<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 5, 1998
REGISTRATION NO. 333-53873
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
AMENDMENT NO. 1
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>
<S> <C> <C>
DELAWARE 1311 75-2692967
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
6300 BRIDGE POINT PARKWAY
BUILDING 2, SUITE 500
AUSTIN, TEXAS 78730
(512) 427-3300
(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
6300 BRIDGE POINT PARKWAY
BUILDING 2, SUITE 500
AUSTIN, TEXAS 78730
(512) 427-3300
(Name, address, including zip code, and telephone number, including area code,
of Registrant's agent for service)
------------------------
Copies of Communication to:
<TABLE>
<S> <C>
JOE DANNENMAIER JAY HEBERT
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 the effective date of 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration 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 JUNE 5, 1998
PROSPECTUS
3,400,000 SHARES
BRIGHAM LOGO
COMMON STOCK
------------------------------
The 3,400,000 shares of Common Stock, $.01 par value (the "Common
Stock"), offered hereby (the "Offering") are being sold by Brigham Exploration
Company, a Delaware corporation ("Brigham" or the "Company"). The Common Stock
is traded on The Nasdaq Stock Market(SM) under the trading symbol "BEXP." On
June 4, 1998, the last reported sales price of the Common Stock on The Nasdaq
Stock Market(SM) was $12.00 per share. See "Price Range of Common Stock and
Dividend Policy."
------------------------------
ANY INVESTMENT IN THE SECURITIES OFFERED HEREIN INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 12.
------------------------------
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 have agreed to indemnify the
several 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
to be $320,000.
(3) The Selling Stockholders have granted the several Underwriters a 30-day
over-allotment option to purchase up to an additional 510,000 shares of
Common Stock on the same terms and conditions as the Common Stock offered
hereby solely to cover over-allotments, if any, and the Company has granted
the several Underwriters an option to purchase such additional shares in the
event that a Selling Stockholder fails to meet its obligations to sell such
shares. If the over-allotment option is exercised in full and the Selling
Stockholders fulfill their obligations in full, the total Price to Public
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 to 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 on or about , 1998 at
the office of Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York
10167.
------------------------------
BEAR, STEARNS & CO. INC.
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
HOWARD, WEIL, LABOUISSE, FRIEDRICHS
INCORPORATED
The date of this Prospectus is , 1998
<PAGE> 3
[map depicting Brigham's core areas of exploration activity and table of
certain operational and financial statistics by region and in total]
------------------------
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 subsidiaries and 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. The Company focuses
its 3-D seismic activity in provinces where it believes 3-D technology may be
effectively applied and which Brigham believes offer relatively large potential
reserve volumes per well and per field, high potential production rates and
multiple producing objectives. The Company's exploration activities are
concentrated primarily in three core provinces: the Anadarko Basin of western
Oklahoma and the Texas Panhandle; the onshore Gulf Coast of Texas and Louisiana;
and West Texas. Brigham is accelerating its 3-D seismic and drilling activities
in the Anadarko Basin and the Gulf Coast and will continue to focus its
activities in those geologic trends of West Texas where it has achieved its best
results historically.
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. Through December 31, 1997,
Brigham had acquired 4,005 square miles (2.6 million acres) of 3-D seismic and
identified 1,170 potential drilling locations, of which the Company had drilled
370. 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.
From inception in 1990 through December 31, 1997, Brigham had drilled 324
exploratory and 46 development wells on its 3-D seismic generated prospects with
an aggregate 63% success rate and an average working interest of 24%. Utilizing
the capital it raised in its May 1997 initial public offering, the Company
increased the average working interest it retained in its wells during the
second half of 1997, retaining a 45% average working interest in the 36 wells
that it drilled. As of December 31, 1997, the Company had added approximately 93
Bcfe of net proved reserves (excluding revisions) to its reserve base,
approximately 72 net Bcfe of which were discovered by Brigham through its
systematic 3-D seismic exploration drilling activities. The Company's estimated
net proved reserves as of December 31, 1997 were 72.3 Bcfe having an aggregate
Present Value of Future Net Revenues of $69.2 million, compared to estimated net
proved reserves as of December 31, 1996 of 21.9 Bcfe having an aggregate Present
Value of Future Net Revenues of $44.5 million. The Company's net proved reserve
volumes at December 31, 1997 were 74% natural gas and 65% categorized as proved
developed reserves.
BUSINESS STRATEGY
Brigham's business strategy is to achieve superior growth in shareholder
value through the application of its systematic exploration approach, which
emphasizes the integrated use of 3-D seismic imaging and other advanced
technologies to reduce drilling risks and finding costs. Since its inception in
1990, the Company has consistently achieved rapid growth in its acquisition of
3-D seismic data, identification of potential drilling locations, discovery of
proved reserves and production volumes.
Brigham completed its initial public offering of common stock in May 1997,
raising approximately $24 million to fund the Company's accelerated 3-D seismic
acquisition and exploration drilling activities. Key elements of the Company's
growth strategy at its initial public offering and continuing today include: (i)
accelerating the rate at which it acquires 3-D seismic and identifies potential
drilling locations; (ii) increasing the working interests it retains in
exploration projects to capture a greater share of the reserves that the Company
discovers; (iii) identifying higher potential, higher impact prospects; and (iv)
accelerating the rate at which its 3-D seismic defined locations are drilled.
3
<PAGE> 5
During the second half of 1997, the Company employed the capital raised in
its initial public offering to attain significant growth in each of its core
strategic objectives:
Accelerated 3-D Seismic Acquisition. During 1997, Brigham acquired
approximately 1,250 square miles of 3-D seismic, which increased the
Company's aggregate 3-D seismic inventory 45% to approximately 4,000 square
miles as of December 31, 1997. The overall level of 3-D seismic acquisition
in 1997 represents the most active year in the Company's history, and 85%
of this increased 3-D seismic was acquired in its higher potential Anadarko
Basin and Gulf Coast provinces.
Increased Working Interest. In an effort to retain a greater portion
of the value generated by its 3-D seismic exploration efforts, Brigham
increased the average working interests it retained in its 1997 3-D seismic
projects to 68% as compared with its average project working interest of
24% in 1990 through 1996. As a result of the higher working interests and
the accelerated acquisition of 3-D seismic, the Company acquired 845 net
square miles of 3-D seismic in 1997 as compared with 780 cumulative net
square miles acquired from 1990 through 1996.
Higher Potential, Higher Impact Prospects. By focusing an increasing
portion of its exploration activities in the more prolific Anadarko Basin,
Brigham increased its average proved reserves discovered per net well
drilled (including dry holes) to 1.2 Bcfe in 1997 from 0.7 Bcfe in 1996 and
0.4 Bcfe in 1992 through 1995. In the Anadarko Basin alone, Brigham's
average proved reserves discovered per net well drilled was 3.4 Bcfe in
1997 compared with 1.8 Bcfe in 1996 and 2 Bcfe in 1994 through 1995.
Contributing to these increases, the Company's Anadarko Basin drilling in
1997 produced the two largest field discoveries in Brigham's history, which
resulted in the discovery of approximately 52 Bcfe of gross proved reserves
and provided the Company with several development drilling opportunities.
Accelerated Drilling. Through its strategy of retaining higher working
interests in its 3-D seismic projects and subsequent drilling, Brigham
participated in the drilling of 28 net wells in 1997, a 75% increase from
the approximate 16 net wells drilled by the Company in 1996. The Company
achieved a 63% success rate on the 73 wells in its 1997 drilling program,
consistent with Brigham's historical average success rate. A key factor
contributing to its increased level of drilling activity was the Company's
addition of personnel in engineering, land and administrative functions
during 1997. These staff additions provided Brigham with the additional
infrastructure required to increase its operating capabilities, enabling
the Company to operate 37% of its gross wells and 64% of its net wells
drilled in 1997.
As a result of the combined effects of the Company's multi-pronged growth
strategy, Brigham generated net proved reserve additions of approximately 38
Bcfe through drilling in 1997, which represents approximately 175% of the
Company's year-end 1996 net proved reserves of approximately 22 Bcfe. In
addition to its drilling efforts in 1997, the Company acquired 21.5 Bcfe of net
proved reserves at an implied cost of $0.63 per proved Mcfe in its November 1997
purchase of certain properties in and adjacent to its West Bradley project area
in its Anadarko Basin province. Brigham believes this acquisition will enable it
to further build its inventory of potential drilling locations over the
historically prolific Carter Knox anticline in the Anadarko Basin through a 3-D
seismic shoot planned for 1998.
Primarily through its exploration efforts, the Company increased its net
production volumes 52% to 3.1 Bcfe in 1997 from 2.1 Bcfe in 1996. As further
evidence of the Company's acceleration efforts subsequent to its May 1997
initial public offering, Brigham increased its average net daily production
volumes from 6.6 MMcfe in the second quarter 1997 to 15.9 MMcfe in the first
quarter 1998 representing a compounded growth rate of 34% per quarter.
Based on the results that the Company has achieved from its growth strategy
since its initial public offering, Brigham intends with the proceeds from the
Offering to increase its exploration activities in 1998 to take advantage of
opportunities currently available to further accelerate the Company's growth. As
a result, the Company has increased its 1998 capital budget for net seismic,
land and drilling expenditures to
4
<PAGE> 6
approximately $68 million from the $52 million originally budgeted. The
Company's current 1998 capital budget contemplates additional expenditures for
3-D seismic acquisition due to increased working interests in its planned 1998
projects, an increase in budgeted drilling expenditures in the Anadarko Basin
and the Gulf Coast provinces and a reduction in planned drilling activity in
West Texas in part due to recent declines in oil prices. The Company intends to
continue to retain higher working interests in its 3-D seismic projects in the
Anadarko Basin and the onshore Gulf Coast. By increasing its working interests
to in excess of 75% in the majority of its current and planned seismic projects,
Brigham expects to further accelerate its growth not only by retaining a greater
portion of the reserves its discovers, but also by increasing its ability to
control the timing of the drilling of its exploration projects and therefore
helping to accelerate its drilling pace. The Company's current 1998 budget
consists of 106 gross (56 net) wells, compared with the 100 gross (42 net) wells
previously budgeted for 1998. This increase in anticipated 1998 drilling is the
result of an increase in planned drilling of higher working interest wells in
the Anadarko Basin and the Gulf Coast offset by a reduction in planned drilling
activity in West Texas.
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.
3-D Seismic Knowledge Base. From 1990 through 1997, the Company
acquired 4,005 square miles of 3-D seismic and drilled 370 wells in over 20
geologic trends in seven 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 19 explorationists collectively
have over 300 years of experience, including approximately 85 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
seismic 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. As of December 31, 1997, the
Company had identified 1,170 3-D defined potential drilling locations in
historically productive geologic trends, of which 370 had been drilled. The
Company currently anticipates drilling 106 of these locations (56 net) in
1998 at an aggregate cost of approximately $47 million.
Pioneering Innovations. In 1990 the Company pioneered the assemblage
of large scale onshore 3-D seismic projects and the use of pre-seismic
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.
PRIMARY EXPLORATION PROVINCES
Brigham's exploration activities are concentrated primarily in three core
provinces: the Anadarko Basin of western Oklahoma and the Texas Panhandle; the
onshore Gulf Coast of Texas and Louisiana; and West Texas. 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 seismic
technology may be effectively applied and which the Company believes offer
relatively 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 within the provinces listed
below and has identified approximately 800 potential drilling locations yet to
be drilled in those provinces, there can be no assurance
5
<PAGE> 7
that any of the seismic 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, (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.
<TABLE>
<CAPTION>
CURRENT 1998 CAPITAL BUDGET(1)
--------------------------------------------
3-D SEISMIC 3-D SEISMIC UNDRILLED CAPITAL
DATA ACQUIRED/ DATA GROSS POTENTIAL EXPENDITURES ($MM)
INTERPRETED AS OF BUDGETED TO WELLS DRILLING WELLS -----------------------------
12/31/97 BE ACQUIRED IN DRILLED LOCATIONS BUDGETED NET
(GROSS SQ. 1998 (GROSS THROUGH AS OF ------------ SEISMIC NET
PROVINCE MILES) SQ. MILES) 12/31/97 12/31/97 GROSS NET & LAND DRILLING TOTAL(2)
- -------- ----------------- -------------- -------- --------- ----- ---- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Anadarko Basin.......... 1,515/1,195 550 55 364 62 32.0 $23.0 $27.5 $50.5
Gulf Coast.............. 566/325 400 11 110 19 13.0 (3.0) 14.0 11.0
West Texas.............. 1,649/1,600 30 287 302 24 11.0 1.5 5.0 6.5
Others(3)............... 275/275 -- 17 24 1 0.2 -- 0.2 0.2
----------- --- --- --- --- ---- ----- ----- -----
Total........... 4,005/3,395 980 370 800 106 56.2 $21.5 $46.7 $68.2
=========== === === === === ==== ===== ===== =====
</TABLE>
- ---------------
(1) Prepared as of May 27, 1998.
(2) 3-D seismic and land acquisition costs and drilling expenditures.
(3) Colorado, Kansas and Montana.
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 8,400 miles of 2-D seismic. Working with its team
of in-house geologists and supplemented by consulting geologists, the Company's
explorationists integrate this data with their extensive expertise and knowledge
base to generate 3-D projects in the Anadarko Basin.
As of December 31, 1997, the Company had acquired or was acquiring 1,515
square miles (969,600 acres) in 30 projects in the Anadarko Basin. The Company
anticipates acquiring 550 square miles (352,000 acres) of additional 3-D seismic
in this province in 1998. As of December 31, 1997, Brigham had completed 44
wells in 55 attempts (80% success rate) in the Anadarko Basin and had found
cumulative proved reserves of 44 net Bcfe. In 1997, the Company completed 19
wells in 23 attempts in the Anadarko Basin with an average working interest of
39%, adding 31 net Bcfe of proved reserves. In addition, the Company acquired
21.5 net Bcfe of proved reserves in this region in November 1997. As of December
31, 1997, the Company had 364 3-D seismic delineated potential drilling
locations in the Anadarko Basin, of which the Company intends to drill 62 gross
(32 net) wells in 1998.
Gulf Coast. The onshore Gulf Coast region of Texas and Louisiana 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
6
<PAGE> 8
knowledge base to generate 3-D seismic 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.
The Company anticipates that its increased project assemblage and 3-D
seismic acquisition activity in the Gulf Coast will generate accelerated
drilling in this province in 1998 and 1999. The Company is currently assembling
projects in the Expanded Wilcox and Expanded Vicksburg trends in South Texas,
the Miocene trend in South Texas and South Louisiana, and the Lower and Middle
Frio trends of South Texas.
As of December 31, 1997, the Company had acquired or was acquiring 566
square miles (362,400 acres) of 3-D seismic in seven projects in the onshore
Gulf Coast province. The Company anticipates acquiring 400 square miles (256,000
acres) of additional 3-D seismic in this province in 1998. As of December 31,
1997, Brigham had completed 8 wells in 11 attempts (73% success rate) in the
Gulf Coast and had found cumulative proved reserves of 3 net Bcfe. In 1997, the
Company completed seven wells in 10 attempts with an average working interest of
9% adding 3 net Bcfe of proved reserves. As of December 31, 1997, the Company
had 110 3-D seismic delineated potential drilling locations in the Gulf Coast
province, of which the Company intends to drill 19 gross (13 net) wells in 1998.
West Texas. 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 Fusselman formation of
the Midland Basin and the Ellenberger and Devonian formations of the Delaware
Basin.
As of December 31, 1997, the Company had acquired or was acquiring 1,649
square miles (1,055,360 acres) in 74 projects in the West Texas region. The
Company anticipates acquiring 30 square miles (19,200 acres) of additional 3-D
seismic in this region in 1998. As of December 31, 1997, Brigham had completed
180 wells in 287 attempts (63% success rate) in the West Texas region and had
found cumulative proved reserves of 24 net Bcfe. In 1997, the Company completed
19 wells in 34 attempts with an average working interest of 45%, adding 4 net
Bcfe of proved reserves. As of December 31, 1997, the Company had 302 3-D
seismic delineated potential drilling locations in the West Texas region, of
which the Company intends to drill 24 gross (11 net) wells in 1998.
7
<PAGE> 9
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock Offered by the Company.................. 3,400,000 shares
Common Stock to be Outstanding after the Offering.... 15,653,574 shares(1)
Use of Proceeds by the Company....................... The net proceeds of the Offering will be used to fund
the Company's accelerated exploration and development
activities, and in the interim for repayment of a
portion of outstanding indebtedness. See "Use of
Proceeds."
