Selling Stockholder. Each Selling Stockholder specifically
agrees that the Additional Shares represented by the certificates held
in custody for the Selling Stockholder under the Custodian Agreement
are subject to the interests of the Underwriters hereunder, that the
arrangements made by the Selling Stockholder for such escrow are to
that extent irrevocable, and that the obligations of the Selling
Stockholder hereunder shall not be terminable by any act or deed of
the Selling Stockholder (or by any other person, firm or corporation
including the Company, the Custodian or the Underwriters) or by
operation of law (including the death of an individual Selling
Stockholder or the dissolution of a corporate Selling Stockholder) or
by the occurrence of any other event or events, except as set forth in
the Custodian Agreement. If the Underwriters exercise their option,
in whole or in part, to acquire any or all of the Additional Shares
and any such event should occur prior to the delivery to the
Underwriters of the Additional Shares hereunder, certificates for the
Additional Shares shall be delivered by the Custodian in accordance
with the terms and conditions of this Agreement as if such event has
not occurred. The Custodian is authorized to receive and acknowledge
receipt of the proceeds of sale of the Shares held by it against
delivery of such Shares.
(f) If on the Additional Closing Date, a Selling
Stockholder fails to sell the Additional Shares that such Selling
Stockholder has agreed to sell on such date as set forth in Schedule
II hereto, the Company agrees that it will sell or arrange for the
sale of the number of shares of Common Stock to the Underwriters that
represents the Additional Shares which such Selling Stockholder has
failed to so sell, as set forth in Schedule II hereto, or such lesser
number as may be requested by the Representatives. In no event shall
this Section be construed to excuse the Selling Stockholder from the
full performance of its obligations under this Agreement.
3. Offering. Upon your authorization of the release of
the Firm Shares, the several Underwriters propose to offer the Firm Shares for
sale to the public upon the terms set forth in the Prospectus. To the extent,
if at all, that any Additional Shares are purchased pursuant to Section 2
hereof, the Underwriters will offer them to the public on the foregoing terms.
4. Covenants of the Company and the Selling
Stockholders.
15
<PAGE> 16
A. The Company covenants and agrees with the several
Underwriters that:
(a) If the Registration Statement has not yet been
declared effective, the Company will use its best efforts to cause the
Registration Statement and any amendments thereto to become effective
as promptly as possible, and if Rule 430A is used or the filing of the
Prospectus is otherwise required under Rule 424(b) or Rule 434, the
Company will file the Prospectus (properly completed if Rule 430A has
been used) pursuant to Rule 424(b) or Rule 434 within the prescribed
time period and will provide evidence satisfactory to you of such
timely filing. If the Company elects to rely on Rule 434, the Company
will prepare and file a term sheet that complies with the requirements
of Rule 434.
The Company will notify you immediately (and, if requested by
you, will confirm such notice in writing) (i) when the Registration
Statement and any amendments thereto become effective, (ii) of any
request by the Commission for any amendment of or supplement to the
Registration Statement or the Prospectus or for any additional
information, (iii) of the mailing or delivery to the Commission for
filing of any amendment of or supplement to the Registration Statement
or the Prospectus, (iv) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or
any post-effective amendment thereto or of the initiation, or the
threatening, of any proceedings therefor, (v) of the receipt of any
comments from the Commission, and (vi) of the receipt by the Company
of any notification with respect to the suspension of the
qualification of the Shares for sale in any jurisdiction or the
initiation or threatening of any proceeding for that purpose. If the
Commission shall propose or enter a stop order at any time, the
Company will make every reasonable effort to prevent the issuance of
any such stop order and, if issued, to obtain the lifting of such
order as soon as possible. The Company will not file any amendment to
the Registration Statement or any amendment of or supplement to the
Prospectus (including the prospectus required to be filed pursuant to
Rule 424(b) or Rule 434) that differs from the prospectus on file at
the time of the effectiveness of the Registration Statement before or
after the effective date of the Registration Statement to which you
shall reasonably object in writing after being timely furnished in
advance a copy thereof.
(b) If at any time when a prospectus relating to the
Shares is required to be delivered under the Act any event shall have
occurred as a result of which the Prospectus as then amended or
supplemented would, in the judgment of the Underwriters or the
Company, include an untrue statement of a material fact or omit
16
<PAGE> 17
to state any material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if it shall be
necessary at any time to amend or supplement the Prospectus or
Registration Statement to comply with the Act or the Regulations, the
Company will notify you promptly and prepare and file with the
Commission an appropriate amendment or supplement (in form and
substance satisfactory to you) which will correct such statement or
omission and will use its best efforts to have any amendment to the
Registration Statement declared effective as soon as possible.
(c) The Company will promptly deliver to you four signed
copies of the Registration Statement, including exhibits and all
amendments thereto, and the Company will promptly deliver to each of
the several Underwriters such number of copies of any preliminary
prospectus, the Prospectus, the Registration Statement, and all
amendments of and supplements to such documents, if any, as you may
reasonably request. The Prospectus shall be furnished on or prior to
3:00 P.M., New York time, on the second business day following the
later of the execution and delivery of this Agreement or the effective
time of the Registration Statement.
(d) The Company will endeavor in good faith, in
cooperation with you, at or prior to the time the Registration
Statement becomes effective, to qualify the Shares for offering and
sale under the securities laws relating to the offering or sale of the
Shares of such jurisdictions as you may designate and to maintain such
qualification in effect for so long as required for the distribution
thereof, except that in no event shall the Company be obligated in
connection therewith to qualify as a foreign corporation or to execute
a general consent to service of process.
(e) The Company will make generally available (within the
meaning of Section 11(a) of the Act) to its security holders and to
you as soon as practicable, but not later than 45 days after the end
of its fiscal quarter in which the first anniversary date of the
effective date of the Registration Statement occurs, an earnings
statement (in form complying with the provisions of Rule 158 of the
Regulations) covering a period of at least twelve consecutive months
beginning after the effective date of the Registration Statement.
(f) During the period of 180 days from the date of the
Prospectus, the Company will not, without your prior written consent,
issue, sell, offer or agree to sell, grant any option for the sale of,
or otherwise dispose of, directly or indirectly, any Common Stock (or
any securities convertible into, exercisable for or
17
<PAGE> 18
exchangeable for Common Stock), and the Company will obtain the
undertaking of each of its officers, directors and securityholders,
all of which are listed on Schedule III hereto, not to engage in any
of the aforementioned transactions on their own behalf, other than the
Company's sale of Shares hereunder, and the Company's issuance of
Common Stock upon the exercise of presently outstanding stock options.
(g) During the period of three years from the effective
date of the Registration Statement, the Company will furnish to the
Representatives copies of (i) all reports to its stockholders; and
(ii) all reports, financial statements and proxy or information
statements filed by the Company with the Commission or any national
securities exchange.
(h) The Company will apply the proceeds from the sale of
the Shares as set forth under "Use of Proceeds" in the Prospectus.
(i) The Company will file with the Commission such
reports on Form SR as may be required pursuant to Rule 463 of the
Regulations.