The Nasdaq Stock Market(SM) Symbol................... "BEXP"
</TABLE>
- ---------------
(1) Does not include 935,987 shares of Common Stock issuable, subject to
vesting, upon exercise of outstanding stock options with an average exercise
price of $7.61 per share. See "Management -- Director Compensation,"
"-- Executive Compensation" and "Capitalization."
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."
8
<PAGE> 10
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table sets forth selected financial data of the Company. The
data for the three years ended December 31, 1997 has been derived from the
consolidated financial statements appearing elsewhere in this Prospectus. The
data for the two years ended December 31, 1994 has been derived from
consolidated financial statements not appearing in this Prospectus. The
consolidated financial data at March 31, 1998 and for the three months ended
March 31, 1998 and March 31, 1997 have been derived from the condensed
consolidated financial statements of the Company which, in the opinion of
management, include all adjustments, consisting only of normal adjustments,
necessary for a fair presentation of the results for the periods. The results
for the three months ended March 31, 1998 are not necessarily indicative of the
results to be expected for the full year. The information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Natural gas and oil sales................. $ 937 $ 2,565 $ 3,578 $ 6,141 $ 9,184 $ 2,136 $ 3,143
Workstation revenue....................... 467 815 635 627 637 164 114
------- ------- ------- -------- -------- ------- --------
Total revenues........................ 1,404 3,380 4,213 6,768 9,821 2,300 3,257
Costs and expenses:
Lease operating........................... 111 491 761 726 1,151 206 414
Production taxes.......................... 47 126 165 362 549 127 188
General and administrative................ 1,433 1,785 1,897 2,199 3,570 702 1,154
Depletion of natural gas and oil
properties.............................. 4,371(1) 1,104 1,626 2,323 2,732 687 1,267
Depreciation and amortization............. 406 561 533 487 582 137 178
------- ------- ------- -------- -------- ------- --------
Total costs and expenses.............. 6,368 4,067 4,982 6,097 8,584 1,859 3,201
------- ------- ------- -------- -------- ------- --------
Operating income (loss)..................... (4,964) (687) (769) 671 1,237 441 56
Other income (expense):
Interest income........................... 6 56 128 52 145 18 37
Interest expense.......................... (105) (668) (936) (1,173) (1,190) (390) (1,022)
------- ------- ------- -------- -------- ------- --------
Total other income (expense).......... (99) (612) (808) (1,121) (1,045) (372) (985)
------- ------- ------- -------- -------- ------- --------
Net income (loss) before income taxes....... (5,063) (1,299) (1,577) (450) 192 69 (929)
Income tax (expense) benefit, net........... -- -- -- -- (1,228)(2) (4,964)(2) 314
------- ------- ------- -------- -------- ------- --------
Net loss.............................. $(5,063) $(1,299) $(1,577) $ (450) $ (1,036) $(4,895) $ (615)
======= ======= ======= ======== ======== ======= ========
Net loss per share -- basic/diluted......... $ (0.57) $ (0.15) $ (0.18) $ (0.05) $ (0.09) $ (0.55) $ (0.05)
Weighted average shares outstanding --
basic/diluted............................. 8,929 8,929 8,929 8,929 11,081 8,929 12,254
STATEMENT OF CASH FLOWS DATA:
Net cash provided by (used in) operating
activities................................ $ (730) $ 626 $ 1,383 $ 3,710 $ 9,806 $ 4,224 $ (2,796)
Net cash used in investing activities....... (6,983) (5,463) (8,005) (11,796) (57,300) (7,301) (13,136)
Net cash provided by financing activities... 7,839 4,634 7,724 7,731 47,748 2,794 16,031
OTHER FINANCIAL DATA:
Capital expenditures........................ $ 6,632 $ 5,445 $ 7,935 $ 13,612 $ 57,170 $ 6,830 $ 12,993
EBITDA(3)................................... (187) 978 1,390 3,481 4,551 1,265 1,501
Operating cash flow(4)...................... (286) 366 582 2,360 3,506 893 622
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-------------------------
ACTUAL AS ADJUSTED(5)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 1,800 $ 1,800
Natural gas and oil properties, at cost, net.............. 96,676 96,676
Total assets.............................................. 107,508 107,508
Notes payable............................................. 50,000 11,815
Stockholders' equity...................................... 42,742 80,927
</TABLE>
- ---------------
(1) Includes a capitalized ceiling impairment charge of $3.3 million in 1993.
(2) In conjunction with the Exchange, the Company recorded a deferred income tax
liability of $5 million to recognize the temporary differences between the
financial statement and tax bases of the assets and liabilities of the
Partnership at February 27, 1997, the date of the Exchange. During the
fourth quarter of
9
<PAGE> 11
1997, the Company elected to record a step-up in basis of its assets for tax
purposes as a result of the Exchange. Related to this election, the Company
recorded a $3.8 million deferred income tax benefit, resulting in a net $1.2
million ($.10 per share) non-cash deferred income tax charge for the year
ended December 31, 1997. See Note 2 of Notes to the December 31, 1997
Consolidated Financial Statements. See "The Company."
(3) EBITDA represents net income (loss) plus income taxes, net 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.
(4) Operating cash flow represents net income (loss) plus depreciation,
depletion and amortization ("DD&A") expenses, deferred income taxes and
other non-cash items. Operating cash flow 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.
(5) As adjusted to give effect to the Offering and the application of the
estimated $38.2 million net proceeds therefrom to the Company, assuming a
price to the public of $12.00 per share. See "Use of Proceeds" and
"Capitalization."
10
<PAGE> 12
SUMMARY RESERVE AND OPERATING DATA
(Dollars in thousands, except per Mcfe data)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------- ----------------
1993 1994 1995 1996(1) 1997 1997 1998
------ ------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
3-D SEISMIC ACQUIRED:
Gross square miles.......... 908 423 311 655 1,243 458 196
Net square miles............ 272 114 90 241 845 255 175
Average project working
interest.................. 30% 27% 29% 37% 68% 56% 89%
WELLS DRILLED:
Gross wells drilled......... 52 73 78 67 73 13 13
Net wells drilled........... 9.2 16.8 18.5 15.9 28.0 2.6 6.0
Average drilling working
interest.................. 18% 23% 24% 24% 38% 20% 46%
ESTIMATED PROVED RESERVES (AT
YEAR END)(2):
Natural gas (MMcf).......... 227 3,579 4,257 10,257 53,230
Oil (MBbls)................. 336 1,022 1,672 1,940 3,181
Natural gas equivalent
(MMcfe)................... 2,243 9,711 14,289 21,897 72,316
Present Value of Future Net
Revenues.................. $3,158 $10,240 $18,222 $44,506 $69,249
Percent natural gas(3)...... 10% 37% 30% 47% 74%
Percent proved
developed(3).............. 100% 76% 80% 67% 65%
NET PROVED RESERVE
ADDITIONS(4):
All sources (MMcfe)......... 1,987 8,524 8,884 13,996 59,311
Excluding acquisitions
(MMcfe)................... 1,987 8,524 8,884 13,718 38,129
RESERVE REPLACEMENT RATIO(5):
All sources................. 553% 851% 667% 679% 1,897%
Excluding acquisitions...... 553% 851% 667% 666% 1,220%
NET PRODUCTION VOLUMES:
Natural gas (MMcf).......... 59 165 272 698 1,382 243 740
Oil (MBbls)................. 50 140 177 227 291 63 115
Natural gas equivalent
(MMcfe)................... 359 1,002 1,332 2,060 3,126 623 1,431
Percent natural gas......... 16% 16% 20% 34% 44% 39% 52%
PER MCFE DATA:
Natural gas and oil sales... $ 2.61 $ 2.56 $ 2.69 $ 2.98 $ 2.94 $ 3.43 $ 2.20
Workstation revenue......... 1.30 .81 .48 .30 .20 .26 .08
Lease operating expenses.... (.31) (.49) (.57) (.35) (.37) (.33) (.29)
Production taxes............ (.13) (.13) (.12) (.18) (.18) (.20) (.13)
General and administrative
expenses.................. (3.99) (1.78) (1.42) (1.07) (1.14) (1.13) (.81)
------ ------- ------- ------- ------- ------ ------
Operating margin.......... $ (.52) $ .97 $ 1.06 $ 1.68 $ 1.45 $ 2.03 $ 1.05
====== ======= ======= ======= ======= ====== ======
</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 estimates of reserve and present value data 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, 1997 reserve report
is attached hereto as Appendix A to this Prospectus.
(3) Based on volumes.
(4) Excludes revisions of previous estimates.
(5) Net proved reserve additions divided by the Company's net production volumes
for the period.
11
<PAGE> 13
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes statements that are "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 (the "Securities
Act") and Section 21E of the Securities Exchange Act of 1934, including
statements regarding estimated future net revenues from natural gas and oil
reserves and the present value thereof, planned capital expenditures (including
the amount and nature thereof), increases in natural gas and oil production, the
number of wells the Company anticipates drilling through 1998 and the Company's
financial position, business strategy and other plans and objectives for future
operations. Although the Company believes that the expectations reflected in
these forward-looking statements are reasonable, there can be no assurance that
the actual results or developments anticipated by the Company will be realized
or, even if substantially realized, that they will have the expected effects on
its business or operations. Among the factors that could cause actual results to
differ materially from the Company's expectations are general economic
conditions, inherent uncertainties in interpreting engineering data, operating
hazards, delays or cancellations of drilling operations for a variety of
reasons, competition, fluctuations in natural gas and oil prices, the ability of
the Company to successfully integrate the business and operations of acquired
companies, government regulations and other factors disclosed under "Risk
Factors" and elsewhere in this Prospectus. All subsequent oral and written
forward looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by these factors. The Company
assumes no obligation to update any of these statements.
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.
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 canceled 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 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 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 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.
12
<PAGE> 14
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 sales 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, the availability and cost of drilling rigs,
weather conditions, domestic and foreign governmental regulations and taxes, and
the overall economic environment. During 1997, the high and low prices for
natural gas on the NYMEX were $3.79 per MMBtu and $1.78 per MMBtu and the high
and low prices for oil on the NYMEX were $26.26 per Bbl and $17.60 per Bbl. From
January 1, 1998 through June 3, 1998, the high and low prices for natural gas on
the NYMEX were $2.64 per MMBtu and $2.00 per MMBtu and the high and low prices
for oil on the NYMEX were $17.82 per Bbl and $13.21 per Bbl. 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
business, financial condition 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," "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Other Matters" and "Business and
Properties -- Competition."
During the quarter ended March 31, 1998, the NYMEX crude oil price ranged
from $17.82 to $13.21 per barrel. This decline in prices is generally thought to
be caused primarily by an oversupply of crude oil inventory created, in part, by
an unusually warm winter in the United States and Europe, an announced increase
in crude oil production quotas for OPEC countries and a possible decline in
demand in certain Asian markets. If such a decline in the NYMEX crude oil price
worsens or persists for a protracted period, it would adversely affect the
Company's revenues, net income and cash flows from operations. Also, if these
prices maintain their present level for an extended time period or decline
further, the Company may delay or postpone certain of its capital projects.
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, operational 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
and/or increased costs 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
13
<PAGE> 15
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 $5.1 million in 1993, $1.3
million in 1994, $1.6 million in 1995, $450,000 in 1996, $1.0 million (including
a net $1.2 million non-cash deferred income tax charge incurred in connection
with the Company's conversion from a partnership to a corporation) in 1997 and
$615,000 in the first three months of 1998. 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 March 31, 1998, the Company's accumulated
deficit was $589,000 and its total stockholders' equity was $42.7 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 reserves would be impaired. The Company participates in a
substantial percentage of its wells as a 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 business, financial
condition
14
<PAGE> 16
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, 1997, the date of the estimate of the Company's
reserves and present value data, the prices of natural gas and oil on the NYMEX
were $2.26 per MMBtu and $17.64 per Bbl, respectively. At June 3, 1998, the
prices were $2.12 per MMBtu and $14.78 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 SEC 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. The effects of this highly competitive
15
<PAGE> 17
environment could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business and
Properties -- Competition."
COMPLIANCE WITH GOVERNMENTAL 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 has in the past and may continue in the future to enter into hedging
transactions that generally result in a fixed price over a fixed period. 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 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.
For the year ended December 31, 1997, the Company realized a reduction in
revenues attributable to oil hedges of $6,191. In 1997 the Company did not hedge
any of its natural gas production. In February 1998, the Company entered into a
hedging contract whereby 10,000 MMBtu per day of natural gas is purchased and
sold subject to a fixed price swap agreement for monthly periods from April 1998
through October 1999. Pursuant to these arrangements the Company exchanges a
floating market price for a fixed contract price. 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
transportation systems that it generally 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
16
<PAGE> 18
oil. Any dramatic change in market factors could have a material adverse effect
on the Company's business, financial condition and results of operations.
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 and results of
operations. 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 60% of the Company's outstanding Common Stock.
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 makes 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 and Selling Stockholders."
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish the 21st century dates
from 20th century dates. As a result, computer systems and software used by many
companies may need to be upgraded to comply with such "Year 2000" requirements.
Although the Company believes that its software products are Year 2000
compliant, there can be no assurance that the Company's software products
contain all necessary software routines and programs necessary for the accurate
calculation, display, storage and manipulation of data involving dates.
Moreover, the Company cannot determine what effect, if any, the Year 2000
requirements will have on its vendors, customers, other businesses with which
its conducts business and the numerous local, state, federal, and other U.S. and
foreign governmental entities by which it is regulated, governed or taxed. No
assurance can be given that the computer systems and software of such entities
will be Year 2000 compliant or that compliance costs or the impact of the
Company's failure to achieve substantial Year 2000 compliance will not have a
material adverse effect on the Company's business, financial position and
results of operations.
CERTAIN ANTITAKEOVER CONSIDERATIONS
The Company's Certificate of Incorporation authorizes the Board of
Directors of the Company to issue up to 10 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
17
<PAGE> 19
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. Upon completion of the Offering the Company will have 15,653,574
shares of Common Stock outstanding. 8,928,574 shares of Common Stock that were
issued in reliance on exemptions from the registration requirements of the
Securities Act are now eligible for sale under Rule 144, subject to compliance
with the volume and other limitations of Rule 144, and 6,850,000 shares of
Common Stock that will be issued in the Offering or were sold in the Company's
initial public offering are freely tradeable, except to the extent that they are
held by affiliates of the Company. Investors holding 8,421,431 shares have the
right to require the Company to register the public resale of their shares.
Holders of 8,928,574 shares are entitled to "piggyback" registration rights.
Holders of 8,783,717 shares are subject to "lock-up" agreements from which they
will be released 90 days after the date of this Prospectus. Options covering
935,987 shares of Common Stock are outstanding, with an average exercise price
of $7.61 per share, subject to vesting. See "Shares Eligible for Future Sale"
and "Description of Capital Stock -- Registration Rights."
POSSIBLE STOCK PRICE VOLATILITY
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 limited trading volume in the Company's stock and 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.
18
<PAGE> 20
THE COMPANY
Brigham Exploration Company was formed in February 1997 as a Delaware
corporation and is the holding company for Brigham Oil & Gas, L.P. (the
"Partnership"). 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 Partnership's subordinated
convertible notes for 1,754,464 shares of Common Stock. These transactions are
referred to in this Prospectus as the "Exchange." 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 in the Exchange 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 -- Land and
Administration and Corporate Secretary (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 no instruments, agreements or rights exist which may be
converted, exchanged into, or otherwise become interests in the Partnership. The
Company 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 6300 Bridge Point
Parkway, Building 2, Suite 500, Austin, Texas 78730 and its telephone number is
(512) 427-3300.
19
<PAGE> 21
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 $38.2 million, assuming
a price to public of $12.00 per share and after deducting the estimated
underwriting discounts and commissions and estimated expenses of the Offering.
The Company intends to use the net proceeds of the Offering to fund the
Company's accelerated exploration and development activities and in the interim
for repayment of outstanding indebtedness under the Credit Facility (as defined)
($64 million was outstanding at June 3, 1998). The interest rate for borrowings
under the Credit Facility is either the lender's base rate or LIBOR plus 2.25%,
at the Company's option. Borrowings under the facility, which matures on January
26, 2001, currently bear interest at an annual rate of approximately 7.9%. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Revolving Credit Facilities"
for a description of the Credit Facility. The Company will not receive any of
the proceeds from the sale of Common Stock by the Selling Stockholders.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is traded on The Nasdaq Stock Market(SM) under
the symbol "BEXP." The following table sets forth, for the periods indicated,
the reported high and low closing prices of the Company's Common Stock, as
reported on The Nasdaq Stock Market(SM):
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1997:
Second Quarter (from May 9, 1997)........................... $ 8.75 $ 7.08
Third Quarter............................................... 14.31 8.25
Fourth Quarter.............................................. 17.13 12.00
FISCAL 1998:
First Quarter............................................... $14.00 $10.50
Second Quarter (through June 4, 1998)....................... 15.50 11.38
</TABLE>
On June 4, 1998, the last reported sale price of the Common Stock as
reported on The Nasdaq Stock Market(SM) was $12.00 per share. As of June 4, 1998
there were 65 holders of record of the Common Stock.
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 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 earnings and financial position. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
20
<PAGE> 22
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
March 31, 1998 and (ii) as adjusted for the Offering and the application of the
net proceeds therefrom. The table should be read with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the Financial
Statements and notes thereto in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
---------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Total debt:
Credit Facility........................................... $50,000 $11,815
Stockholders' equity:
Preferred Stock, $.01 par value, 10 million shares
authorized; no shares outstanding actual, and as
adjusted............................................... -- --
Common Stock, $.01 par value, 30 million shares
authorized; 12,253,574 shares issued and outstanding
actual and 15,653,574 as adjusted(1)................... 123 157
Additional paid-in capital................................ 44,344 82,495
Unearned stock compensation............................... (1,136) (1,136)
Accumulated deficit....................................... (589) (589)
------- -------
Total stockholders' equity........................ 42,742 80,927
------- -------
Total capitalization........................................ $92,742 $92,742
======= =======
</TABLE>
- ---------------
(1) Excludes 1,588,169 shares of Common Stock the Company has reserved for
future issuance under the Company's 1997 Incentive Plan and 25,000 shares of
Common Stock reserved for issuance under the Company's 1997 Director Stock
Option Plan, of which options to purchase 935,987 shares, subject to
vesting, with an average exercise price of $7.61 per share are outstanding.
See "Management" and Note 11 of Notes to the December 31, 1997 Consolidated
Financial Statements.
21
<PAGE> 23
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table sets forth selected financial data of the Company. The
data for the three years ended December 31, 1997 has been derived from the
consolidated financial statements appearing in this Prospectus. The data for the
two years ended December 31, 1994 has been derived from consolidated financial
statements not appearing in this Prospectus. The consolidated financial data at
March 31, 1998 and for the three months ended March 31, 1998 and March 31, 1997
have been derived from the condensed consolidated financial statements of the
Company which, in the opinion of management, include all adjustments, consisting
only of normal adjustments, necessary for a fair presentation of the results for
the periods. The results for the three months ended March 31, 1998 are not
necessarily indicative of the results to be expected for the full year. The
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Natural gas and oil sales............... $ 937 $ 2,565 $ 3,578 $ 6,141 $ 9,184 $ 2,136 $ 3,143
Workstation revenue..................... 467 815 635 627 637 164 114
------- ------- ------- -------- -------- ------- --------
Total revenues...................... 1,404 3,380 4,213 6,768 9,821 2,300 3,257
Costs and expenses:
Lease operating......................... 111 491 761 726 1,151 206 414
Production taxes........................ 47 126 165 362 549 127 188
General and administrative.............. 1,433 1,785 1,897 2,199 3,570 702 1,154
Depletion of natural gas and oil
properties............................ 4,371(1) 1,104 1,626 2,323 2,732 687 1,267
Depreciation and amortization........... 406 561 533 487 582 137 178
------- ------- ------- -------- -------- ------- --------
Total costs and expenses............ 6,368 4,067 4,982 6,097 8,584 1,859 3,201
------- ------- ------- -------- -------- ------- --------
Operating income (loss)................... (4,964) (687) (769) 671 1,237 441 56
Other income (expense):
Interest income......................... 6 56 128 52 145 18 37
Interest expense........................ (105) (668) (936) (1,173) (1,190) (390) (1,022)
------- ------- ------- -------- -------- ------- --------
Total other income (expense)........ (99) (612) (808) (1,121) (1,045) (372) (985)
------- ------- ------- -------- -------- ------- --------
Net income (loss) before income taxes..... (5,063) (1,299) (1,577) (450) 192 69 (929)
Income tax (expense) benefit, net......... -- -- -- -- (1,228)(2) (4,964)(2) 314
------- ------- ------- -------- -------- ------- --------
Net loss............................ $(5,063) $(1,299) $(1,577) $ (450) $ (1,036) $(4,895) $ (615)
======= ======= ======= ======== ======== ======= ========
Net loss per share -- basic/diluted....... $ (0.57) $ (0.15) $ (0.18) $ (0.05) $ (0.09) $ (0.55) $ (0.05)
Weighted average shares outstanding --
basic/diluted........................... 8,929 8,929 8,929 8,929 11,081 8,929 12,254
STATEMENT OF CASH FLOWS DATA:
Net cash provided by (used in) operating
activities.............................. $ (730) $ 626 $ 1,383 $ 3,710 $ 9,806 $ 4,224 $ (2,796)
Net cash used in investing activities..... (6,983) (5,463) (8,005) (11,796) (57,300) (7,301) (13,136)
Net cash provided by financing
activities.............................. 7,839 4,634 7,724 7,731 47,748 2,794 16,031
OTHER FINANCIAL DATA:
Capital expenditures...................... $ 6,632 $ 5,445 $ 7,935 $ 13,612 $ 57,170 $ 6,830 $ 12,993
EBITDA(3)................................. (187) 978 1,390 3,481 4,551 1,265 1,501
Operating cash flow(4).................... (286) 366 582 2,360 3,506 893 622
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
-------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 903 $ 700 $ 1,802 $ 1,447 $ 1,701 $ 1,164 $ 1,800
Natural gas and oil properties, at cost,
net..................................... 7,803 11,970 18,538 28,005 84,176 33,897 96,676
Total assets.............................. 14,003 15,781 22,916 33,614 92,401 39,949 107,508
Notes payable............................. 3,000 7,950 16,000 24,000 32,000 -- 50,000
Stockholders' equity...................... 6,570 5,271 3,694 3,244 43,153 14,897 42,742
</TABLE>
- ---------------
(1) Includes a capitalized ceiling impairment charge of $3.3 million in 1993.
(2) In conjunction with the Exchange, the Company recorded a deferred income tax
liability of $5 million to recognize the temporary differences between the
financial statement and tax bases of the assets and liabilities of the
Partnership at February 27, 1997, the date of the Exchange. During the
fourth quarter of
22
<PAGE> 24
1997, the Company elected to record a step-up in basis of its assets for tax
purposes as a result of the Exchange. Related to this election, the Company
recorded a $3.8 million deferred income tax benefit, resulting in a net $1.2
million ($.10 per share) non-cash deferred income tax charge for the year
ended December 31, 1997. See Note 2 of Notes to the December 31, 1997
Consolidated Financial Statements.
(3) EBITDA represents net income (loss) plus income taxes, net 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.
(4) Operating cash flow represents net income (loss) plus DD&A expenses,
deferred income taxes and other non-cash items. Operating cash flow 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.
23
<PAGE> 25
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. From
inception in 1990 through December 31, 1997, Brigham had acquired 4,005 square
miles of 3-D seismic, identified 1,170 potential drilling locations and drilled
370 wells delineated by 3-D seismic analysis. 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 approximately 72 Bcfe of net proved
reserves as of December 31, 1997. Brigham continues to increase the working
interest it retains in its projects, based on capital availability and perceived
risk. The Company's average working interest in its wells drilled during 1995,
1996 and 1997 was 24%, 24% and 38%, respectively.
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. Historically,
the Company's participants have borne a disproportionate share of the costs of
optioning available acreage and acquiring, processing and interpreting the 3-D
seismic, and the Company and its participants each bear leasing, drilling and
completion costs in proportion to their ownership interests. Brigham currently
intends to retain working interests of between 75% and 100% in its current 3-D
seismic projects, thereby reducing the financial leverage it has historically
received on the costs of optioning available acreage and acquiring, processing
and interpreting the 3-D seismic and increasing its working interests during the
drilling phase.
From inception through 1996, the Company acquired 2,762 square miles of 3-D
seismic in 104 projects. Initially, the Company focused its efforts in West
Texas. In 1995, the Company began to devote substantial attention to the
Anadarko Basin, and since 1996 the Company has devoted the majority of its
resources to the Anadarko Basin and Gulf Coast. With this shift in regional
focus, the majority of the Company's production volumes has shifted from oil to
natural gas. To finance these project generation and drilling activities, the
Company has supplemented cash flow from operations with private placements of
debt and equity, commercial bank credit facilities and placements of working
interests in projects with industry participants. As the Company's cash flows
from operations and other sources of capital have increased, it has retained
larger average working interests in its projects.
In 1997, the Company acquired 1,243 square miles of 3-D seismic and
continued to focus the majority of its 3-D exploration efforts in the Anadarko
Basin and the Gulf Coast. The Company acquired 648 square miles (52%) of 3-D
seismic in nine projects in the Anadarko Basin, making this basin the most
active 3-D seismic acquisition province for the Company again in 1997. Brigham
also significantly increased its Gulf Coast activity, acquiring 412 square miles
(33%) of 3-D seismic in four projects. During 1997, the Company drilled
seventy-three 3-D seismic delineated wells, increasing its revenues from natural
gas and oil production to $9.1 million. The Company's production volumes
consisted of 44% natural gas on an equivalent basis. The Company's average
working interest in wells drilled in 1997 was 38%. The Company's fourth quarter
1997 revenue from natural gas and oil production increased to $3.2 million from
$1.9 million in the fourth quarter of 1996, while its production volumes
consisted of 53% natural gas during the fourth quarter 1997 as compared with 36%
during the prior year period. The Company supplemented cash flow from operations
with borrowings under the credit facility it had in place at the time, $24
million raised in its initial public offering of common
24
<PAGE> 26
stock in May 1997 and the placement of working interests in projects to industry
participants to finance its project generation, property acquisition 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 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 the December 31, 1997 Consolidated
Financial Statements.
In connection with the Exchange in 1997, 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 $1.9
million in the first quarter 1997, 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 over
the vesting period of the options. As a result, the Company expects to incur
unearned stock compensation amortization expenses of approximately $290,000 in
1998, $140,000 in 1999 and an aggregate of $170,000 in the four 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. In connection
with the Exchange on February 27, 1997, the Company incurred a $5 million charge
to record a deferred income tax liability to recognize the differences between
the financial statement basis and tax basis of the Company's predecessor
partnership's natural gas and oil properties at the Exchange date, given the
provisions of enacted tax laws. During the fourth quarter 1997, the Company
elected to record a step-up in the basis of its assets for tax purposes as a
result of the Exchange. Due to this election, the Company recorded a $3.8
million non-cash deferred income tax benefit during the fourth quarter 1997,
which resulted in a net $1.2 million non-cash deferred income tax charge for the
year ended December 31, 1997.
25
<PAGE> 27
RESULTS OF OPERATIONS
The following table sets forth certain operating data for the periods
presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- -------------------
1995 1996 1997 1997 1998
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Production:
Natural gas (MMcf).......................... 272 698 1,382 243 740
Oil (MBbls)................................. 177 227 291 63 115
Natural gas equivalent (MMcfe).............. 1,332 2,060 3,126 623 1,431
Average sales prices per unit (1):
Natural gas (per Mcf)....................... $ 1.62 $ 2.30 $ 2.56 $ 3.10 $ 2.05
Oil (per Bbl)............................... 17.76 19.98 19.40 21.82 14.15
Natural gas equivalent (per Mcfe)........... 2.69 2.98 2.94 3.43 2.20
Costs and expenses per Mcfe:
Lease operating............................. $ 0.57 $ 0.35 $ 0.37 $ 0.33 $ 0.29
Production taxes............................ 0.12 0.18 0.18 0.20 0.13
General and administrative.................. 1.42 1.07 1.14 1.13 0.81
Depletion of natural gas and oil
properties............................... 1.22 1.13 0.87 1.10 0.89
</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."
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
Natural gas and oil sales. Natural gas and oil sales increased 47% from
$2.1 million in the first quarter of 1997 to $3.1 million in the first quarter
of 1998. Of this net increase, $2.8 million was attributable to an increase in
production, offset by $1.8 million attributable to a decrease in the average
sales price for natural gas and oil. Production volumes for natural gas
increased 205% from 243 MMcf in the first quarter of 1997 to 740 MMcf in the
first quarter of 1998. The average price received for natural gas decreased 34%
from $3.10 per Mcf in the first quarter of 1997 to $2.05 per Mcf in the first
quarter of 1998. Production volumes for oil increased 82% from 63 MBbls in the
first quarter of 1997 to 115 MBbls in the first quarter of 1998. The average
price received for oil decreased 35% from $21.82 per Bbl in the first quarter of
1997 to $14.15 per Bbl in the first quarter of 1998. Natural gas and oil sales
were increased by production from wells completed during the first quarter of
1998, partially offset by the natural decline of existing production.
Lease operating expenses. Lease operating expense increased 101% from
$206,000 for the first quarter of 1997 to $414,000 for the first quarter of
1998, while on a per unit of production basis, lease operating expenses for the
same periods decreased 12% from $.33 per Mcfe to $.29 per Mcfe. The increase in
lease operating expenses was primarily due to an increase in the number of
producing wells in the first quarter of 1998 as compared with the same period in
1997. The decrease in the per unit rate was primarily due to an increase in
natural gas production as a percentage of total equivalent production (39% and
52% for the first quarters of 1997 and 1998, respectively), since a typical
natural gas well produces with lower average lease operating costs per unit of
production than a typical oil well.
Production taxes. Production taxes increased 47% from $127,000 ($.20 per
Mcfe) for the first quarter of 1997 to $188,000 ($.13 per Mcfe) for the first
quarter of 1998 as a direct result of increased production volumes. The
effective average production tax rate remained unchanged at 6% of natural gas
and oil sales revenues for each period.
General and administrative expenses. General and administrative expenses
increased 64% from $702,000 for the first quarter of 1997 to $1.2 million for
the first quarter of 1998. This increase was primarily attributable to the
hiring of additional employees to support the Company's increased level of
operational activities. Additionally, office rent, other office expenses and
costs related to the administration of a public
26
<PAGE> 28
corporation increased for the first quarter of 1998 as compared to the same
period for 1997. On a per unit of production basis, general and administrative
expenses decreased 28% from $1.13 per Mcfe for the first quarter of 1997 to $.81
per Mcfe for the first quarter of 1998.
Depletion of natural gas and oil properties. Depletion of natural gas and
oil properties increased 84% from $687,000 ($1.10 per Mcfe) in the first quarter
of 1997 to $1.3 million ($.89 per Mcfe) in the first quarter of 1998. Of this
net increase, $892,000 was due to the increase in production volumes which was
offset by $312,000 due to a 19% decrease in the depletion rate. The depletion
rate per unit of production decreased due to an increase in natural gas and oil
reserves at lower average capital costs.
Interest expense. Net interest expense increased 165% from $372,000 in the
first quarter of 1997 to $985,000 in the first quarter of 1998. This increase
was due to a higher average outstanding debt balance in the first quarter of
1998 partially offset by a decreased effective interest rate. The weighted
average outstanding debt balance increased 179% from $15.3 million in the first
quarter of 1997 to $42.8 million in the first quarter of 1998. The effective
annual interest rate including the non-cash amortization of deferred loan fees
decreased 6% from 10% in the first quarter of 1997 to 9.5% in the first quarter
of 1998. The increase in the average outstanding debt balance was primarily a
result of increased capital expenditures related to the Company's exploration
activities. At March 31, 1998, the Company had $50 million in borrowings
outstanding under the Credit Facility which had an annual interest rate of 7.9%.
Interest expense increased an additional $106,000 in the first quarter of 1998
compared to the same period for 1997 due to the amortization of deferred loan
fees totaling approximately $1.9 million incurred in connection with the
establishment of the Credit Facility in January 1998. The amortization of these
deferred loan fees will continue to be recognized in the amount of approximately
$159,000 per quarter over the term of the Credit Facility which matures in
January 2001.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Natural gas and oil sales. Natural gas and oil sales increased 50% from
$6.1 million in 1996 to $9.2 million in 1997. Production volume increases
accounted for $3.2 million (104%) of this increase and were offset by $134,000
(4%) from a decrease in the average sales price received for natural gas and oil
sales. Production volumes for natural gas increased 98% from 698,036 Mcf in 1996
to 1,381,996 Mcf in 1997. The average price received for natural gas increased
11% from $2.30 per Mcf in 1996 to $2.56 per Mcf in 1997. Production volumes for
oil increased 28% from 226,925 Bbls in 1996 to 290,624 Bbls in 1997. The average
price received for oil decreased 3% from $19.98 per Bbl in 1996 to $19.40 per
Bbl in 1997. Natural gas and oil sales were increased by production from 46
wells completed in 1997, which was partially offset by the natural decline of
existing production. Hedging activities in 1997 reduced the amount by which oil
revenues increased by $6,191, compared to a decrease in oil revenues of $301,280
as a result of hedging activities in 1996.