(j) The Company agrees that it will not accelerate the
vesting or exercisability of any options, warrants, or rights of any
character obligating the Company to issue any shares of Common Stock
so that any such options, warrants, or rights shall become exercisable
within 180 days of the Closing Date or any Additional Closing Date.
B. Each Selling Stockholder covenants and agrees with
the several Underwriters that:
(a) During a period of 180 days from the date of the
Prospectus, such Selling Stockholder will not, without your prior
written consent, sell, offer or agree to sell, grant any option for
the sale of, or otherwise dispose of, directly or indirectly, any
Common Stock (or any securities convertible into, exercisable for or
exchangeable for Common Stock), except for sales to the Underwriters
as provided in this Agreement.
(b) In order to document the Underwriters' compliance
with the reporting and withholding provisions of the Tax Equity and
Fiscal Responsibility Act of 1982 and Dividend Tax Compliance Act of
1983 with respect to the transactions herein contemplated, such
Selling Stockholder shall deliver to you prior to or at the Closing
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<PAGE> 19
Date a properly completed and executed United States Treasury
Department Form W-9 (or other applicable form or statement specified
by the Treasury Department regulations in lieu thereof).
(c) Such Selling Stockholder shall not take, directly or
indirectly, any action designed to cause or result in, or that has
constituted or might reasonably be expected to constitute, the
stabilization or manipulation of the price of any securities of the
Company, and other than as permitted by the Act, the Selling
Stockholder shall not distribute any prospectus or other offering
material in connection with the offering of the Shares.
5. Payment of Expense. Whether or not the transactions
contemplated in this Agreement are consummated or this Agreement is terminated,
the Company hereby agrees to pay all reasonable costs and expenses incident to
the performance of the obligations of the Company and the Selling Stockholders
hereunder, including those in connection with (i) preparing, printing,
duplicating, filing and distributing the Registration Statement, as originally
filed and all amendments thereof (including all exhibits thereto), any
preliminary prospectus, the Prospectus and any amendments thereof or
supplements thereto (including, without limitation, fees and expenses of the
Company's accountants and counsel), the underwriting documents (including this
Agreement, and the Agreement Among Underwriters) and all other documents
related to the public offering of the Shares (including those supplied to the
Underwriters in quantities as hereinabove stated), (ii) the travel expenses of
the Company's officers and employees and any other expenses of the Company in
connection with attending or hosting meetings with prospective purchasers of
the Shares, (iii) the issuance, transfer and delivery of the Shares to the
Underwriters, including any transfer or other taxes payable thereon, (iv) the
qualification of the Shares under state or foreign securities or Blue Sky Laws,
including the costs of printing and mailing a preliminary and final "Blue Sky
Survey" and the fees of counsel for the Underwriters and such counsel's
disbursements in relation thereto, (v) quotation of the Shares on the NASDAQ,
(vi) filing fees of the Commission and the National Association of Securities
Dealers, Inc., (vii) the cost of printing certificates representing the Shares,
and (viii) the cost and charges of any transfer agent or registrar.
6. Conditions of Underwriters' Obligations. The
obligations of the several Underwriters to purchase and pay for the Firm Shares
and the Additional Shares, as provided herein, shall be subject to the accuracy
of the representations and warranties of the Company and the Selling
Stockholders herein contained, as of the date hereof and as of the Closing Date
(or in the case of the Additional Shares as of the Additional Closing Date), to
the absence from any certificates, opinions, written statements or letters
furnished to you or to Vinson & Elkins L.L.P. ("Underwriters' Counsel")
pursuant to this Section 6 of any material misstatement or omission, to the
performance
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<PAGE> 20
by the Company and the Selling Stockholders of their respective obligations
hereunder, and to the following additional conditions:
(a) The Registration Statement, including any related
registration statement filed pursuant to Rule 462(b) under the Act,
shall have become effective not later than 5:30 P.M., New York time,
on the date of this Agreement or at such later time and date as shall
have been consented to in writing by you; if the Company shall have
elected to rely upon Rule 430A or Rule 434 of the Regulations, the
Prospectus shall have been filed with the Commission in a timely
fashion in accordance with Section 4(a) hereof; and, at or prior to
the Closing Date and Additional Closing Date, as the case may be, no
stop order suspending the effectiveness of the Registration Statement
or any post-effective amendment thereof shall have been issued and no
proceedings therefor shall have been initiated or threatened by the
Commission.
(b) At the Closing Date and each Additional Closing Date,
you shall have received the opinion of Thompson & Knight, a
Professional Corporation, counsel for the Company, dated the Closing
Date or the Additional Closing Date, as the case may be, addressed to
the Underwriters and in form and substance satisfactory to
Underwriters' Counsel, to the effect that:
(i) Each of the Company and its Subsidiaries has
been duly organized and is validly existing as a corporation,
limited partnership or limited liability company in good
standing under the laws of its jurisdiction of incorporation
or formation. Each of the Company and its Subsidiaries is
duly qualified and in good standing as a foreign corporation,
limited partnership or limited liability company in each
jurisdiction in which the character or location of its
properties (owned, leased or licensed) or the nature or
conduct of its business makes such qualification necessary,
except for those failures to be so qualified or in good
standing which will not in the aggregate have a material
adverse effect on the Company and its Subsidiaries taken as a
whole. Each of the Company and its Subsidiaries has all
requisite power and authority to own, lease and license its
respective properties and conduct its business as now being
conducted and as described in the Registration Statement and
the Prospectus. All of the issued and outstanding capital
stock of each corporate subsidiary of the Company has been
duly and validly issued and is fully paid and nonassessable
and, to such counsel's knowledge, was not issued in violation
of, and is free of, preemptive rights
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<PAGE> 21
and is owned directly or indirectly by the Company, free and
clear of any lien, encumbrance, claim, security interest,
restriction on transfer, stockholders' agreement, voting trust
or other defect of title whatsoever. All of the partnership
interests of each partnership subsidiary of the Company have
been duly and validly authorized and issued in accordance with
the terms of the governing partnership agreement, and, to such
counsel's knowledge, are owned by the Company, directly or
through its Subsidiaries, free and clear of any lien,
encumbrance, claim, security interest, restriction on
transfer, voting agreement, voting trust or other defect of
title whatsoever. All of the membership interests of each
limited liability company subsidiary of the Company have been
duly and validly authorized and issued in accordance with the
terms of the governing limited liability company agreement (or
regulations), and, to such counsel's knowledge, are owned by
the Company, directly or through its Subsidiaries, free and
clear of any lien, encumbrance, claim, security interest,
restriction on transfer, voting agreement, voting trust or
other defect of title whatsoever, with the exception of Quest
Resources, L.L.C., in which the Company holds a 99.55%
interest in all profits and losses and General Atlantic
Partners III, L.P. holds a .45% interest.
(ii) The Company has authorized capital stock as
set forth under the caption "Capitalization" in the
Registration Statement and the Prospectus. All of the
outstanding shares of Common Stock are duly and validly
authorized and issued, are fully paid and nonassessable and
were not issued in violation of or subject to any preemptive
rights. The Shares to be delivered by the Company on the
Closing Date or Additional Closing Date, as the case may be,
have been duly and validly authorized and, when delivered in
accordance with this Agreement, will be duly and validly
issued, fully paid and nonassessable and will not have been
issued in violation of or subject to any preemptive rights.