Workstation revenue. Workstation revenue increased 2% from $627,255 in 1996
to $636,702 in 1997. 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 workstation revenue to decline in 1998 due to
the Company increasing its working 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 increased 59% from
$725,785 ($.35 per Mcfe) in 1996 to $1,151,238 ($.37 per Mcfe) in 1997. The
increase was primarily due to an increase in producing wells during the year.
Production taxes. Production taxes increased 52% from $362,000 ($.18 per
Mcfe) in 1996 to $549,000 ($.18 per Mcfe) in 1997 as a direct result of
increased production volumes. The effective average production tax rate remained
unchanged at 6% of natural gas and oil sales revenues for each period.
General and administrative expenses. General and administrative expenses
increased 62% from $2.2 million ($1.07 per Mcfe) in 1996 to $3.6 million ($1.14
per Mcfe) in 1997. Approximately $300,000 of the increase in 1997 resulted from
nonrecurring expenses related to the Company's relocation of its corporate
headquarters from Dallas, Texas to Austin, Texas, and the balance was primarily
attributable to the hiring of
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additional personnel and related expenses necessary to manage the Company's
growing operations. The increase in the per unit rate was a result of a greater
increase in aggregate general and administrative expenses than natural gas and
oil production volumes from 1996 to 1997 due to the aforementioned factors.
Depletion of natural gas and oil properties. Depletion of natural gas and
oil properties increased 18% from $2.3 million ($1.13 per Mcfe) in 1996 to $2.7
million ($0.87 per Mcfe) in 1997 as a result of higher production volumes. The
per unit amount decreased due to the addition of proved reserves during 1997.
Interest expense. Interest expense was essentially unchanged from 1996 to
1997 as the Company's lower average outstanding debt balance in 1997 was offset
by a higher effective average interest rate. The weighted average outstanding
debt balance decreased 45% from $19.7 million in 1996 to $10.8 million in 1997.
The effective interest rate increased 83% from 5.7% in 1996 to 10.5% in 1997.
The decrease in the weighted average outstanding debt balance and increase in
the effective average interest rate resulted primarily from the conversion to
equity of privately placed 5% notes (the "5% Notes") in February 1997, the
retirement of $13.3 million of borrowings under its previous credit facility in
connection with the Company's May 1997 initial public offering, and $32 million
of borrowings incurred under its previous credit facility subsequent to the
Company's initial public offering to fund the Company's increased exploration
activity and its $13.5 million acquisition of properties from Mobil adjacent to
its West Bradley 3-D Project area. The Company's previous credit facility had an
effective interest rate of 8.8% at December 31, 1997.
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 42 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 was acquired in 1995 and interpreted in 1996.
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 was 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.
Production taxes. Production taxes increased 119% from $165,000 ($.12 per
Mcfe) in 1995 to $362,000 ($.18 per Mcfe) in 1996 primarily as a result of
increased production volumes. The effective average production tax rate
increased from 4.6% in 1995 to 6% in 1996, reflecting the increased percentage
of total production attributable to natural gas, which is taxed at a higher
effective rate than oil.
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 remainder was 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.
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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 privately placed 10% notes (the "10%
Notes") and the issuance of $16 million in principal amount of 5% Notes in
August 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of capital have been its revolving credit
facility and other debt borrowings, public and private equity financing, 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 Facilities. In April 1996, the Company entered into a
revolving credit facility. This facility had a three-year term and was subject
to certain borrowing base limitations. The Company had borrowings outstanding
under this credit facility of $32 million as of December 31, 1997. The Company
retired this credit facility in January 1998 with borrowings under its Credit
Facility (as defined).
In January 1998, Brigham entered into a new reserve-based credit agreement
(the "Credit Facility"), providing for current borrowing availability of $75
million. The current borrowing base of $75 million will be available to the
Company until January 31, 1999, when the availability under the facility will be
redetermined by the bank based on the Company's then proved reserve value. The
Company, at its option, can have the availability under the facility
redetermined based on its current proved reserve value at any time prior to
January 31, 1999. Principal outstanding under the Credit Facility is due at
maturity on January 26, 2001 with interest due monthly. The interest rate for
borrowings under the Credit Facility is either the lender's base rate or LIBOR
plus 2.25%, at the Company's option. Borrowings under the facility currently
bear interest at an annual rate of approximately 7.9%. The Company's obligations
under the Credit Facility are secured by substantially all of the natural gas
and oil properties of the Company. See Note 5 of Notes to the December 31, 1997
Consolidated Financial Statements. The Company used a portion of the funds
available under Credit Facility to repay the $32 million in borrowings
outstanding at December 31, 1997 under its previous credit facility.
The Company believes that through the foreseeable future -- including
through the remainder of 1998 -- it will be able to comply with the financial
covenants contained in the Credit Facility. These covenants include a minimum
interest coverage ratio that the Company's lender recently amended following a
determination that the Company did not meet for the first quarter of 1998 and
would not meet for the second quarter of 1998 the covenant as originally
formulated. In the event that the Company in the future cannot meet a covenant,
no assurance can be given that its lender will amend the covenant or waive
compliance.
Cash Flow Analysis
Cash Flows from Operating Activities. Cash flows provided by operating
activities were $9.8 million in 1997, $3.7 million in 1996, and $1.4 million in
1995. The increase in cash flows for 1997 compared to 1996 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. The 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. In the first
quarter of 1998, cash flow used by operations was $2.8 million primarily as a
result of the net effects of increased natural gas and oil revenues, net of
production taxes, lease operating expenses and general and administrative
expenses, and an increase in working capital components.
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Cash Flows from Investing Activities. Cash flows used in investing
activities increased to $57.3 million in 1997 compared to $11.8 million in 1996
and $8.0 million in 1995. These increases are directly related to an increase in
capital expenditures. Capital expenditures were $57.2 million in 1997, $13.6
million in 1996 and $7.9 million in 1995. The Company acquired 1,243 gross (845
net) square miles of 3-D seismic in 1997, 655 gross (241 net) square miles in
1996, and 311 gross (90 net) square miles in 1995. The Company's drilling
efforts resulted in the successful completion of 46 wells (17.6 net) in 1997, 42
wells (8.7 net) in 1996 and 46 wells (9.9 net) in 1995, which resulted in
aggregate net increases in proved reserve volumes of 38.1 Bcfe in 1997, 13.7
Bcfe in 1996 and 8.9 Bcfe in 1995. In addition, the Company sold certain
producing properties in 1996 for $2.1 million and acquired certain producing
properties and related interests in 1997 for $13.5 million. Cash flow used in
investing activities was $13.1 million in the first quarter of 1998 primarily as
a result of capital expenditures related to exploration activities.
Cash Flows from Financing Activities. Cash flows from financing activities
for 1997 were $47.7 million, primarily as a result of borrowings under the
Company's previous credit facility and proceeds from the common stock sold in
the Company's initial public offering. Cash flows from financing activities for
1996 were $7.7 million, primarily as a result of borrowings under the Company's
previous credit facility. Cash flows from financing activities for 1995 were
$7.7 million, primarily as 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 the first quarter of 1998 were $16 million,
net of deferred loan fees of $1.9 million, in the first three months of 1998
primarily as a result of an increase in borrowings under the revolving credit
facility to fund the difference between cash flow from operations and cash flow
from investing activities.
Capital Expenditures
The Company currently estimates capital expenditures in 1998 will be
approximately $73 million. The Company expects to incur these capital
expenditures primarily to drill 106 gross (56 net) planned wells, to acquire
approximately 980 gross (735 net) square miles of 3-D seismic and to continue to
add to and upgrade its 3-D seismic interpretation hardware and software. The
actual number of wells drilled, square miles acquired and costs incurred 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
of the Offering, cash flow from operations and borrowings under the 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
The Company believes that hedging, although not free of risk, allows the
Company to reduce its exposure to natural gas and oil sales price fluctuations
and thereby to achieve more predictable cash flows. However, hedging
arrangements, when utilized, limit the benefit to the Company of increases in
the prices of the hedged commodity. Moreover, the Company's hedging arrangements
apply only to a portion of its production and provide only partial price
protection against declines in commodity prices. The Company expects that the
amount of its hedges will vary from time to time. See "Risk Factors -- Risk of
Hedging Activities."
In 1995 the Company, in an attempt to reduce its sensitivity to volatile
commodity prices, began using crude oil swap arrangements resulting in a fixed
price over a period of six months. Total oil purchased and sold subject to swap
arrangements entered into by the Company 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 natural gas and oil
production during the period the hedged transactions occur. Adjustments to the
price received for oil under these swap arrangements resulted in an increase in
oil revenues of $40,849 in
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1995 and decreases in oil revenues of $301,280 in 1996 and $6,191 in 1997. As of
December 31, 1997, the Company had no hedging contracts outstanding.
In February 1998, the Company entered into a hedging contract whereby
10,000 MMBtu per day of natural gas is purchased and sold subject to a fixed
price swap agreement for monthly periods from April 1998 through October 1999.
Pursuant to these arrangements the Company exchanges 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 ANR Pipeline Co.-Oklahoma index price (as published
in Inside FERC's Gas Market Report) for a contract month and the fixed contract
price for the same month. Total natural gas subject to this hedging contract is
2,750,000 MMBtu in 1998 and 3,040,000 MMBtu in 1999.
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 marketing 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 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."
Year 2000 Issues
The Company has reviewed the effect of the Year 2000 issues relating to its
information systems. The Company has determined that the Year 2000 issues
directly related to its information systems will not have a material impact on
its business, operations nor its financial position. However, the Company cannot
determine what effect, if any, the Year 2000 issues affecting its vendors,
customers, other businesses and the numerous local, state, federal and other
U.S. governmental entities with which it conducts business or by which it is
regulated or governed or taxed will have on its business or financial position.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS 130,
"Reporting Comprehensive Income," and SFAS 131, "Disclosure about Segments of an
Enterprise and Related Information." Neither SFAS will have a material impact on
the Company.
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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. The Company focuses
its 3-D seismic activity in provinces where it believes 3-D technology may be
effectively applied and which Brigham believes offer relatively large potential
reserve volumes per well and per field, high potential production rates and
multiple producing objectives. The Company's exploration activities are
concentrated primarily in three core provinces: the Anadarko Basin of western
Oklahoma and the Texas Panhandle; the onshore Gulf Coast of Texas and Louisiana;
and West Texas. Brigham is accelerating its 3-D seismic and drilling activities
in the Anadarko Basin and the Gulf Coast and will continue to focus its
activities in those geologic trends of West Texas where it has achieved its best
historical results.
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. Through December 31, 1997,
Brigham had acquired 4,005 square miles (2.6 million acres) of 3-D seismic and
identified 1,170 potential drilling locations, of which the Company had drilled
370. 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.
From inception in 1990 through 1997, Brigham had drilled 324 exploratory
and 46 development wells on its 3-D seismic generated prospects with an
aggregate 63% success rate and an average working interest of 24%. Utilizing the
capital it raised in its May 1997 initial public offering, the Company increased
the average working interest it retained in its wells during the second half of
1997, retaining a 45% average working interest in the 36 wells that it drilled.
As of December 31, 1997, the Company had added approximately 93 Bcfe of net
proved reserves (excluding revisions) to its reserve base, approximately 72 net
Bcfe of which were discovered by Brigham through its systematic 3-D seismic
exploration drilling activities. The Company's estimated net proved reserves as
of December 31, 1997 were 72.3 Bcfe having an aggregate Present Value of Future
Net Revenues of $69.2 million, compared to estimated net proved reserves as of
December 31, 1996 of 21.9 Bcfe having an aggregate Present Value of Future Net
Revenues of $44.5 million. The Company's net proved reserve volumes at December
31, 1997 were 74% natural gas and 65% categorized as proved developed reserves.
BUSINESS STRATEGY
Brigham's business strategy is to achieve superior growth in shareholder
value through the application of its systematic exploration approach, which
emphasizes the integrated use of 3-D seismic imaging and other advanced
technologies to reduce drilling risks and finding costs. Since its inception in
1990, the Company has consistently achieved rapid growth in its acquisition of
3-D seismic data, identification of potential drilling locations, discovery of
proved reserves and production volumes.
Brigham completed its initial public offering of common stock in May 1997,
raising approximately $24 million to fund the Company's accelerated 3-D seismic
acquisition and exploration drilling activities. Key elements of the Company's
growth strategy at its initial public offering and continuing today include: (i)
accelerating the rate at which it acquires 3-D seismic and identifies potential
drilling locations; (ii) increasing the working interests it retains in
exploration projects to capture a greater share of the reserves that the Company
discovers; (iii) identifying higher potential, higher impact prospects; and (iv)
accelerating the rate at which its 3-D seismic defined locations are drilled.
During the second half of 1997, the Company employed the capital raised in
its initial public offering to attain significant growth in each of its core
strategic objectives:
Accelerated 3-D Seismic Acquisition. During 1997, Brigham acquired
approximately 1,250 square miles of 3-D seismic, which increased the
Company's aggregate 3-D seismic inventory 45% to approximately 4,000 square
miles as of December 31, 1997. The overall level of 3-D seismic acquisition
in 1997 represents the most active year in the Company's history, and 85%
of this increased 3-D seismic was acquired in its higher potential Anadarko
Basin and Gulf Coast provinces.
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Increased Working Interest. In an effort to retain a greater portion
of the value generated by its 3-D seismic exploration efforts, Brigham
increased the average working interest it retained in its 1997 3-D seismic
projects to 68% as compared with its average project working interest of
24% in 1990 through 1996. As a result of the higher working interests and
the accelerated acquisition of 3-D seismic, the Company acquired 845 net
square miles of 3-D seismic in 1997 as compared with 780 cumulative net
square miles acquired from 1990 through 1996.
Higher Potential, Higher Impact Prospects. By focusing an increasing
portion of its exploration activities in the more prolific Anadarko Basin,
Brigham increased its average proved reserves discovered per net well
drilled (including dry holes) to 1.2 Bcfe in 1997 from 0.7 Bcfe in 1996 and
0.4 Bcfe in 1992 through 1995. In the Anadarko Basin alone, Brigham's
average proved reserves discovered per net well drilled was 3.4 Bcfe in
1997 compared with 1.8 Bcfe in 1996 and 2 Bcfe in 1994 through 1995.
Contributing to these increases, the Company's Anadarko Basin drilling in
1997 produced the two largest field discoveries in Brigham's history, which
resulted in the discovery of approximately 52 Bcfe of gross proved reserves
and provided the Company with several development drilling opportunities.
Accelerated Drilling. Through its strategy of retaining higher working
interests in its 3-D projects and subsequent drilling, Brigham participated
in the drilling of 28 net wells in 1997, a 75% increase from the
approximate 16 net wells drilled by the Company in 1996. The Company
achieved a 63% success rate on the 73 wells in its 1997 drilling program,
consistent with Brigham's historical average success rate. A key factor
contributing to its increased level of drilling activity was the Company's
addition of personnel in engineering, land and administrative functions
during 1997. These staff additions provided Brigham with the additional
infrastructure required to increase its operating capabilities, enabling
the Company operate 37% of its gross wells and 64% of its net wells drilled
in 1997.
As a result of the combined effects of the Company's multi-pronged growth
strategy, Brigham generated net proved reserve additions of approximately 38
Bcfe through drilling in 1997, which represents approximately 175% of the
Company's year-end 1996 net proved reserves of approximately 22 Bcfe. In
addition to its drilling efforts in 1997, the Company acquired 21.5 Bcfe of net
proved reserves at an implied cost of $0.63 per proved Mcfe in its November 1997
purchase of certain properties in and adjacent to its West Bradley project area
in its Anadarko Basin province. Brigham believes this acquisition will enable it
to further build its inventory of potential drilling locations over the
historically prolific Carter Knox anticline in the Anadarko Basin through a 3-D
seismic shoot planned for 1998.