Each of the Underwriters will receive good, valid and
marketable title to the Firm Shares and the Additional Shares
being sold by the Company hereunder, free and clear of all
liens, encumbrances, claims, security interests, restrictions
on transfer, stockholders' agreements, voting trusts and other
defects of title whatsoever. The Common Stock, the Firm
Shares and the Additional Shares conform to the descriptions
thereof contained in the Registration Statement and the
Prospectus under the caption "Description of Capital Stock",
and, assuming the certificates for the Common Stock are in the
form filed with the Commission, are in due and proper form
and comply with the requirements of Delaware law,
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<PAGE> 22
the Company's certificate of incorporation and by-laws, and
the requirements of the NASDAQ.
(iii) Except as described in or contemplated by the
Prospectus, to the knowledge of such counsel, there are no
outstanding securities of the Company or any Subsidiary
convertible or exchangeable into or evidencing the right to
purchase or subscribe for any shares of Common Stock of the
Company or shares of capital stock, partnership interests or
membership interests of any Subsidiary, respectively, and
there are no outstanding options, warrants, or rights of any
character obligating the Company or any Subsidiary to issue
any shares of its capital stock, any partnership interests or
any membership interests, as applicable, or any securities
convertible or exchangeable or evidencing the right to
purchase or subscribe therefor; and except as described in the
Prospectus, to the knowledge of counsel, no holder of
securities of the Company or any Subsidiary or any other
person has the right, contractual or otherwise, which has not
been satisfied or effectively waived, to cause the Company to
sell or otherwise issue to them, or to permit them to
underwrite the sale of, any of the Shares.
(iv) This Agreement has been duly and validly
authorized, executed and delivered by the Company.
(v) To such counsel's knowledge, there is no
litigation or governmental or other action, suit, proceeding
or investigation before any court or before or by any public,
regulatory or governmental agency or body pending or
threatened against, or involving the properties or business
of, the Company or any of its Subsidiaries, which, if resolved
against the Company or such Subsidiary, individually or, to
the extent involving related claims or issues, in the
aggregate, is of a character required to be disclosed in the
Registration Statement and the Prospectus which has not been
properly disclosed therein.
(vi) The execution, delivery, and performance of
this Agreement and the consummation of the transactions
contemplated hereby do not and will not (A) to such counsel's
knowledge, conflict with or result in a breach of any of the
terms and provisions of, or constitute a default (or an event
which with notice or lapse of time, or both, would constitute
a default) or require consent under, or result in the creation
or imposition of any lien,
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<PAGE> 23
charge or encumbrance upon any property or assets of the
Company or any of its Subsidiaries pursuant to the terms of
any agreement, instrument, franchise, license or permit known
to such counsel to which the Company or any of its
Subsidiaries is a party or by which any of such corporations
or their respective properties or assets may be bound or (B)
violate or conflict with any provision of the organizational
documents of the Company or any of its Subsidiaries, or, to
the knowledge of such counsel, any judgment, decree, order,
statute, rule or regulation of any court or any public,
governmental or regulatory agency or body having jurisdiction
over the Company or any of its Subsidiaries or any of their
respective properties or assets. To such counsel's knowledge,
no consent, approval, authorization, order, registration,
filing, qualification, license or permit of or with any court
or any public, governmental, or regulatory agency or body
having jurisdiction over the Company or any of its
Subsidiaries or any of their respective properties or assets
is required for the execution, delivery and performance of
this Agreement or the consummation of the transactions
contemplated hereby, except for (1) such as may be required
under foreign securities laws or state securities or Blue Sky
laws in connection with the purchase and distribution of the
Shares by the Underwriters (as to which such counsel need
express no opinion) and (2) such as have been made or obtained
under the Act.
(vii) The Registration Statement and the Prospectus
and any amendments thereof or supplements thereto (other than
the financial statements and schedules and other financial and
petroleum engineering data included therein, as to which no
opinion need be rendered) comply as to form in all material
respects with the requirements of the Act and the Regulations.
(viii) The Registration Statement is effective under
the Act, and, to the best knowledge of such counsel, no stop
order suspending the effectiveness of the Registration
Statement or any post-effective amendment thereof has been
issued and no proceedings therefor have been initiated or
threatened by the Commission, and all filings required by Rule
424(b) of the Regulations have been made.
(ix) Except as disclosed in the Prospectus, there
are no contracts, agreements or understandings known to such
counsel between the Company and any person granting such
person the right to require the Company to file a registration
statement under the Act with respect to any securities of the
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<PAGE> 24
Company owned or to be owned by such person or to require the
Company to include such securities in the securities
registered pursuant to the Registration Statement or in any
securities being registered pursuant to any other registration
statement filed by the Company under the Act; and all rights
to require registration of any securities under that agreement
have been waived with respect to the offering contemplated
hereby and for 180 days after the date of the initial public
offering of the Shares.
(x) In addition, such opinion shall also contain
a statement that such counsel has participated in conferences
with officers and representatives of the Company,
representatives of the independent public accountants for the
Company and the Underwriters at which the contents and the
Prospectus and related matters were discussed, and no facts
have come to the attention of such counsel which would lead
such counsel to believe that either the Registration Statement
at the time it became effective (including the information
deemed to be part of the Registration Statement at the time of
effectiveness pursuant to Rule 430A or Rule 434, if
applicable), or any amendment thereof made prior to the
Closing Date or Additional Closing Date, as the case may be,
as of the date of such amendment, contained an untrue
statement of a material fact or omitted to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus as of
its date (or any amendment thereof or supplement thereto made
prior to the Closing Date or the Additional Closing Date, as
the case may be, as of the date of such amendment or
supplement) contained or contains an untrue statement of a
material fact or omitted or omits to state any material fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading (it being understood that such
counsel need express no belief or opinion with respect to the
financial statements and schedules and other financial and
petroleum engineering data included therein).
(xi) The Shares to be sold under this Agreement
have been approved for quotation on the NASDAQ upon notice of
issuance.
(xii) Based on current law, the holding periods for
the holders of the Company's unregistered securities for
purposes of Rule 144 of the Act are
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<PAGE> 25
as stated under the caption "Shares Eligible for Future Sale"
in the Prospectus.
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws other than the laws of the
United States and jurisdictions in which they are admitted, to the
extent such counsel deems proper and to the extent specified in such
opinion, if at all, upon an opinion or opinions, (in form and
substance reasonably satisfactory to Underwriters' Counsel) of other
counsel reasonably acceptable to Underwriters' Counsel, familiar with
the applicable laws; (B) as to matters of fact, to the extent they
deem proper, on certificates of responsible officers of the Company
and certificates or other written statements of officers of
departments of various jurisdictions having custody of documents
respecting the corporate existence or good standing of the Company and
its Subsidiaries, provided that copies of any such statements or
certificates shall be delivered to Underwriters' Counsel. The opinion
of such counsel for the Company shall state that the opinion of any
such other counsel is in form satisfactory to such counsel and, in
their opinion, you and they are justified in relying thereon.