Primarily through its exploration efforts, the Company increased its net
production volumes 52% to 3.1 Bcfe in 1997 from 2.1 Bcfe in 1996. As further
evidence of the Company's acceleration efforts subsequent to its May 1997
initial public offering, Brigham increased its average net daily production
volumes from 6.6 MMcfe in the second quarter 1997 to 15.9 MMcfe in the first
quarter 1998 representing a compounded growth rate of 34% per quarter.
Based on the results that the Company has achieved from its growth strategy
since its initial public offering, Brigham intends with the proceeds from the
Offering to increase its exploration activities in 1998 to take advantage of
opportunities currently available to further accelerate the Company's growth. As
a result, the Company has increased its 1998 capital budget for net seismic,
land and drilling expenditures to approximately $68 million from the $52 million
originally budgeted. The Company's current 1998 capital budget contemplates
additional expenditures for 3-D seismic acquisition due to increased working
interests in its planned 1998 projects, an increase in budgeted drilling
expenditures in the Anadarko Basin and the Gulf Coast provinces and a reduction
in planned drilling activity in West Texas in part due to recent declines in oil
prices. The Company intends to continue to retain higher working interests in
its 3-D seismic projects in the Anadarko Basin and the onshore Gulf Coast. By
increasing its working interests to in excess of 75% in the majority of its
current and planned seismic projects, Brigham expects to further accelerate its
growth not only by retaining a greater portion of the reserves its discovers,
but also by increasing its ability to control the timing of the drilling of its
exploration projects and therefore helping to accelerate its drilling pace. The
Company's current 1998 budget consists of 106 gross (56 net) wells, compared
with the 100 gross (42 net) wells previously budgeted for 1998. This increase in
anticipated 1998 drilling is the result of an increase in planned
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drilling of higher working interest wells in the Anadarko Basin and the Gulf
Coast offset by a reduction in planned drilling activity in West Texas.
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.
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. From inception through 1997, the Company has acquired 4,005
square miles of 3-D seismic and drilled 370 wells in over 20 geologic
trends in seven 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 ten geologists. Brigham's
explorationists collectively have over 300 years of experience, including
approximately 85 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 20 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
seismic exploration projects through the acquisition of proprietary
seismic. Therefore, the Company is able to manage the predrilling
exploration phases, from project conception and assemblage through 3-D
seismic 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. As of December 31, 1997, the
Company had identified 1,170 3-D defined potential drilling locations in
historically productive geologic trends, of which 370 had been drilled. The
Company currently anticipates drilling 106 of these locations (56 net) in
1998 at an aggregate drilling cost of approximately $47 million. The
Company also anticipates acquiring approximately 980 gross (735 net) square
miles of 3-D seismic in 1998 at a net cost to the Company of approximately
$17 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.
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 seismic 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.
EXPLORATION AND OPERATING APPROACH
From inception through December 31, 1997, the Company had acquired 3-D
seismic in 119 projects covering 4,005 square miles (2.6 million acres) in 20
geologic trends in seven basins and seven states. Through
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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 in and around existing
production where the Company can benefit from the imaging of producing analogs.
These 3-D seismic defined analogs, combined with the Company's experience in
drilling 370 wells, provide the Company with a knowledge base to evaluate other
potential geologic trends, 3-D seismic projects within trends and 3-D seismic
delineated potential drilling locations. The Company's knowledge base assists in
identifying geologic trends where Brigham believes it can find and develop
economic volumes of natural gas and oil.
The Company has experience exploring with 3-D seismic 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 local geologic expertise 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.
The Company uses its knowledge base, local geological expertise and
acquired digital data bases, integrated with 3-D seismic, to create maps of
producing reservoirs. The Company believes its 3-D generated maps are more
accurate than previous reservoir maps used by the industry (which generally were
based on subsurface geological information and 2-D seismic surveys), enabling
the Company to better evaluate recoverable reserves and the economic feasibility
of projects and drilling locations.
Brigham acquires most of its raw 3-D seismic on a proprietary basis using
seismic acquisition vendors. Additionally, the Company acquires data through
alliances affording it the exclusive right to interpret and use data for
extended periods of time. Occasionally the Company participates in
non-proprietary group shoots of 3-D seismic. 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 core
provinces: the Anadarko Basin of western Oklahoma and the Texas Panhandle; the
onshore Gulf Coast of Texas and Louisiana; and West Texas. 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 which the Company believes offer relatively 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 within the provinces listed
below and has identified approximately 800 potential drilling locations yet to
be drilled in those provinces, there can be no assurance that any of the seismic
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, (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
35
<PAGE> 37
assurance that the budgeted wells will, if drilled, encounter reservoirs of
commercial quantities of natural gas or oil.
<TABLE>
<CAPTION>
3-D SEISMIC CURRENT 1998 CAPITAL BUDGET(1)
DATA --------------------------------------------
ACQUIRED/ 3-D SEISMIC UNDRILLED CAPITAL
INTERPRETED DATA GROSS POTENTIAL EXPENDITURES($MM)
AS OF BUDGETED TO WELLS DRILLING WELLS -----------------------------
12/31/97 BE ACQUIRED IN DRILLED LOCATIONS BUDGETED NET
(GROSS SQ. 1998 (GROSS THROUGH AS OF ------------ SEISMIC NET
PROVINCE MILES) SQ. MILES) 12/31/97 12/31/97 GROSS NET & LAND DRILLING TOTAL(2)
- -------- -------------- -------------- -------- --------- ----- ---- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Anadarko Basin............ 1,515/ 1,195 550 55 364 62 32.0 $23.0 $27.5 $50.5
Gulf Coast................ 566/ 325 400 11 110 19 13.0 (3.0) 14.0 11.0
West Texas................ 1,649/ 1,600 30 287 302 24 11.0 1.5 5.0 6.5
Others(3)................. 275/ 275 -- 17 24 1 0.2 -- 0.2 0.2
------- ------ --- --- --- --- ---- ----- ----- -----
Total............. 4,005/ 3,395 980 370 800 106 56.2 $21.5 $46.7 $68.2
======= ====== === === === === ==== ===== ===== =====
</TABLE>
- ---------------
(1) Prepared as of May 27, 1998.
(2) 3-D seismic and land acquisition costs and drilling expenditures.
(3) Colorado, Kansas and Montana.
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 8,400 miles of 2-D seismic. Working with its team
of in-house geologists and supplemented by consulting geologists, the Company's
explorationists integrate this data with their extensive expertise and knowledge
base to generate 3-D seismic projects in the Anadarko Basin.
Over the last several years the Company has accelerated its 3-D seismic
acquisition activity in the Anadarko Basin, acquiring 195 square miles in 1995,
457 square miles in 1996 and 648 square miles in 1997. The Company retained a
66% average working interest in the 3-D seismic it acquired in this province in
1997. The Company believes its increased level of activity in the Anadarko Basin
will be a significant factor in the Company's growth. As of December 31, 1997,
the Company had acquired or was acquiring 1,515 square miles (969,600 acres) in
30 projects in the Anadarko Basin. The Company anticipates acquiring 550 square
miles (352,000 acres) of additional 3-D seismic in this province in 1998.
As of December 31, 1997, Brigham had completed 44 wells in 55 attempts (80%
success rate) in the Anadarko Basin and had found cumulative proved reserves of
44 net Bcfe. In 1997, the Company completed 19 wells in 23 attempts in its
Anadarko Basin province with an average working interest of 39%, adding 31 net
Bcfe of proved reserves. In addition, the Company acquired 21.5 net Bcfe of
proved reserves in this region in November 1997. As of December 31, 1997, the
Company had 364 3-D delineated potential drilling locations in the Anadarko
Basin, of which the Company intends to drill 62 gross (32 net) wells in 1998.
Brigham's Anadarko Basin activity provides a blend of intermediate depth,
moderate risk objectives and deeper, higher potential but somewhat higher risk
objectives. The intermediate depth targets at 9,000 to 13,000 feet have provided
Brigham with good drilling results to date. These include the Upper Morrow
channel sands and the Lower Morrow shallow marine sands of the Texas Panhandle,
the Springer channels of the Watonga Chikasha trend of western Oklahoma, and
structural traps in the Hunton carbonates of the northeastern portion of the
Anadarko Basin.
Intermediate depth objectives in the Anadarko Basin can provide significant
reserve additions, as evidenced by Brigham's Lower Morrow discovery in its
Pistol Pete 3-D seismic project. The Company's
36
<PAGE> 38
largest discovery to date, the Brigham-operated Christopher 84 #1, was completed
in one of four apparently productive Lower Morrow zones at approximately 12,000
feet, and initially tested at 2.65 MMcfe per day with a flowing tubing pressure
of 1,800 pounds per square inch. This well was producing approximately 4.5 MMcfe
per day with a flowing tubing pressure of 4,275 pounds per square inch at the
end of May 1998. Brigham owns a 36% working interest in the well and plans to
drill two development wells in 1998. The Company is completing the first offset
well to the Christopher 84 #1, in which Brigham has a 36% working interest, and
is currently drilling the second offset well, in which Brigham has a 91% working
interest. Estimated reserves for this discovery and the two development wells
are 35.6 gross Bcfe, or 16.1 Bcfe net to Brigham.
The deeper Anadarko Basin objectives provided Brigham's second largest
discovery to date, the Brigham operated Weise 28 #1 in its Jayhawk 3-D seismic
project in Wheeler County, Texas. This well represents Brigham's first
significant Hunton formation discovery. Drilled to a total depth of
approximately 14,800 feet, the Weise 28 #1 tested an initial production rate of
6.1 MMcfe per day. This well was producing approximately 3 MMcfe per day with a
flowing tubing pressure of 1,600 pounds per square inch at the end of May 1998.
A development well will be drilled on this discovery in 1998. The Weise 28 #1
and its offset are estimated to contain proved reserves of approximately 16
gross Bcfe, or 4.3 Bcfe net to Brigham. Brigham plans to drill several higher
potential tests in the deeper portions of the Anadarko Basin primarily in the
Texas Panhandle and far western Oklahoma in 1998.
On November 12, 1997, Brigham acquired an interest in producing properties
and undeveloped acreage at the northern end of the Carter Knox anticline in
Grady County, Oklahoma (the "Chitwood Acquisition"). For $13.5 million, Brigham
acquired estimated net proved reserves totaling 21.3 Bcfe and received a 50%
working interest in 3,600 net acres of leasehold and 750 net mineral acres in
the Chitwood Acquisition. The properties were acquired from Mobil Oil
Corporation through Ward Petroleum Corporation ("Ward"), and Ward will act as
drilling operator. In 1998, Brigham and Ward plan to participate in a 20 square
mile 3-D seismic project in this area to delineate opportunities in the
Springer, Big Four, Bromide and Arbuckle formations. The Chitwood Acquisition
overlaps and is adjacent to Brigham's West Bradley 3-D Seismic Project, where
Ward operates the majority of the drilling operations.
Gulf Coast. The onshore Gulf Coast region of South Texas and South
Louisiana 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 and evaluate 3-D seismic and
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.
The Company anticipates that its increased project assemblage and 3-D
seismic acquisition activity in the Gulf Coast will generate accelerated
drilling in this province in 1998 and 1999. The Company is currently assembling
projects in the Expanded Wilcox and Expanded Vicksburg trends in South Texas,
the Miocene trend in South Texas and South Louisiana, and the Lower and Middle
Frio trends of South Texas.
As of December 31, 1997, the Company had acquired or was acquiring 566
square miles (362,240 acres) of 3-D seismic in seven projects in the onshore
Gulf Coast province. The Company anticipates acquiring 400 square miles (256,000
acres) of additional 3-D seismic in this province in 1998. As of December 31,
1997, Brigham had completed 8 wells in 11 attempts (73% success rate) in the
Gulf Coast and had found cumulative proved reserves of 3 net Bcfe. In 1997, the
Company completed seven wells in 10 attempts with an average working interest of
9% adding 3 net Bcfe of proved reserves. As of December 31, 1997, the Company
had 110 3-D delineated potential drilling locations in the Gulf Coast province,
of which the Company intends to drill 19 gross (13 net) wells in 1998.
Brigham initiated its Gulf Coast effort in 1995 with the Esperson Dome
Project in Liberty County, Texas where the Company and its participants
currently control approximately 9,600 gross (7,500 net) acres through leases and
farmouts and have acquired 39 square miles of 3-D seismic. The Esperson Dome
Project targets structurally trapped sands in the Miocene, Vicksburg and
Yegua/Cook Mountain series ranging in depth from
37
<PAGE> 39
1,200 feet to 10,000 feet on a complexly faulted salt dome feature. Ten wells
have been drilled in the project to date (one Miocene, three Yegua/Cook Mountain
and six Vicksburg), yielding seven discoveries. Brigham currently maintains a
small net profits interest in the Esperson Dome Project that will convert to a
variable back-in working interest of 12% to 20% in the project after payout.
Brigham's Welder Ranch and Caliente projects encompass an area covering
more than 400 square miles within a non-proprietary 3-D seismic program
currently being conducted in Duval and Webb counties, Texas. Initially Brigham
acquired 48 square miles of 3-D seismic over the Welder Cabeza Ranch, where the
Company controls a 100% working interest in a seismic option on approximately
17,000 acres. The first well in the project, the Brigham-operated Welder-State
212 #1, in which Brigham owns an 80% working interest, was completed in February
1998, and tested naturally at a rate of 2.75 MMcf per day from the Lower Wilcox
formation at 13,350 feet. This well was producing approximately 500 Mcf per day
at the end of May 1998. The Company plans to add perforations and stimulate
additional pay zones in an attempt to increase production from this well.
Brigham has interpreted virtually all of the data covering the Welder Ranch
Project and approximately 25% of the data covering the Caliente Project, and has
eight exploratory wells budgeted in these projects for 1998.
Another project in South Texas is Brigham's Diablo Project covering
approximately 12,000 acres in Brooks County, Texas. The Company acquired 25
square miles of proprietary 3-D seismic in 1997 and plans to shoot an additional
33 square miles in 1998. Brigham recently teamed up with Exxon Company, USA,
which controls adjoining acreage to jointly explore the combined acreage for
potential below 10,000 feet in the Vicksburg formation. Brigham has retained a
33% working interest in this deep joint exploration project. In prospective
zones above 10,000 feet, primarily the Frio, Brigham has retained a 100% working
interest in its original 4,000 acre lease block. The Company plans to drill a
number of wells in this project in 1998 to test the shallow Frio and deeper
Vicksburg objectives.
In its Southwest Danbury Project in Brazoria County, Texas, Brigham is the
operator of a 13,000 foot Frio test that commenced drilling late in the first
quarter of 1998. Brigham has retained a 46% working interest in this test, and
plans to drill several additional wells in this project in 1998.
In May 1997, Brigham initiated its El Sauz Project with a seismic option
covering approximately 94,000 acres in Willacy and Kennedy counties, Texas. The
El Sauz Project is an underexplored area due north of the Willamar Field, which
has produced a cumulative 350 Bcf from the Miocene and Frio sands. Brigham
expects to define Miocene and Frio sands at 6,000 to 10,000 feet, with
additional potential as deep as 18,000 feet. Reserve targets range from 5 to 20
Bcf per well. The Company initiated a 200 square mile 3-D seismic program over
this acreage in 1998, with initial drilling anticipated for early 1999. Brigham
has retained a 55% working interest in the El Sauz Project after it brought in
two industry participants to leverage preseismic land and 3-D seismic
acquisition costs of this project.
Also in the Miocene/Frio trend of South Texas, Brigham acquired a seismic
option covering approximately 28,000 acres in the Hawkins Ranch located in
Matagorda County, Texas. The region has potential in the shallow, nonpressured
Miocene and Frio sands as well as the deeper, pressured Frio sands. The Company
has acquired approximately 94 square miles of new proprietary 3-D seismic to
merge with 65 square miles of non-proprietary 3-D seismic already in inventory.
The Company is currently negotiating a transaction pursuant to which the above
described 94 square miles of proprietary 3-D seismic would, if the transaction
is consummated, become non-proprietary after an exclusivity period benefiting
the Company, allowing the Company to acquire the 3-D seismic at a substantial
cost savings. Brigham has retained working interests ranging from 69% to 75% in
this project.
Brigham's first significant venture into South Louisiana, its Tigre Point
Project, is located in six feet of water in the transition zone off Vermilion
Parish. The project consists of 44 square miles of 3-D seismic covering a 7,200
acre lease block in Louisiana State waters, where Brigham currently controls a
75% working interest. The project has targeted the same series of sands that
produce in the prolific Freshwater Bayou field, located five miles to the north.