(c) At the Closing Date you shall have received the
favorable opinions of Thompson & Knight, P.C., counsel for the Selling
Stockholders, dated the Closing Date, addressed to the Underwriters
and in form and substance satisfactory to Underwriters' Counsel, with
respect to each Selling Stockholder, to the effect that:
(i) Each of this Agreement and the Custodian
Agreement has been duly and validly authorized, executed and
delivered by or on behalf of that Selling Stockholder. The
Custodian Agreement is a valid and binding obligation of that
Selling Stockholder, enforceable against such Selling
Stockholder in accordance with its terms.
(ii) To the knowledge of such counsel, each
Selling Stockholder has all requisite power and authority, and
all necessary consents, approvals, authorizations, orders,
registrations, filings, qualifications, licenses and permits
of and from all courts and all public, governmental or
regulatory agencies and bodies as are required for the
execution, delivery and performance of this Agreement and the
Custodian Agreement and the consummation of the transactions
contemplated hereby and thereby except for (1) such as may be
required under state securities or Blue Sky Laws in connection
with the purchase and distribution of the Shares by the
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<PAGE> 26
Underwriters (as to which such counsel need express no
opinion) and (2) such as have been made or obtained under the
Act.
(iii) Upon the delivery of and payment for the
Additional Securities as contemplated hereby, each of the
Underwriters who has acquired Additional Securities from the
Selling Stockholder in good faith and without notice of any
adverse claim within the meaning of the Uniform Commercial
Code will acquire the Additional Securities being sold by each
Selling Stockholder on the Closing Date, free of any adverse
claim. The owner of such Additional Securities, if other than
the Selling Stockholder, is precluded from asserting against
the Underwriters the ineffectiveness of any authorized
endorsement or instruction, assuming the Underwriters
purchased such Additional Securities for value in good faith
and without notice of any adverse claim.
(iv) The execution, delivery and performance of
this Agreement and the Custodian Agreement by that Selling
Stockholder and the consummation of the transactions
contemplated hereby and thereby will not violate or conflict
with, to the best knowledge of such counsel, any judgment,
decree, order, statute, rule or regulation of any court or any
public, governmental or regulatory agency or body having
jurisdiction over any of that Selling Stockholder or any of
its properties or assets.
(v) The statements in the Prospectus under the
caption "Principal Stockholders," insofar as such statements
relate to the Selling Stockholders, fairly present the
information called for with respect to such matters.
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws other than the laws of the
United States and jurisdictions in which they are admitted, to the
extent such counsel deems proper and to the extent specified in such
opinion, if at all, upon an opinion or opinions (in form and substance
reasonably satisfactory to Underwriters' Counsel) of other counsel
reasonably acceptable to Underwriters' Counsel, familiar with the
applicable laws; (B) as to matters of fact, to the extent they deem
proper, on certificates of the Selling Stockholders, provided that
copies of any such Statements or certificates shall be delivered to
Underwriters' Counsel. The opinions of such counsel for the Selling
Stockholders shall state that the opinion of any such other counsel is
in form
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<PAGE> 27
satisfactory to such counsel and, in their opinion, you and they are
justified in relying thereon.
(d) At the Closing Date and Additional Closing Date, you
shall have received a certificate of the Chief Executive Officer and
the Chief Financial Officer of the Company, dated the Closing Date or
Additional Closing Date, as the case may be, to the effect that (i)
the condition set forth in subsection (a) of this Section 6 has been
satisfied, (ii) as of the date hereof and as of the Closing Date or
Additional Closing Date, as the case may be, the representations and
warranties of the Company set forth in Section 1 hereof are accurate,
(iii) as of the Closing Date or the Additional Closing Date, as the
case may be, the obligations of the Company to be performed hereunder
on or prior thereto have been duly performed, and (iv) subsequent to
the respective dates as of which information is given in the
Registration Statement and the Prospectus, (A) the Company and its
Subsidiaries have not sustained any material loss or interference with
their respective businesses or properties from fire, flood, hurricane,
accident or other calamity, whether or not covered by insurance, or
from any labor dispute or any legal or governmental proceeding, and
(B) there has not been any material adverse change, or any development
involving a material adverse change, in the business prospects,
properties, operations, condition (financial or otherwise), or results
of operations of the Company and its Subsidiaries taken as a whole,
except in each case as described in or contemplated by the Prospectus.
(e) At the Closing Date, you shall have received a
certificate executed by or on behalf of each Selling Stockholder,
dated the Closing Date, to the effect that the representations and
warranties of such Selling Stockholder set forth in Section 1 hereof
are accurate, and that as of the Closing Date, the obligations of such
Selling Stockholder to be performed hereunder on or prior thereto have
been duly performed.
(f) At the time this Agreement is executed and at the
Closing Date (and Additional Closing Date), you shall have received a
letter, from Price Waterhouse LLP, independent accountants for the
Company, dated, respectively, as of the date of this Agreement and as
of the Closing Date or Additional Closing Date, as the case may be,
addressed to the Underwriters and in form and substance satisfactory
to you, to the effect that: (i) they are independent accountants with
respect to the Partnership and Company within the meaning of the Act
and the Regulations; (ii) stating that, in their opinion, the
financial statements of the Partnership and the Company audited by
them and included in the Registration Statement and the Prospectus
comply as to
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<PAGE> 28
form in all material respects with the applicable accounting
requirements of the Act and the Regulations with respect to
registration statements on Form S-1; (iii) on the basis of procedures
(but not an audit in accordance with generally accepted auditing
standards) consisting of a reading of the minutes of meetings of the
management committee of the Partnership subsequent to December 31,
1996 and of the minutes of meetings and consents of the stockholders
and boards of directors of the Company and its Subsidiaries and the
committees of such boards subsequent to December 31, 1996 as set forth
in the minutes books through a specified date not more than five
business days prior to the date of delivery of such letter, inquiries
of officers and other employees of the Company and its Subsidiaries
who have responsibility for financial and accounting matters of the
Company and its Subsidiaries with respect to transactions and events
subsequent to December 31, 1996 to a date not more than five days
prior to the date of such letter, nothing has come to their attention
that would cause them to believe that: (A) with respect to the period
subsequent to December 31, 1996, there were, as of a specified date
not more than five days prior to the date of such letter, any changes
in long-term indebtedness of the Partnership or the Company or any
decrease in the net current assets of the Partnership or the Company,
partners' capital, capital stock of the Company, or stockholders'
equity of the Company, in each case as compared with the amounts shown
in the most recent balance sheet of the Partnership or the Company, as
applicable, included in the Registration Statement and the Prospectus,
except for changes or decreases which the Registration Statement and
the Prospectus disclose have occurred or may occur or which are set
forth in such letter, or (B) that during the period from January 1,
1997 to a specified date not more than five days prior to the date of
such letter, there was any decrease, as compared with the
corresponding period in the prior fiscal year, in total revenues or
net income, except for decreases which the Registration Statement and
the Prospectus disclose have occurred or may occur or which are set
forth in such letter; (iv) they have read the unaudited pro forma
financial statements included in the Registration Statement and
inquired of officials of the Company about the basis for their
determination of the pro forma adjustments, and whether the unaudited
pro forma financial statements included in the Registration Statement
comply as to form in all material respects with the applicable
accounting requirements of rule 11-02 of Regulation S-X; (v) they have
proved the arithmetic accuracy of the application of the pro forma
adjustments to the historical amounts in the unaudited pro forma
financial statements; (vi) on the basis of the review referred to in
(iv) and (v) above, nothing came to their attention that caused them
to believe that the unaudited pro forma financial statements included
in the Registration Statement do not comply as to form in all material
respects with the applicable accounting requirements of rule
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<PAGE> 29
11-02 of Regulation S-X and that the pro forma adjustments have not
been properly applied to the historical amounts in the compilation of
those statements; and (vii) stating that they have compared specific
dollar amounts, numbers of shares, percentages of revenues and
earnings, and other financial information pertaining to the
Partnership and the Company and its Subsidiaries set forth in the
Registration Statement and the Prospectus, which have been specified
by you prior to the date of this Agreement, and they (Price Waterhouse
LLP) are willing to perform to the extent that such amounts, numbers,
percentages, and information may be derived from the general
accounting and financial records of the Company and its Subsidiaries
which are subject to the internal controls of the Company's accounting
system, and excluding any questions requiring an interpretation by
legal counsel, with the results obtained from the application of
specified readings, inquiries, and other appropriate procedures
specified by you (which procedures do not constitute an examination in
accordance with generally accepted auditing standards) set forth in
such letter.
(g) All proceedings taken in connection with the sale of
the Firm Shares and the Additional Shares as herein contemplated shall
be satisfactory in form and substance to you and to Underwriters'
Counsel, and the Underwriters shall have received from Underwriters'
Counsel a favorable opinion, dated as of the Closing Date and the
Additional Closing Date, as the case may be, with respect to the
issuance and sale of the Shares, the Registration Statement and the
Prospectus and such other related matters, as you may reasonably
require, and the Company and the Selling Stockholders shall have
furnished to Underwriters' Counsel such documents as they reasonably
request for the purpose of enabling them to pass upon such matters.
(h) You shall have received from each person who is a
director, officer or shareholder of the Company, all of which are
listed on Schedule III hereto, an agreement to the effect that such
person will not, directly or indirectly, without your prior written
consent, offer, sell, offer or agree to sell, grant any option to
purchase or otherwise dispose (or announce any offer, sale, grant of
an option to purchase or other disposition) of any shares of Common
Stock (or any securities convertible into, exercisable for or
exchangeable or exercisable for shares of Common Stock) for a period
of 180 days after the date of the Prospectus.
(i) At the Closing Date, the Shares shall have been
approved for quotation on the NASDAQ.
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<PAGE> 30
(j) At the time of execution of this Agreement, the
Closing Date and the Additional Closing Date, you shall have received
a letter of Cawley, Gillespie, dated respectively the date hereof, the
Closing Date or the Additional Closing Date, substantially in the
forms heretofore approved by the Representatives.
(k) Prior to the Closing Date and the Additional Closing
Date, the Company and the Selling Stockholders shall have furnished to
you such further information, certificates and documents as you may
reasonably request.
If any of the conditions specified in this Section 6 shall not
have been fulfilled when and as required by this Agreement, or if any of the
certificates, opinions, written statements or letters furnished to you or to
Underwriters' Counsel pursuant to this Section 6 shall not be in all material
respects reasonably satisfactory in form and substance to you and to
Underwriters' Counsel, all obligations of the Underwriters hereunder may be
cancelled by you at, or at any time prior to, the Closing Date and the
obligations of the Underwriters to purchase the Additional Shares may be
cancelled by you at, or at any time prior to, the Additional Closing Date.
Notice of such cancellation shall be given to the Company and the Selling
Stockholders in writing, or by telephone, telex or telegraph, confirmed in
writing.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless
each Underwriter and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the Act or Section 20(a) of the
Securities Exchange Act of 1934 (the "Exchange Act"), against any and
all losses, liabilities, claims, damages and expenses whatsoever as
incurred (including but not limited to attorneys' fees and any and all
expenses whatsoever incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become
subject under the Act, the Exchange Act or otherwise, insofar as such
losses, liabilities, claims, damages or expenses (or actions in
respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in the
registration statement for the registration of the Shares, as
originally filed or any amendment thereof (including any registration
statement filed pursuant to Rule 462(b)), or any related preliminary
prospectus or the Prospectus, or in any supplement thereto or
amendment thereof, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein
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<PAGE> 31
not misleading; provided, however, that the Company will not be liable
in any such case to the extent but only to the extent that any such
loss, liability, claim, damage or expense arises out of or is based
upon any such untrue statement or alleged untrue statement or omission
or alleged omission made therein in reliance upon and in conformity
with written information furnished to the Company by or on behalf of
any Underwriter through you, in each case expressly for use therein.
This indemnity agreement will be in addition to any liability which
the Company may otherwise have including under this Agreement.
(b) Each Selling Stockholder, severally and not jointly,
agrees to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, against
any and all losses, liabilities, claims, damages and expenses
whatsoever as incurred (including but not limited to reasonable
attorneys' fees and any and all reasonable expenses incurred in
investigating, preparing or defending against any litigation,
commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation), joint or
several, to which they or any of them may become subject under the
Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in the
registration statement for the registration of the Shares, as
originally filed or any amendment thereof (including any registration
statement filed pursuant to Rule 462(b)), or any related preliminary
prospectus or the Prospectus, or in any supplement thereto or
amendment thereof, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading; provided however, that the Selling Stockholders will not
be liable in any such case to the extent but only to the extent that
any such loss, liability, claim, damage or expense arises out of or is
based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Company by or on
behalf of any Underwriter through you, in each case expressly for use
therein. Notwithstanding any other provision of this Agreement, the
aggregate liability of any Selling Stockholder pursuant to all
provisions of this Agreement shall be limited to an amount equal to
the aggregate public offering price of the shares sold by such Selling
Stockholder, less commissions received by the Underwriters. This
indemnity agreement will be in addition to any liability which the
Selling Stockholder may otherwise have including under this Agreement.