An 18,000 foot Lower Miocene test is scheduled for late 1998. Currently, Brigham
plans to retain a 30% to 40% working interest in this project following the sale
of a portion of its interest to an industry participant.
38
<PAGE> 40
West Texas. 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 Fusselman formation of
the Midland Basin and the Ellenberger and Devonian formations of the Delaware
Basin.
As of December 31, 1997, the Company had acquired or was acquiring 1,649
square miles (1,055,360 acres) in 74 projects in the West Texas region. The
Company anticipates acquiring 30 square miles (19,200 acres) of additional 3-D
seismic in this province in 1998. As of December 31, 1997, Brigham had completed
180 wells in 287 attempts (63% success rate) in the West Texas province and had
found cumulative proved reserves of 24 net Bcfe. In 1997, the Company completed
19 wells in 34 attempts with an average working interest of 45% adding 4 net
Bcfe of proved reserves. As of December 31, 1997, the Company had 302 3-D
delineated potential drilling locations in the West Texas region, of which the
Company intends to drill 24 gross (11 net) wells in 1998.
The Company has recently experienced success in the deeper portions of the
Midland Basin, where it has drilled five Fusselman discoveries to date.
Currently the most significant of these discoveries is the Elizabeth Rose field,
with gross proved reserves estimated by the Company's independent petroleum
consultants at December 31, 1997 of 1.5 MMBbls of oil. The Company has drilled
five wells in this Fusselman field that were producing an aggregate of
approximately 890 Bbls of oil per day in February 1998. Brigham's working
interest in its five Fusselman discoveries ranges from 19% to 91%. In 1998 the
Company has acquired 27 square miles of 3-D seismic in three additional 3-D
seismic projects adjacent to the Elizabeth Rose field and currently retains
working interests of 100% in these projects.
The Company completed three Canyon Reef discoveries during 1997 in its
Discovery Project located in the Horseshoe Atoll Trend. This project, in which
Brigham currently retains a working interest of 75%, targets oil producing
Canyon-age reef objectives at depths of approximately 9,500 feet. The Company's
three 1997 discoveries in its Discovery Project were producing an aggregate of
approximately 200 Bbls of oil and 900 Mcf of natural gas per day in February
1998. Brigham plans to drill three additional wells in its Discovery Project
during 1998.
Among Brigham's higher potential, higher risk projects in its West Texas
province are its Buffalo and Longhorn projects, located in the Delaware Basin,
in which the Company owns a 25% working interest. From two 3-D seismic programs
covering approximately 137 square miles acquired in 1996 and 1997, the Company
has identified numerous potential 3-D seismic delineated drilling locations and
has leased over 23,000 gross (5,780 net) acres. These projects are surrounded by
prolific production from the Devonian and Ellenberger formations at depths of
15,000 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).
39
<PAGE> 41
NATURAL GAS AND OIL RESERVES
The Company's estimated total net proved reserves of natural gas and oil as
of December 31, 1995, 1996 and 1997 and the present values attributable to these
reserves as of those dates were as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------
1995 1996(1) 1997
------- ------- -------
<S> <C> <C> <C>
Estimated net proved reserves:
Natural gas (MMcf).................................... 4,257 10,257 53,230
Oil (MBbls)........................................... 1,672 1,940 3,181
Natural gas equivalent (MMcfe)........................ 14,289 21,897 72,316
Proved developed reserves as a percentage of proved
reserves.............................................. 80% 67% 65%
Present Value of Future Net Revenues(2) (in
thousands)............................................ $18,222 $44,506 $69,249
Standardized Measure of Discounted Future Net Cash
Flows(3) (in thousands)............................... $18,222 $44,506 $64,274
</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. These
amounts reflect the effects of the Company's hedging activities in the
periods presented.
(3) The Standardized Measure of Discounted Future Net Cash Flows prepared by the
Company represents the present value of future net revenues after income
taxes discounted at 10%. These amounts reflect the effects of the Company's
hedging activities in the periods presented.
The average prices for the Company's reserves were $1.85 per Mcf of natural
gas and $18.22 per Bbl of oil as of December 31, 1995, $3.62 per Mcf of natural
gas and $24.66 per Bbl of oil as of December 31, 1996 and $2.11 per Mcf of
natural gas and $16.64 per Bbl of oil as of December 31, 1997.
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, 1997, the date the
Company's reserves and present value were estimated, the prices of natural gas
and oil on the NYMEX were $2.26 per MMBtu and $17.64 per Bbl, respectively. From
January 1, 1998 through June 3, 1998, the price of natural gas on the NYMEX
ranged from $2.64 per MMBtu to $2.00 per MMBtu and the price of oil on the NYMEX
ranged from $17.82 per Bbl to $13.21 per Bbl. 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 herein 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
40
<PAGE> 42
history. Estimates based on these methods are generally less reliable than those
based on actual production 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>
THREE
MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------------ MARCH 31,
1995 1996 1997 1998
------------ ------------ ------------ ------------
GROSS NET GROSS NET GROSS NET GROSS NET
----- ---- ----- ---- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exploratory Wells:
Natural gas................................. 5 1.2 5 1.2 15 6.3 6 1.7
Oil......................................... 37 8.1 22 5.2 21 7.9 2 1.6
Non-productive.............................. 32 8.7 24 7.0 26 9.8 1 0.7
-- ---- -- ---- -- ---- -- ----
Total............................... 74 18.0 51 13.4 62 24.0 9 4.0
== ==== == ==== == ==== == ====
Development Wells:
Natural gas................................. -- -- 10 1.3 4 1.6 2 0.8
Oil......................................... 4 0.5 5 1.0 6 1.8 1 0.2
Non-productive.............................. -- -- 1 0.2 1 0.6 1 0.9
-- ---- -- ---- -- ---- -- ----
Total............................... 4 0.5 16 2.5 11 4.0 4 1.9
== ==== == ==== == ==== == ====
</TABLE>
The Company does not own any drilling rigs, and the majority of its
drilling activities have been conducted by industry participant operators or
independent contractors under standard drilling contracts. Consistent with its
business strategy, the Company has chosen to retain operations of an increasing
number of the wells it drills and expects to continue to operate more wells in
1998.
PRODUCTIVE WELLS AND ACREAGE
Productive Wells
The following table sets forth the Company's ownership interest as of
December 31, 1997 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.................................... 43 13.0 5 1.2 48 14.2
Gulf Coast........................................ 1 0.0 5 0.1 6 0.1
West Texas........................................ 2 0.7 91 24.5 93 25.2
Other............................................. -- -- 1 0.5 1 0.5
-- ---- --- ---- --- ----
Total................................... 46 13.7 102 26.3 148 40.0
== ==== === ==== === ====
</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 natural gas and oil, 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
41
<PAGE> 43
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 following
table sets forth the approximate developed and undeveloped acreage in which the
Company held a leasehold, mineral or other interest at December 31, 1997:
<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED TOTAL
-------------- ----------------- -----------------
PROVINCE GROSS NET GROSS NET GROSS NET
- -------- ------ ----- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Anadarko Basin.............................. 16,600 7,716 75,377 32,181 91,977 39,897
Gulf Coast.................................. -- -- 18,588 14,902 18,588 14,902
West Texas.................................. 6,035 1,794 19,957 11,517 25,992 13,311
Other....................................... 160 80 145,295 51,546 145,455 51,626
------ ----- ------- ------- ------- -------
Total............................. 22,795 9,590 259,217 110,146 282,012 119,736
====== ===== ======= ======= ======= =======
</TABLE>
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, production has been obtained from the acreage
subject to the lease prior to that date, or some other "savings clause" is
implicated. 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, 1998......................................... 120,186 46,491
December 31, 1999......................................... 65,254 30,857
December 31, 2000......................................... 51,984 24,263
Thereafter................................................ 21,793 8,535
------- -------
Total............................................. 259,217 110,146
======= =======
</TABLE>
In addition, the Company had lease options as of December 31, 1997 to
acquire an additional 254,699 acres, substantially all of which expire within
one year.
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>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
------------------------ ---------------
1995 1996 1997 1997 1998
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Production:
Natural gas (MMcf).............................. 272 698 1,382 243 740
Oil (MBbls)..................................... 177 227 291 63 115
Natural gas equivalent (MMcfe).................. 1,332 2,060 3,126 623 1,431
Average sales price(1):
Natural gas (per Mcf)........................... $ 1.62 $ 2.30 $ 2.56 $ 3.10 $ 2.05
Oil (per Bbl)................................... 17.76 19.98 19.40 21.82 14.15
Average production expenses and taxes (per
Mcfe)........................................... $ .69 $ .53 $ .55 $ 0.53 $ 0.42
</TABLE>
- ---------------
(1) Reflects the results of hedging activities in the periods presented.
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<PAGE> 44
COSTS INCURRED
The costs incurred in natural gas and oil acquisition, exploration and
development activities are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Cost incurred for the year:
Exploration........................................... $ 6,893 $10,527 $29,421
Property acquisition.................................. 1,885 6,195 26,922
Development........................................... 713 1,328 2,953
Proceeds from participants............................ (1,296) (4,111) (319)
------- ------- -------
$ 8,195 $13,939 $58,977
======= ======= =======
</TABLE>
Costs incurred represent amounts incurred by the Company for exploration,
property acquisition and development activities. Periodically, the Company will
receive reimbursement of certain costs from participants in its projects
subsequent to project initiation in return for an interest in the project. These
payments are described as "Proceeds from participants" in the table above.
EXPLORATION STAFF
Over the last seven years the Company has assembled an exploration staff
that includes nine geophysicists, ten geologists, four petroleum engineers, four
computer applications specialists, three geophysical/geological/engineering
technicians, five landmen and six 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 has over 300 years
of exploration experience and approximately 85 years of 3-D CAEX workstation
experience, most of which was acquired at Brigham and various major and large
independent oil companies. Occasionally, 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 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 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 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 data with respect to the potential drilling location and historical data with
respect to the density and sonic characteristics of different
43
<PAGE> 45
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, OpenVision, 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 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. 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 certain alliances with Veritas DGC Land Ltd.("Veritas"),
Brigham had acquired approximately 850 square miles of 3-D seismic in the
Anadarko Basin through December 31, 1997 and had agreed to acquire from 775 to
875 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 seismic 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. In addition,
in the event that the outstanding balance of deferred seismic acquisition costs
exceeds certain threshold amounts, the Company must pre-pay part of the leasing
and drilling fees to cause the outstanding balance to fall below the current
threshold amount. Under these arrangements, 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 acquisition in a
compressed cycle time, providing the Company with operational efficiencies.
In addition, Veritas Geoservices, Ltd. provides three employees that
maintain and operate four seismic data processing workstations in Brigham's
offices. Supervised by Brigham's geophysicists, the vendor's employees process
most of the Company's 3-D seismic. 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 a
625 square mile 3-D seismic program that was completed in 1997 with Veritas in
the Anadarko Basin. 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
44
<PAGE> 46
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.
Brigham is currently acquiring 3-D seismic under a second alliance with
Veritas in the Anadarko Basin. From August through December 1997, the Company
acquired approximately 225 square miles of 3-D seismic under this alliance and
expects to acquire an additional 775 to 875 square miles in various
Brigham-generated projects by early 1999. The Company plans to retain a 100%
working interest in the projects under its second alliance with Veritas.
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 costs for each well drilled. In
return, the Company assigned to each an undivided 12.5% of the Company's
interest in the leasehold allocated to the proration unit for each completed
well. As a result, the Company paid 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 for each well funded during the term of the agreement.
The Company renewed its agreement with Gasco in early 1997. In order to
participate in wells drilled by the Company between April 1, 1997 and March 31,
1998, Gasco agreed to fund 18% of the Company's drilling costs and 9% of its
completion cost for each well. In return, the Company has agreed to assign to
Gasco an undivided 9% of the Company's interest in the leasehold allocated to
the production unit for each completed well. As a result, the Company pays for
82% of costs attributable to its working interest to casing point, and 91% of
its completion costs, for 91% of its original working interest for each well
funded during the term of the agreement.
In order to participate in wells drilled by the Company between April 1,
1998 and March 31, 1999, Gasco agreed to fund 8% of the Company's drilling costs
and 4% of its completion cost for each well. In return, the Company has agreed
to assign to Gasco an undivided 4% of the Company's interest in the leasehold
allocated to the production unit for each completed well. As a result, the
Company pays for 92% of costs attributable to its working interest to casing
point, and 96% of its completion costs, for 96% of its original working interest
for each well funded during the term of the agreement.
The Company believes that its agreements with Middle Bay and Gasco have
been beneficial because they have allowed the Company to leverage its working
interests in its properties by requiring it to bear a disproportionately smaller
share of drilling costs. Depending on future conditions, the Company may seek to
enter into similar types of arrangements with industry or financial
participants. To the extent that the Company does seek to enter into such future
arrangements, the terms of these arrangements, including the percentages of
costs borne and interests assigned, may vary from those in the Company's past
and present arrangements.
NATURAL GAS AND OIL MARKETING AND MAJOR CUSTOMERS
Most of the Company's natural gas and oil production is sold through
various marketing arrangements 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, competition, 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 natural gas or oil production, market, economic and regulatory factors may
in the future materially affect the Company's ability to sell its natural gas or
oil production. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Risk Factors -- Volatility of Natural Gas and Oil
Prices" and "Risk Factors -- Marketability of Production." For the
45
<PAGE> 47
year ended December 31, 1997, sales to Cobra Oil & Gas Corporation and Pride
Pipeline Company were approximately 14% and 12%, 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 and leasing options and
natural gas and oil leases on properties. The Company's competitors include
major integrated natural gas and oil companies and numerous independent natural
gas and oil 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. 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 unprofitable efforts, not only from dry wells, but also
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 business, financial
condition or results of operations. See "Risk Factors -- Dependence on
Exploratory Drilling Activities." In addition, 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, some unsuccessful wells are likely, and
there can be no assurance unsuccessful drilling efforts will not have a material
adverse effect on the Company's business, financial condition or results of
operations.
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 business, financial condition and
results of operations.
EMPLOYEES
On June 3, 1998, the Company had 65 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
46
<PAGE> 48
consulting service companies to provide field landmen to support the Company on
a project-by-project basis. One of these companies, Brigham Land Management, is
owned by Vincent M. Brigham, who is the brother of Ben M. Brigham, the Company's
Chief Executive Officer, President and Chairman of the Board. See "Certain
Transactions."
FACILITIES
The Company's principal executive offices are located in Austin, Texas,
where it leases approximately 28,000 square feet of office space at 6300 Bridge
Point Parkway, Building 2, Suite 500, Austin, Texas 78730. In the fall of 1998,
the Company expects to lease an additional 5,000 square feet of office space
adjacent to its principal executive offices. 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, in all material respects,
to substantially all of its producing properties in accordance with standards
generally accepted in the oil and gas industry. The Company's properties are
subject to royalty interests, standard liens incident to operating agreements,
liens for current taxes and other inchoate 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. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
GOVERNMENTAL REGULATION
The Company's natural gas and oil exploration, production and marketing
activities are subject to extensive laws, rules and regulations promulgated by
federal and state legislatures and agencies. Failure to comply with such laws,
rules and regulations can result in substantial penalties. The legislative and
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, interpreted and
reinterpreted, the Company is unable to predict the future cost or impact of
complying with such laws and regulations.
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 636-B and 636-C ("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 and the provision of open-access
transportation on a nondiscriminatory basis. 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.
47
<PAGE> 49
The FERC frequently reexamines its transportation-related policies,
including the terms and conditions under which interstate pipeline shippers may
release interstate pipeline capacity for resale in the secondary market, the
appropriateness of the use of negotiated and market-based rates, and the
implementation of additional standardized terms and conditions for interstate
gas transmission. In April 1998, the FERC issued a new rule to further
standardize pipeline transportation tariffs that could adversely affect the
reliability of scheduled interruptible transportation service on some pipelines.
While any resulting FERC action would affect the Company only indirectly, any
new rules and policy statements may have the effect of enhancing competition in
natural gas markets or affecting the cost or availability of pipeline
transportation.
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, like the oil and gas industry
in general, 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 seismic
acquisition, 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 and arguably joint
and several liability on owners and operators of certain sites and on persons
who disposed of or arranged for the 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 and offshore facilities
that may affect waters of the United States, the OPA requires an operator to
demonstrate financial responsibility. 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
48
<PAGE> 50
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.