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<PAGE> 32
Notwithstanding the foregoing, the Underwriters agree that, in
the case of any loss, liability, claim, damage or expense for which
they may claim indemnification hereunder, they will first make demand
for indemnification from the Company, and will not seek to enforce any
right or remedy granted under this Section 7 against the Selling
Stockholders, unless and until (i) the Underwriters shall have
delivered a written demand for indemnification hereunder to the
Company and (ii) the Company shall have failed to observe or comply in
all materials respects with any of its obligations hereunder in
respect of such loss, liability, claim, damage or expense for a period
of at least 30 days following the delivery of such written demand. In
the event that the Company and the Selling Stockholders shall have
failed to comply with their obligations in respect of any loss,
liability, claim, damage or expense, the Underwriters further agree
that (x) they will not commence any legal proceeding against the
Selling Stockholders to recover such loss, claim, damage, liability or
expenses unless, prior to or concurrently therewith, they shall have
commenced a legal proceeding against the Company to recover the same,
(y) they will diligently and in good faith prosecute any such legal
proceeding against the Company for as long as the Selling Stockholders
are a party thereto, and (z) in the event that judgments are entered
in favor of the Underwriters against both the Company and the Selling
Stockholders in any such legal proceeding, (1) during the period of 15
days following the date on which the judgment against the Company
becomes final and is not subject to appeal, the Underwriters will take
commercially reasonable steps to enforce the judgment entered against
the Company and will not seek to enforce the judgment entered against
the Selling Stockholders, and (2) after the expiration of such period,
the Underwriters may seek to enforce the judgment entered against the
Selling Stockholders, but will continue to take commercially
reasonable steps to enforce the judgment entered against the Company
for so long as they are seeking to enforce the judgment entered
against the Selling Stockholders.
(c) Each Underwriter severally, and not jointly, agrees
to indemnify and hold harmless the Company, each Selling Stockholder,
each of the directors of the Company, each of the officers of the
Company who shall have signed the Registration Statement, and each
other person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, against
any losses, liabilities, claims, damages and expenses whatsoever as
incurred (including but not limited to attorneys' fees and any and all
expenses whatsoever incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become
32
<PAGE> 33
subject under the Act, the Exchange Act or otherwise, insofar as such
losses, liabilities, claims, damages or expenses (or actions in
respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in the
Registration Statement for the registration of the Shares, as
originally filed or any amendment thereof, or any related preliminary
prospectus or the Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that
any such loss, liability, claim, damage or expense arises out of or is
based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Company by or on
behalf of any Underwriter through you expressly for use therein;
provided, however, that in no event shall any Underwriter be liable or
responsible for any amount in excess of the underwriting discount
applicable to the Shares purchased by such Underwriter hereunder.
This indemnity will be in addition to any liability which any
Underwriter may otherwise have including under this Agreement. The
Company and each Selling Stockholder acknowledge that the statements
set forth in the last paragraph of the cover page and in the third,
fifth and ninth paragraphs under the caption "Underwriting" in the
Prospectus constitute the only information furnished in writing by or
on behalf of any Underwriter expressly for use in the registration
statement relating to the Shares as originally filed or in any
amendment thereof, any related preliminary prospectus or the
Prospectus or in any amendment thereof or supplement thereto, as the
case may be.
(d) Promptly after receipt by an indemnified party under
subsection (a), (b) or (c) above of notice of the commencement of any
action, such indemnified party shall, if a claim in respect thereof is
to be made against the indemnifying party under such subsection,
notify each party against whom indemnification is to be sought in
writing of the commencement thereof (but the failure so to notify an
indemnifying party shall not relieve it from any liability which it
may have under this Section 7 except to the extent that it has been
prejudiced in any material respect by such failure or from any
liability which it may have otherwise). In case any such action is
brought against any indemnified party, and it notifies an indemnifying
party of the commencement thereof, the indemnifying party will be
entitled to participate therein, and to the extent it may elect by
written notice delivered to the indemnified party promptly after
receiving the aforesaid notice from such indemnified party, to assume
the defense thereof with counsel satisfactory to such indemnified
party.
33
<PAGE> 34
Notwithstanding the foregoing, the indemnified party or parties shall
have the right to employ its or their own counsel in any such case,
but the fees and expenses of such counsel shall be at the expense of
such indemnified party or parties unless (i) the employment of such
counsel shall have been authorized in writing by one of the
indemnifying parties in connection with the defense of such action,
(ii) the indemnifying parties shall not have employed counsel to have
charge of the defense of such action within a reasonable time after
notice of commencement of the action, or (iii) such indemnified party
or parties shall have reasonably concluded that there may be defenses
available to it or them which are different from or additional to
those available to one or all of the indemnifying parties (in which
case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties,
it being understood, however, that the Company and the Stockholders
shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of
attorneys (in addition to any local counsel) for all the Underwriters
and their controlling persons, which firm shall be designated in
writing by Bear, Stearns & Co. Inc. and that the reasonable fees and
expenses of such counsel shall be reimbursed as they are incurred), in
any of which events such fees and expenses shall be borne by the
indemnifying parties. No indemnifying party shall, without the prior
written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any litigation,
or any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6
or Section 7 hereof (whether or not the indemnified parties are actual
or potential parties thereto), unless such settlement, compromise or
consent (i) includes an unconditional release of each indemnified
party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to
act by or on behalf of any indemnified party.
(e) If at any time an indemnified party shall have
requested an indemnifying party to reimburse the indemnified party for
fees and expenses of counsel, such indemnifying party agrees that it
shall be liable for any settlement of the nature contemplated by
Section 7(a) or (b) effected without its written consent if (i) such
settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying
party shall have
34
<PAGE> 35
received notice of the terms of such settlement at least 30 days prior
to such settlement being entered into, and (iii) such indemnifying
party shall not have reimbursed such indemnified party in accordance
with such request prior to the date of such settlement.
(f) The provisions of this Section shall not affect any
agreement among the Company and the Selling Shareholder(s) with
respect to indemnification.
8. Contribution. In order to provide for contribution
in circumstances in which the indemnification provided for in Section 7(a) and
(b) hereof is for any reason held to be unavailable from the Company or any
Selling Stockholder or is insufficient to hold harmless a party indemnified
thereunder, the Company, the Selling Stockholders and the Underwriters shall
contribute to the aggregate losses, claims, damages, liabilities and expenses
of the nature contemplated by such indemnification provisions (including any
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claims
asserted, but after deducting in the case of losses, claims, damages,
liabilities and expenses suffered by the Company and any Selling Stockholder
any contribution received by the Company or such Selling Stockholder from
persons, other than the Underwriters, who may also be liable for contribution,
including persons who control the Company within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act, officers of the Company who
signed the Registration Statement and directors of the Company) as incurred to
which the Company, one or more of the Selling Stockholders and one or more of
the Underwriters may be subject, in such proportions as is appropriate to
reflect the relative benefits received by the Company, the Selling Stockholders
and the Underwriters from the offering of the Shares or, if such allocation is
not permitted by applicable law or indemnification is not available as a result
of the indemnifying party not having received notice as provided in Section 7
hereof, in such proportion as is appropriate to reflect not only the relative
benefits referred to above but also the relative fault of the Company, the
Selling Stockholders and the Underwriters in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company, the Selling Stockholders and the Underwriters
shall be deemed to be in the same proportion as (x) the total proceeds from the
offering (net of underwriting discounts and commissions but before deducting
expenses) received by the Company and (y) the total proceeds from the offering
(net of underwriting discounts and commissions but before deducting expenses)
received by the Selling Stockholders and (z) the underwriting discounts and
commissions received by the Underwriters, respectively, in each case as set
forth in the table on the cover page of the Prospectus (and as each such amount
may be similarly determined to give effect to the sale of the Additional
Shares, if any). The relative fault of the Company, the Selling Stockholders
and of the Underwriters shall be determined by reference
35
<PAGE> 36
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, the Selling Stockholders or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Company,
the Selling Stockholders and the Underwriters agree that it would not be just
and equitable if contribution pursuant to this Section 8 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of
the equitable considerations referred to above. The Company and each Selling
Stockholder shall be jointly and severally liable for the amounts to be
contributed by any of them pursuant to the provisions of this Section 8.