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........................ 38 President, Chief Executive Officer and
Chairman of the Board
Anne L. Brigham....................... 36 Executive Vice President and Director
Jon L. Glass.......................... 42 Vice President -- Exploration and
Director
Craig M. Fleming...................... 40 Chief Financial Officer
David T. Brigham...................... 37 Vice President -- Land and
Administration, Corporate Secretary
A. Lance Langford..................... 36 Vice President -- Operations
Karen E. Lynch........................ 36 Vice President and General Counsel
Harold D. Carter...................... 59 Director
Alexis M. Cranberg.................... 42 Director
Gary J. Milavec....................... 36 Director
Stephen P. Reynolds................... 46 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 Chief Executive Officer, President 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.
49
<PAGE> 51
Anne L. Brigham has served as Executive Vice President and a Director of
the Company since its inception in 1990 and as Corporate Secretary from 1990 to
February 1998. 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 since 1994 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.
David T. Brigham joined the Company in 1992 and has served as Vice
President -- Land and Administration and Corporate Secretary of the Company
since February 1998. Mr. Brigham served as Vice President -- Legal of the
Company from 1994 until February 1998. 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 from the University of Texas and a J.D.
from Texas Tech School of Law.
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.
Karen E. Lynch joined the Company in October 1997 as General Counsel and
has served as Vice President and General Counsel of the Company since February
1998. Prior to joining the Company, Ms. Lynch was a shareholder in the
Dallas-based law firm of Thompson & Knight, P.C., where she practiced in the
energy area since joining the firm in 1987. Ms. Lynch holds a B.B.A. in
Petroleum Land Management from the University of Texas and a J.D. from the
University of Oklahoma.
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 of
Esenjay Exploration, Inc. and Westport Oil and Gas, Inc. and a past Director of
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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 Managing Director of RIMCO, an 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 a B.A. 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 is a nominee for Director of SS&C Technologies,
Inc. 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
The Company's Board of Directors formed standing audit and compensation
committees on February 26, 1997, which are composed of Harold D. Carter, Alexis
M. Cranberg and Gary J. Milavec. The Audit Committee's primary responsibilities
are to (i) recommend the Company's independent auditors to the Board of
Directors, (ii) review with the Company's auditors the plan and scope of the
auditor's annual audit, the results thereof and the auditors' fees, (iii) review
the Company's financial statements and (iv) take such other action as it deems
appropriate as to the accuracy and completeness of financial records of the
Company and financial information gathering,reporting policies and procedures of
the Company. The Compensation Committee exercises the power of the Board of
Directors in connection with all matters relating to compensation of executive
officers, employee benefit plans and the administration of the Company's stock
option programs.
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 expired May
1, 1997, the Company paid Mr. Carter $6,000 per month through June 1996 and then
$7,200 per month for the remainder of the term of the agreement to spend
approximately 50% of his working time performing such consulting and advisory
services regarding the operations of the Company as the Company requested,
including service on the management committee of the Company's predecessor
partnership. Pursuant to a subsequent consulting
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<PAGE> 53
agreement that expires December 31, 1998, Mr. Carter continues to serve as a
consultant to the Company and is currently being compensated $7,200 per month
for such services and is reimbursed by the Company for his out-of-pocket
expenses. In addition, pursuant to the terms of Mr. Carter's consulting
agreement, the Company pays Associated Energy Managers, Inc. $1,000 per month to
offset a portion of Mr. Carter's office overhead expenses and to provide the
Company with limited use of part of Mr. Carter's office space for purposes of
conducting business while employees of the Company are in Dallas, Texas.
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. Twenty-five thousand shares of Common Stock have
been authorized and reserved for issuance pursuant to the plan. Options to
purchase 2,000 shares of Common Stock were granted on December 31, 1997 to the
Company's four nonemployee directors pursuant to the 1997 Director Stock Option
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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's compensation committee during the last ten months of the past
fiscal year consisted of Messrs. Carter, Cranberg and Milavec and all
determinations concerning executive compensation for such period for the
Company's executive officers were made by the compensation committee. The
compensation committee members abstained from participation in compensation
determinations concerning their own compensation. None of the executive officers
of the Company has served on the board of directors or on the compensation
committee of any other entity, any of whose officers served on the Board of
Directors of the Company.
EXECUTIVE COMPENSATION
Summary of Cash and Certain Compensation. The following table sets forth
certain summary information concerning the compensation paid or awarded to the
Chief Executive Officer of the Company and the
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<PAGE> 54
only other executive officers of the Company who earned in excess of $100,000 in
1997 (the "named executive officers") for the years indicated.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------------------
ANNUAL COMPENSATION SHARES
NAME AND ------------------------------ RESTRICTED UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) STOCK AWARDS OPTIONS COMPENSATION($)(2)
------------------ ---- --------- ----------- ------------ ---------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ben M. Brigham......................... 1997 228,125 30,600 -- -- 5,690
Chief Executive Officer, President
and 1996 144,000 15,000 -- -- 4,817
Chairman of the Board
Jon L. Glass........................... 1997 127,301 43,268 66,964 208,334 354
Vice President -- Exploration 1996 109,782 3,223 -- -- --
Craig M. Fleming....................... 1997 122,272 44,971 44,643 69,445 477
Chief Financial Officer 1996 102,919 8,063 -- -- --
David T. Brigham....................... 1997 108,895 32,712 44,643 69,445 428
Vice President -- Land and 1996 94,874 10,505 -- -- --
Administration, Corporate Secretary
A. Lance Langford...................... 1997 107,469 43,111 -- 52,085 410
Vice President -- Operations 1996 94,090 7,261 -- -- --
</TABLE>
- ---------------
(1) Includes the following moving allowances granted in 1997 to employees in
connection with the Company's relocation of its corporate headquarters from
Dallas, Texas, to Austin, Texas: Ben M. Brigham -- $30,600; Jon L.
Glass -- $12,076; Craig M. Fleming -- $23,654; David T. Brigham -- $17,529;
and A. Lance Langford -- $23,524.
(2) Amounts for Ben M. Brigham represent premiums paid by the Company under life
and disability insurance plans of $1,442 and $4,248, respectively, in 1997,
and $1,404 and $3,413, respectively, in 1996. Amounts for Jon L. Glass,
Craig M. Fleming, David T. Brigham and A. Lance Langford represent premiums
paid by the Company under a disability insurance plan in 1997.
Option Grants. The following table contains information about stock option
grants to the named executive officers in 1997:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZED VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(1)
------------------------------------------------- ---------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 0%($) 5%($) 10%($)
---- ---------- ------------ -------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Ben M. Brigham......... -- -- -- -- -- -- --
Jon L. Glass........... 208,334 32.3 5.00 7/1/04 2,005,215 3,142,280 4,619,530
Craig M. Fleming....... 69,445 10.8 5.00 7/1/04 668,408 1,047,433 1,539,851
David T. Brigham....... 69,445 10.8 5.00 7/1/04 668,408 1,047,433 1,539,851
A. Lance Langford...... 52,085 8.1 5.00 7/1/04 501,318 785,593 1,154,916
</TABLE>
- ---------------
(1) Amounts represent hypothetical gains that could be achieved for the options
if they are exercised at the end of the option term. Those gains are based
on assumed rates of stock price appreciation of 0%, 5% and 10% compounded
annually from February 27, 1997, the date such options had been granted,
through the expiration date. For the option term ending July 1, 2004, based
on the closing price on The Nasdaq Stock Market(SM) of the Common Stock of
$14.63 on December 31, 1997, a share of the Common Stock would have a value
on July 1, 2004 of approximately $20.08 at an assumed appreciation rate of
5% and approximately $27.17 at an assumed appreciation rate of 10%.
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<PAGE> 55
Option Exercises and Year-End Option Values. The following table provides
information about the number of shares issued upon option exercises by the named
executive officers during 1997, and the corresponding value realized by the
named executive officers. The table also provides information about the number
and value of options that were held by the named executive officers at December
31, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT FY-END(#) OPTIONS AT FY-END($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ben M. Brigham............ -- -- -- -- -- --
Jon L. Glass.............. -- -- -- 208,334 -- 2,005,215
Craig M. Fleming.......... -- -- -- 69,445 -- 668,408
David T. Brigham.......... -- -- -- 69,445 -- 668,408
A. Lance Langford......... -- -- -- 52,085 -- 501,318
</TABLE>
Employment Agreements
The Company employs Ben M. Brigham under an employment agreement (the
"Employment Agreement") as Chief Executive Officer and President 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 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 named executive officers of the Company is a party to a
confidentiality and noncompete agreement.
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. Of the shares awarded to Mr. Glass, 45% have
already vested, 28.33% vest in July 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 from among those key employees and
others who hold positions of responsibility with the Company and whose
performance may have a
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<PAGE> 56
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. With the exception of options to
purchase 138,889 shares of Common Stock granted to Jon L. Glass, these 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. The balance of
Mr. Glass' options (138,889 shares) vest as follows: 30% on February 1, 1999;
20% on July 1, 1999; 16.66% on July 1, 2000; 16.67% on July 1, 2001; and 16.67%
on July 1, 2002. Of the options issued in 1997 pursuant to the 1997 Incentive
Plan, options to purchase 17,360 have been forfeited by certain employees.
In January 1998, options were granted to purchase 307,250 shares of Common
Stock at an exercise price of $12.875 per share. These options vest over six
years in three equal bi-annual installments starting the second year following
the date of grant.
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 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 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 30 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.
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<PAGE> 57
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 Chief Executive Officer, President and Chairman of
the Board, and David T. Brigham, who is a Vice President of the Company. BLM
specializes in conducting the field land work necessary prior to and during 3-D
seismic acquisitions. BLM has regional expertise 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. In
1995, 1996 and 1997, the Company paid BLM approximately $382,000, $596,000 and
$837,000, respectively. Other participants in the Company's 3-D seismic projects
reimbursed the Company for a portion 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 certain 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 from
the Company an interest in (i) a 3-D project for approximately $75,000 in 1995,
and (ii) two 3-D delineated potential drilling locations and 3-D seismic for
approximately $83,000 in 1996. The Company billed Venture approximately $14,924
in 1995, $16,500 in 1996 and $56,658 in 1997 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 and
member of the Company's compensation committee, 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 acquisition and interpretation of the data after it had
been acquired. During 1995, 1996 and 1997, the Company received approximately
$25,000, $123,000 and $50,000, respectively, from the RIMCO affiliates,
including Vaquero, for workstation time and geoscientists' time in interpreting
the 3-D seismic that were acquired. Because RIMCO was not an affiliate of the
Company when the project was initiated and the interest to Vaquero was
transferred, the Company 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 had been initially assigned an
undivided 22% interest (subject to a proportionately reduced 3% overriding
royalty interest) in a project ("Tigre Point") located in Vermillion Parish,
Louisiana in return for paying certain costs of acquiring 3-D seismic and land
within the project area. The Company acquired an additional 12.5% working
interest from RIMCO and an additional 37.5% working interest from Tigre in parts
of the project under the same terms as the initial 25% interest. 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 of which RIMCO affiliates beneficially own approximately 22% of
the outstanding common stock, have entered
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into a geophysical exploration agreement covering an area of mutual interest on
the Gulf Coast. Under the terms of the agreement, USA conducted a 3-D seismic
program established by the Company and USA and processed the data acquired under
the program at cost, and the Company will interpret the resulting seismic for
the benefit of the Company and USA at no charge to USA. Subject to a party's
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, 1997, the Company had incurred
$209,314 of costs under those arrangements. Based on its experience in acquiring
3-D seismic, the Company believes that it has acquired 3-D seismic under this
agreement on terms, and that the arrangement is on terms, no less favorable than
could be obtained from an unaffiliated third party.
In 1993 and 1994 the Company issued to RIMCO 10% Notes in principal amounts
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
were exchanged for 1,754,464 shares of Common Stock in the Exchange. In 1995,
1996 and 1997, the Company paid RIMCO $631,989, $809,332 and $340,000,
respectively, in interest payments on the 5% Notes and the 10% Notes. In 1995,
1996 and 1997, the Company distributed to RIMCO $102,107, $82,097 and $48,150,
respectively for RIMCO's overriding royalty interest in certain natural gas and
oil properties.
Pursuant to a consulting agreement with Harold D. Carter that expired May
1, 1997, the Company paid Mr. Carter $6,000 per month through June 1996 and
$7,200 per month for the remainder of the term of the agreement to spend
approximately 50% of his working time performing such consulting and advisory
services regarding the operations of the Company as the Company requested,
including service on the management committee of the Company's predecessor
partnership. Pursuant to this agreement, Mr. Carter received $72,000 in 1995,
$79,200 in 1996 and $86,580 in 1997. Additional disbursements totaling
approximately $13,000 were made by the Company to Mr. Carter during 1997 for the
reimbursement of certain expenses. Pursuant to the terms of a subsequent
consulting agreement, the Company will continue to utilize Mr. Carter's
consulting services through December 31, 1998 and pay Mr. Carter $7,200 per
month for those services and reimburse Mr. Carter for certain out-of-pocket
expenses during the term of the agreement. In addition, pursuant to the terms of
Mr. Carter's consulting agreement, the Company pays Associated Energy Managers,
Inc. $1,000 per month to offset a portion of Mr. Carter's office overhead
expenses and to provide the Company with limited use of part of Mr. Carter's
office space for purposes of conducting business while employees of the Company
are in Dallas, Texas.
In 1995, 1996 and 1997, the Company paid $35,000, $110,000 and $18,000 to
Aspect and affiliates of Alexis M. 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 M. Cranberg
$13,000 in 1995 and $68,000 in 1996 for its proportionate share of the 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 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 have not been disposed of in accordance
with that previous registration. The Registration Rights Agreement also provides
"piggyback" registration rights 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
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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 AND SELLING STOCKHOLDERS
The table below sets forth information concerning (i) the only persons
known by the Company, based upon statements filed by such persons pursuant to
Section 13(d) or 13(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), to own beneficially in excess of 5% of the Common Stock as of
June 4, 1998, and (ii) the shares of Common Stock beneficially owned, as of June
4, 1998, by each director of the Company, each executive officer listed in the
Summary Compensation Table included elsewhere in this Prospectus, and all
directors and executive officers of the Company as a group. Except as indicated,
each individual has sole voting power and sole investment power over all shares
listed opposite his name.
<TABLE>
<CAPTION>
SHARES SHARES BENEFICIALLY
BENEFICIALLY OWNED OWNED AFTER THE
PRIOR TO THE OFFERING(1) OFFERING
------------------------- -------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ------------------------------------ ------------ ---------- --------- -------
<S> <C> <C> <C> <C>
Ben M. Brigham(2).................................... 3,720,342 30.01% 3,720,342 23.55%
6300 Bridge Point Parkway, Bldg. 2, Suite 500
Austin, Texas 78730
Anne L. Brigham(2)................................... 3,720,342 30.01% 3,720,342 23.55%
6300 Bridge Point Parkway, Bldg. 2, Suite 500
Austin, Texas 78730
General Atlantic Partners, L.L.C.(3)................. 2,807,143 22.64% 2,807,143 17.77%
Three Pickwick Plaza
Greenwich, Connecticut 06830
Resource Investors Management Company(4)............. 1,754,464 14.15% 1,754,464 11.11%
600 Travis Street, Suite 6875
Houston, Texas 77002
R. Chaney & Co., Inc.(5)............................. 635,000 5.12% 635,000 4.02%
909 Fannin, Suite 1275
Two Houston Center
Houston, Texas 77010
Craig M. Fleming(6).................................. 65,477 * 65,477 *
Jon L. Glass(7)...................................... 88,798 * 88,798 *
David T. Brigham(8).................................. 66,477 * 66,477 *
A. Lance Langford(9)................................. 18,365 * 18,365 *
Harold D. Carter..................................... 341,893 2.76% 341,893 2.16%
Gary J. Milavec(10).................................. -- -- -- --
Alexis M. Cranberg................................... -- -- -- --
Stephen P. Reynolds(11).............................. -- -- -- --
All directors and executive officers as a group
(11 persons)(6)(7)(8)(9)........................... 4,301,977 34.70% 4,301,977 27.23%
</TABLE>
- ---------------
* Represents less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or disposition power with respect to
securities.
58
<PAGE> 60
(2) Includes 1,831,414 shares owned by Ben M. Brigham and 1,831,410 shares
owned by Anne L. Brigham, who are husband and wife; 28,272 shares owned by
Ben M. Brigham and Anne L. Brigham as Trustees under Brigham Parental Trust
I; 28,246 shares owned by Ben M. Brigham and Anne L. Brigham as Trustees
under Brigham Parental Trust II; and 1,000 shares held by David T. Brigham,
as custodian for Elizabeth R. Brigham under the Texas Uniform Transfers to
Minors Act.