Notwithstanding the provisions of this Section 8, (i) in no case shall any
Underwriter (except as may be provided in the Agreement Among Underwriters) be
liable or responsible for any amount in excess of the underwriting discount
applicable to the Shares purchased by such Underwriter hereunder, and (ii) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. Notwithstanding the provisions of
this Section 8, no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares underwritten
by it and distributed to the public were offered to the public exceeds the
amount of any damages that such Underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. For purposes of this Section 8, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act shall have the same rights to contribution as such Underwriter,
each person, if any, who controls a Selling Stockholder within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act shall have the same
rights to contribution as such Selling Stockholder, and each person, if any,
who controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, each officer of the Company who shall have signed
the Registration Statement and each director of the Company shall have the same
rights to contribution as the Company, subject in each case to clauses (i) and
(ii) of this Section 8. Any party entitled to contribution will, promptly
after receipt of notice of commencement of any action, suit or proceeding
against such party in respect of which a claim for contribution may be made
against another party or parties under this Section 8, notify such party or
parties from whom contribution may be sought, but the omission to so notify
such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have under this
Section 8 or otherwise.
The obligations of the Selling Stockholders to contribute to this
Section 8 shall be subject to the limitation contained in paragraph 7(b) above
with respect to the maximum aggregate liability of the Selling Stockholders
under or in connection with this Agreement.
36
<PAGE> 37
9. Default by an Underwriter.
(a) If any Underwriter or Underwriters shall default in
its or their obligation to purchase Firm Shares or Additional Shares
hereunder, and if the Firm Shares or Additional Shares with respect to
which such default relates do not (after giving effect to
arrangements, if any, made by you pursuant to subsection (b) below)
exceed in the aggregate 10% of the number of shares of Firm Shares or
Additional Shares, as the case may be, which all Underwriters have
agreed to purchase hereunder, then such Firm Shares or Additional
Shares to which the default relates shall be purchased by the non-
defaulting Underwriters in proportion to the respective proportions
which the numbers of Firm Shares set forth opposite their respective
names in Schedule I hereto bear to the aggregate number of Firm Shares
set forth opposite the names of the non-defaulting Underwriters.
(b) In the event that such default relates to more than
10% of the Firm Shares or Additional Shares, as the case may be, you
may in your discretion arrange for yourself or for another party or
parties (including any non-defaulting Underwriter or Underwriters who
so agree) to purchase such Firm Shares or Additional Shares, as the
case may be, to which such default relates on the terms contained
herein. In the event that within five calendar days after such a
default you do not arrange for the purchase of the Firm Shares or
Additional Shares, as the case may be, to which such default relates
as provided in this Section 9, this Agreement or, in the case of a
default with respect to the Additional Shares, the obligations of the
Underwriters to purchase and of the Company to sell the Additional
Shares shall thereupon terminate, without liability on the part of the
Company or the Selling Stockholders with respect thereto (except in
each case as provided in Sections 5, 7(a) and (b) and 8 hereof) or the
several Underwriters, but nothing in this Agreement shall relieve a
defaulting Underwriter or Underwriters of its or their liability, if
any, to the other several Underwriters, the Company and the Selling
Stockholders for damages occasioned by its or their default hereunder.
(c) In the event that the Firm Shares or Additional
Shares to which the default relates are to be purchased by the
non-defaulting Underwriters, or are to be purchased by another party
or parties as aforesaid, you or the Company shall have the right to
postpone the Closing Date or Additional Closing Date, as the case may
be, for a period, not exceeding five business days, in order to effect
whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus or in any other documents and
arrangements, and the Company agrees to file promptly any
37
<PAGE> 38
amendment or supplement to the Registration Statement or the
Prospectus which, in the opinion of Underwriters' Counsel, may thereby
be made necessary or advisable. The term "Underwriter" as used in
this Agreement shall include any party substituted under this Section
9 with like effect as if it had originally been a party to this
Agreement with respect to such Firm Shares and Additional Shares.
10. Survival of Representations and Agreements. All
representations and warranties, covenants and agreements of the Underwriters,
the Selling Stockholders and the Company contained in this Agreement, including
the agreements contained in Section 5, the indemnity agreements contained in
Section 7 and the contribution agreements contained in Section 8, shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any Underwriter or any controlling person thereof or by or on
behalf of the Company, any of its officers and directors or any Selling
Stockholder or any controlling person thereof, and shall survive delivery of
and payment for the Shares to and by the several Underwriters. The
representations contained in Section 1 and the agreements contained in Sections
5, 7, 8 and 11(d) hereof shall survive the termination of this Agreement
including pursuant to Sections 9 or 11 hereof.
11. Effective Date of Agreement; Termination.
(a) This Agreement shall become effective upon the later
of (i) when you and the Company shall have received notification of
the effectiveness of the Registration Statement, or (ii) the execution
of this Agreement. Until this Agreement becomes effective as
aforesaid, it may be terminated by the Company by notifying you and
the Selling Stockholders or by you by notifying the Company and the
Attorney-in-Fact. Notwithstanding the foregoing, the provisions of
this Section 11 and of Sections 1, 5, 7 and 8 hereof shall at all
times be in full force and effect.
(b) You shall have the right to terminate this Agreement
at any time prior to the Closing Date or the obligations of the
Underwriters to purchase the Additional Shares at any time prior to
the Additional Closing Date, as the case may be, if (A) any domestic
or international event or act or occurrence has materially disrupted,
or in your opinion will in the immediate future materially disrupt,
the market for the Company's securities or securities in general; or
(B) if trading on the New York Stock Exchange or on the NASDAQ
generally or with respect to securities of the Company shall have been
suspended, or minimum or maximum prices for trading shall have been
fixed, or maximum ranges for prices for securities shall have been
required, on the New York Stock Exchange or on the NASDAQ by order of
the New York Stock Exchange or the NASDAQ or by order of the
Commission or any other
38
<PAGE> 39
governmental authority having jurisdiction; or (C) if a banking
moratorium has been declared by a state or federal authority or if any
new restriction materially adversely affecting the distribution of the
Firm Shares or the Additional Shares, as the case may be, shall have
become effective; or (D) if a moratorium in foreign exchange trading
by major international banks or persons has been declared; or (E) if
the United States becomes engaged in hostilities or there is an
escalation of hostilities involving the United States or there is a
declaration of a national emergency or war by the United States; or
(F) if there shall have been such change in the market for the
Company's securities or securities in general or in political,
financial or economic conditions, if the effect of any such event as
in your judgment makes it inadvisable to proceed with the offering,
sale and delivery of the Firm Shares or the Additional Shares, as the
case may be, on the terms contemplated by the Prospectus.
(c) Any notice of termination pursuant to this Section 11
shall be by telephone, telex, or telegraph, confirmed in writing by
letter.
(d) If this Agreement shall be terminated pursuant to any
of the provisions hereof (otherwise than pursuant to (i) notification
by you as provided in Section 11(a) hereof or (ii) Sections 9(b) or
11(b) hereof), or if the sale of the Shares provided for herein is not
consummated because any condition to the obligations of the several
Underwriters set forth herein is not satisfied or because of any
refusal, inability or failure on the part of the Company or any
Selling Stockholder to perform any agreement herein or comply with any
provision hereof, the Company agrees subject to demand by you, to
reimburse the Underwriters for all out-of-pocket expenses (including
the fees and expenses of their counsel), incurred by the several
Underwriters in connection herewith.
12. Notice. All communications hereunder, except as may
be otherwise specifically provided herein, shall be in writing and, if sent to
any Underwriter, shall be mailed, delivered, or telexed or telegraphed and
confirmed in writing, to such Underwriter c/o Bear, Stearns & Co., 245 Park
Avenue, New York, N.Y. 10167, Attention: David F. Huff; if sent to the
Company or any Selling Stockholder, shall be mailed, delivered, or telegraphed
and confirmed in writing, in the case of the Company, to the Company, 5949
Sherry Lane, Suite 1616, Dallas, Texas 75225, Attention: Ben M. Brigham, and,
in the case of any Selling Stockholder, to 5949 Sherry Lane, Suite 1616,
Dallas, Texas 75225.
13. Parties. You represent that you are authorized to
act on behalf of the several Underwriters named in Schedule I hereto, and the
Company and the Selling Stockholders shall be
39
<PAGE> 40
entitled to act and rely on any request, notice, consent, waiver or agreement
purportedly given on behalf of the Underwriters when the same shall have been
given by you on such behalf. This Agreement shall inure solely to the benefit
of, and shall be binding upon, the several Underwriters, the Selling
Stockholders and the Company and the controlling persons, directors, officers,
employees and agents referred to in Sections 7 and 8, and their respective
successors and assigns, and no other person shall have or be construed to have
any legal or equitable right, remedy or claim under or in respect of or by
virtue of this Agreement or any provision herein contained. The term
"successors and assigns" shall not include a purchaser, in its capacity as
such, of Shares from any of the Underwriters.
14. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, but without
regard to principles of conflict of law.
15. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, but
all such counterparts shall together constitute one and the same Agreement.
16. JURISDICTION OF DISPUTES. THE COMPANY AND THE
SELLING STOCKHOLDERS HEREBY SUBMIT TO THE NON- EXCLUSIVE JURISDICTION OF THE
FEDERAL AND STATE COURTS IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN
ANY SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
40
<PAGE> 41
If the foregoing correctly sets forth the understanding among
you, the Company and the Selling Stockholders, please so indicate in the space
provided below for that purpose, whereupon this letter shall constitute a
binding agreement among us.
Very truly yours,
THE COMPANY:
BRIGHAM EXPLORATION COMPANY, a
Delaware corporation
By
---------------------------------
Ben M. Brigham,
President
SELLING STOCKHOLDERS:
-----------------------------------
Ben M. Brigham
-----------------------------------
Anne L. Brigham
41
<PAGE> 42
Accepted as of the date first above written.
BEAR, STEARNS & CO. INC.,
HOWARD, WEIL, LABOUISSE,
FRIEDRICHS INCORPORATED
RAUSCHER PIERCE REFSNES, INC.
BY BEAR, STEARNS & CO. INC.
By
----------------------------
General Partner
On behalf of themselves and the other several
Underwriters named in Schedule I hereto.
42
<PAGE> 43
SCHEDULE I
<TABLE>
<CAPTION>
Number of Firm
Shares to be
Name of Underwriter Purchased
- --------------------- ---------------
<S> <C>
Bear, Stearns & Co. Inc.
Howard, Weil, Labouisse,
Friedrichs Incorporated
Rauscher Pierce Refsnes, Inc.
Total.............................. 3,000,000
</TABLE>
43
<PAGE> 44
SCHEDULE II
Additional Shares to be sold by the
Company and the Selling Stockholders
<TABLE>
<CAPTION> Percentage of
Number of Additional Additional Shares
Shares to be Sold Shares to be Sold
----------------- ------------------
<S> <C> <C>
The Company 354,762 ---
Ben M. Brigham 47,619 50%
Anne L. Brigham 47,619 50%
</TABLE>
44
<PAGE> 45
SCHEDULE III
Lockup List of Stockholders
45
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Amendment No. 2 to Form S-1 (Registration No.
333-22491) of our report dated February 26, 1997, except as to Notes 1 and 4
which are as of February 27, 1997, relating to the financial statements of
Brigham Oil & Gas, L.P., which appears in such Prospectus. Additionally, we
hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Amendment No. 2 to Form S-1 (Registration No.
333-22491) of our report dated February 26, 1997, except as to Notes 1 and 3
which are as of February 27, 1997, relating to the Balance Sheet of Brigham
Exploration Company, which appears in such Prospectus. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Houston, Texas
May 5, 1997
<PAGE> 1
EXHIBIT 23.3
May 5, 1997
Brigham Exploration Company
5949 Sherry Lane, Suite 1616
Dallas, Texas 75225
Gentlemen:
In connection with the offering of shares of common stock, par value $.01
per share ("Common Stock"), of Brigham Exploration Company (the "Corporation"),
we delivered a letter dated February 14, 1997 to Brigham Oil & Gas, L.P. (the
"Partnership") with respect to an estimate of the reserves, future production
and income attributable to certain interests of the Partnership, as of December
31, 1996.
We understand that you intend that our letter be included in a Registration
Statement on Form S-1 and any amendments thereto, as well as a Prospectus to be
provided to potential purchasers of Common Stock, and we hereby consent to such
use. We also consent to the references in the Registration Statement on Form S-1
(and any amendments thereto) or Prospectus to our firm and to the information
provided therein.
Very truly yours,
Cawley, Gillespie & Associates, Inc.
/s/ AARON CAWLEY
------------------------------------
Aaron Cawley, P.E.
Executive Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996<F1>
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,447
<SECURITIES> 0
<RECEIVABLES> 2,696
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,295
<PP&E> 39,395
<DEPRECIATION> 10,858
<TOTAL-ASSETS> 33,614
<CURRENT-LIABILITIES> 5,617
<BONDS> 24,000
0
0
<COMMON> 0
<OTHER-SE> 3,244
<TOTAL-LIABILITY-AND-EQUITY> 33,614
<SALES> 6,141
<TOTAL-REVENUES> 6,768
<CGS> 0
<TOTAL-COSTS> 6,097
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,173
<INCOME-PRETAX> (450)
<INCOME-TAX> 0
<INCOME-CONTINUING> (450)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (450)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> THE FINANCIAL STATEMENTS PRESENTED ARE FOR BRIGHAM OIL & GAS, L.P., THE
REGISTRANT'S PREDECESSOR.
</FN>
</TABLE>