(3) Includes 2,679,418 shares held by 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 610,000 shares held by R. Chaney & Partners III L.P. ("Fund III")
and 25,000 shares held by R. Chaney & Partners IV L.P. ("Fund IV"). R.
Chaney & Partners, Inc. ("Partners") is the sole general partner of Fund
III, and R. Chaney Investments, Inc. ("Investments") is the sole general
partner of Fund IV. Mr. Robert H. Chaney is the sole shareholder of
Partners and Investments.
(6) Includes 44,643 shares of restricted stock, which vest as follows: 30% in
July 1997, 30% in July 1998 and 40% in July 1999; and 20,834 shares of
Common Stock issuable upon exercise of certain stock options that vest July
1, 1998.
(7) Includes 66,964 shares of restricted stock, which vest as follows: 16.67%
in February 1997, 28.33% in July 1997, 28.33% in July 1998 and 26.67% in
July 1999; and 20,834 shares of Common Stock issuable upon exercise of
certain stock options that vest July 1, 1998.
(8) Includes 44,643 shares of restricted stock, which vest as follows: 30% in
July 1997, 30% in July 1998 and 40% in July 1999; 1,000 shares gifted by
Ben M. Brigham and Anne L. Brigham; and 20,834 shares of Common Stock
issuable upon exercise of certain stock options that vest July 1, 1998.
(9) Includes 17,365 shares of Common Stock issuable upon exercise of certain
stock options that vest July 1, 1998.
(10) Gary J. Milavec is a Managing Director 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.
(11) 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.
The Selling Stockholders, which include one or more of GAP III and
GAP-Brigham (the "General Atlantic Partnerships") and the RIMCO Partnerships,
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 Selling
Stockholders up to an additional 510,000 shares of Common Stock at the public
offering price set forth on the cover page of this Prospectus, less the
underwriting discount.
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"). As of June 4, 1998, the
Company had outstanding 12,253,574 shares of Common Stock held of record by 65
stockholders and stock options for an aggregate of 935,987 shares.
59
<PAGE> 61
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
and is currently restricted from doing so by the Credit Facility. 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 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
60
<PAGE> 62
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 15,653,574 shares of
Common Stock outstanding (16,163,574 shares if the Underwriters exercise their
over-allotment option in full and the Selling Stockholders fail to meet their
obligations to sell stock pursuant thereto). Of these 15,653,574 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. 8,928,574
shares of Common Stock were issued in reliance on exemptions from the
registration requirements of the Securities Act and are 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. 6,850,000 shares of Common Stock that
will be issued in the Offering or that were sold in the Company's initial public
offering are freely tradeable, except to the extent that they are 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 156,536 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 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.
The holders of 8,421,431 shares of Common Stock and their permitted
transferees are entitled to demand registration of those shares under the
Securities Act, and the holders of 8,928,574 shares of Common Stock are entitled
to "piggyback" registration rights. See "Description of Capital
Stock -- Registration Rights."
Holders of 8,783,717 shares of Common Stock are subject to "lock-up"
agreements; these shares will be released from such agreements 90 days after the
date of this Prospectus. See "Underwriting."
Options covering 935,987 shares of Common Stock are outstanding, with an
average exercise price of $7.61 per share, subject to vesting.
61
<PAGE> 63
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Bear, Stearns &
Co. Inc., Dain Rauscher Wessels, a division of Dain Rauscher Incorporated ("Dain
Rauscher Wessels"), and Howard, Weil, Labouisse, Friedrichs Incorporated 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.....................................
Dain Rauscher Wessels.......................................
Howard, Weil, Labouisse, Friedrichs Incorporated............
------
Total.............................................
======
</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.
The Selling Stockholders, which include one or more of the General Atlantic
Partnerships and the RIMCO Partnerships, 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 Selling Stockholders up to an additional
510,000 shares of Common Stock at the public offering price set forth on the
cover page of this Prospectus, less the underwriting discount. The specific
number of shares to be sold by a Selling Stockholder will vary depending on the
public offering price. The Company has granted an option to the Underwriters to
purchase such additional shares in the event that a Selling Stockholder fails to
meet its obligations to sell such shares. 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.
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 the holders of 4,561,607
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 and certain
62
<PAGE> 64
stockholders 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 90 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 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.
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 consolidated financial statements of Brigham Exploration Company as of
December 31, 1997 and 1996 and for each of the three years in the period ended
December 31, 1997 included in this Prospectus have been so included in reliance
on the report 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.
The Company is subject to the information and periodic reporting
requirements of the Securities Exchange Act of 1934, and, in accordance
therewith, files 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.
63
<PAGE> 65
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 or natural gas liquids.
Completion. The installation of permanent equipment for the production of
natural gas or oil.
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 natural gas or
an oil 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 natural gas or
oil in sufficient quantities to justify completion of natural gas or an oil
well.
Exploratory Well. A well drilled to find and produce natural gas or oil in
an unproved area, to find a new reservoir in a field previously found to be
productive of natural gas or oil in another reservoir, or to extend a known
reservoir.
Finding and Development Costs. Capital costs incurred in the acquisition,
exploration and development of proved natural gas and oil 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 natural gas or an oil 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
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<PAGE> 66
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.
65
<PAGE> 67
BRIGHAM EXPLORATION COMPANY
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996, and 1995......................... F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1997, 1996, and 1995............. F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996, and 1995......................... F-6
Notes to the December 31, 1997 Consolidated Financial
Statements................................................ F-7
Condensed Consolidated Balance Sheets as of December 31,
1997 and March 31, 1998................................... F-20
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 1997 and 1998................ F-21
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1997 and 1998................ F-22
Notes to the March 31, 1998 Condensed Consolidated Financial
Statements................................................ F-23
</TABLE>
F-1
<PAGE> 68
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of Brigham Exploration Company
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Brigham Exploration Company and its subsidiaries at December 31, 1997 and 1996,
and the results of their operations and its cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company'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
March 6, 1998
F-2
<PAGE> 69
BRIGHAM EXPLORATION COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 1,701 $ 1,447
Accounts receivable....................................... 4,909 2,696
Prepaid expenses.......................................... 280 152
------- -------
Total current assets.............................. 6,890 4,295
------- -------
Natural gas and oil properties, at cost, net................ 84,176 28,005
Other property and equipment, at cost, net.................. 1,239 532
Drilling advances paid...................................... 78 419
Other noncurrent assets..................................... 18 363
------- -------
$92,401 $33,614
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $11,892 $ 2,937
Accrued drilling costs.................................... 2,406 915
Participant advances received............................. 489 1,137
Other current liabilities................................. 726 628
------- -------
Total current liabilities......................... 15,513 5,617
------- -------
Notes payable............................................... 32,000 8,000
Subordinated notes payable -- related party................. -- 16,000
Other noncurrent liabilities................................ 507 753
Deferred income tax liability............................... 1,228 --
Stockholders' equity:
Predecessor capital....................................... -- 3,244
Preferred stock, $.01 par value, 10 million shares
authorized, none issued and outstanding................ -- --
Common stock, $.01 par value, 30 million shares
authorized, 12,253,574 issued and outstanding.......... 123 --
Additional paid-in capital................................ 44,344 --
Unearned stock compensation............................... (1,340) --
Retained earnings......................................... 26 --
------- -------
Total stockholders' equity........................ 43,153 3,244
------- -------
$92,401 $33,614
======= =======
</TABLE>
The Company uses the full cost method to account for its natural gas and oil
properties.
See accompanying notes to the consolidated financial statements.
F-3
<PAGE> 70
BRIGHAM EXPLORATION COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Revenues:
Natural gas and oil sales................................. $ 9,184 $ 6,141 $ 3,578
Workstation revenue....................................... 637 627 635
------- ------- -------
9,821 6,768 4,213
------- ------- -------
Costs and expenses:
Lease operating........................................... 1,151 726 761
Production taxes.......................................... 549 362 165
General and administrative................................ 3,570 2,199 1,897
Depletion of natural gas and oil properties............... 2,732 2,323 1,626
Depreciation and amortization............................. 306 487 533
Amortization of stock compensation........................ 276 -- --
------- ------- -------
8,584 6,097 4,982
------- ------- -------
Operating income (loss)................................ 1,237 671 (769)
------- ------- -------
Other income (expense):
Interest income........................................... 145 52 128
Interest expense.......................................... (1,017) (373) (187)
Interest expense -- related party......................... (173) (800) (749)
------- ------- -------
(1,045) (1,121) (808)
------- ------- -------
Net income (loss) before income taxes....................... 192 (450) (1,577)
Income tax expense.......................................... (1,228) -- --
------- ------- -------
Net loss.................................................. $(1,036) $ (450) $(1,577)
======= ======= =======
Net loss per share:
Basic/Diluted............................................. $ (0.09) $ (0.05) $ (0.18)
Common shares outstanding:
Basic/Diluted............................................. 11,081 8,929 8,929
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE> 71
BRIGHAM EXPLORATION COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNEARNED
--------------------- PAID-IN STOCK RETAINED PREDECESSOR
SHARES AMOUNTS CAPITAL COMPENSATION EARNINGS CAPITAL TOTAL
----------- ------- ---------- ------------ -------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1994..... -- $ -- $ -- $ -- $-- $ 5,271 $ 5,271
Net loss.............. -- -- -- -- -- (1,577) (1,577)
----------- ---- ------- ------- --- ------- -------
Balance,
December 31, 1995..... -- -- -- -- -- 3,694 3,694
Net loss.............. -- -- -- -- -- (450) (450)
----------- ---- ------- ------- --- ------- -------
Balance,
December 31, 1996..... -- -- -- -- -- 3,244 3,244
Consummation of the
Exchange.............. 8,928,574 90 19,580 -- -- (3,244) 16,426
Issuance of stock
options............... -- -- 1,932 (1,932) -- -- --
Issuance of common
stock................. 3,325,000 33 23,894 -- -- -- 23,927
Net loss for period
ended February 27,
1997.................. -- -- (4,869) -- -- -- (4,869)
Net income for period
from February 27, 1997
to Dec. 31, 1997...... -- -- 3,807 -- 26 -- 3,833
(Note 1) Amortization
of unearned stock
compensation....... -- -- -- 592 -- -- 592
----------- ---- ------- ------- --- ------- -------
Balance,
December 31, 1997..... 12,253,574 $123 $44,344 $(1,340) $26 $ -- $43,153
=========== ==== ======= ======= === ======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE> 72
BRIGHAM EXPLORATION COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (1,036) $ (450) $ (1,577)
Adjustments to reconcile net loss to cash provided by
operating activities:
Depletion of natural gas and oil properties............ 2,732 2,323 1,626
Depreciation and amortization.......................... 306 487 533
Amortization of stock compensation..................... 276 -- --
Changes in working capital and other items:
(Increase) decrease in accounts receivable........... (2,213) (1,440) 413
(Increase) decrease in prepaid expenses.............. (128) 25 (107)
Increase in accounts payable......................... 8,955 1,619 128
Increase (decrease) in participant advances
received.......................................... (648) 804 92
Increase in other current liabilities................ 50 60 151
Increase in deferred interest payable -- related
party............................................. 53 320 113
Increase in deferred income tax liability............ 1,228 -- --
Other noncurrent assets.............................. 281 (224) (26)
Other noncurrent liabilities......................... (50) 186 37
-------- -------- --------
Net cash provided by operating activities......... 9,806 3,710 1,383
-------- -------- --------
Cash flows from investing activities:
Additions to natural gas and oil properties............... (57,170) (13,612) (7,935)
Proceeds from the sale of natural gas and oil
properties............................................. 74 2,149 --
Additions to other property and equipment................. (545) (41) (51)
(Increase) decrease in drilling advances paid............. 341 (292) (19)
-------- -------- --------
Net cash used by investing activities............. (57,300) (11,796) (8,005)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock.................... 23,927 -- --
Proceeds from issuance of subordinated notes payable...... -- -- 16,000
Increase in notes payable................................. 37,250 8,000 2,560
Repayment of notes payable................................ (13,250) -- (10,510)
Principal payments on capital lease obligations........... (179) (269) (326)
-------- -------- --------
Net cash provided by financing activities......... 47,748 7,731 7,724
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 254 (355) 1,102
Cash and cash equivalents, beginning of year................ 1,447 1,802 700
-------- -------- --------
Cash and cash equivalents, end of year...................... $ 1,701 $ 1,447 $ 1,802
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 1,679 $ 762 $ 654
======== ======== ========
Supplemental disclosure of noncash investing and financing
activities:
Capital lease asset additions............................. $ 403 $ 101 $ 208
======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE> 73
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS
Brigham Exploration 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 partnership interests of Brigham Oil & Gas, L.P. (the
"Partnership"). Hereinafter, Brigham Exploration Company and the Partnership are
collectively referred to as "the Company." Brigham, Inc. is a Nevada corporation
whose only asset is its ownership interest in the Partnership. 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 primarily in the Permian and Hardeman Basins of
West Texas, the Anadarko Basin and the onshore Gulf Coast.
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 the public offering of
common stock (the "Offering"), the shareholders of Brigham, Inc. transferred all
of the outstanding stock of Brigham, Inc. to the Company in exchange for
3,859,821 shares of common stock of the Company. 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
3,314,286 shares of common stock of the Company. Furthermore, the holders of the
Partnership's subordinated convertible notes transferred these notes to the
Company in exchange for 1,754,464 shares of common stock. 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 a result of the Exchange, the Company now owns all the
partnership interests in the Partnership. In May 1997, the Company sold
3,325,000 shares of its common stock in the Offering at a price of $8.00 per
share. With a portion of the proceeds from the Offering, the Company repaid the
$13.3 million in outstanding borrowings under the existing revolving credit
facility.
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.
The Exchange has been reflected in the consolidated financial statements of
the Company as a reorganization.
Principles of Consolidation
The accompanying financial statements include the accounts of the Company
and its wholly-owned subsidiaries, and its proportionate share of assets,
liabilities and income and expenses of the limited partnerships in which the
Company, or any of its subsidiaries has a participating interest. All
significant intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid financial instruments with an
original maturity of three months or less to be cash equivalents.
F-7
<PAGE> 74
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment
The Company 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 certain payroll and other internal costs,
incurred for the purpose of finding natural gas and oil reserves are
capitalized. Costs associated with production and general corporate activities
are expensed in the period incurred.
The capitalized costs of the Company's natural gas and oil properties plus
future development, dismantlement, restoration and abandonment costs (the
"Amortizable Base"), net of estimated of salvage values, are amortized using the
unit-of-production method based upon estimates of total proved reserve
quantities. The Company's capitalized costs of its natural gas and oil
properties, net of accumulated amortization, 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. 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 Company of the 3-D seismic data associated with unproved
properties, the geological and geophysical costs related to 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.
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
The Company recognizes natural gas and oil sales from its interests in
producing wells under the sales method of accounting. Under the sales method,
the Company recognizes revenues based on the amount of natural gas or oil sold
to purchasers, which may differ from the amounts to which the Company is
entitled based on its interest in the properties. Gas balancing obligations as
of December 31, 1995, 1996 and 1997 were not significant. Net realized gains or
losses arising from the Company's crude oil price swaps (see Note 10) are
recognized in the period incurred as a component of natural gas and oil sales.
Industry participants in the Company's seismic programs are charged on an
hourly basis for the work performed by the Company on its 3-D seismic
interpretation workstations. The Company recognizes workstation revenue as
service is provided.
F-8
<PAGE> 75
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Federal and State Income Taxes
Prior to the consummation of the Exchange, there was no income tax
provision included in the financial statements as the Partnership was not a
taxpaying entity. Income and losses were passed through to its partners on the
basis of the allocation provisions established by the partnership agreement.
Upon consummation of the Exchange, the Partnership became subject to federal
income taxes through its ownership by the Company.
In conjunction with the Exchange, the Company recorded a deferred income
tax liability of $5 million to recognize the temporary differences between the
financial statement and tax bases of the assets and liabilities of the
Partnership at the Exchange date, February 27, 1997, given the provisions of
enacted tax laws. Subsequent to this date, the Company elected to record a
step-up in basis of its assets for tax purposes as a result of the Exchange.
Related to this election, the Company recorded a $3.8 million deferred income
tax benefit, resulting in a net $1.2 million deferred income tax charge for the
year ended December 31, 1997.
Earnings Per Share
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 128 "Earnings per Share." This statement establishes new standards
for computing and presenting earnings per share ("EPS") and requires restatement
of all prior-period EPS information.
Recent Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which will become effective for the Company in
1998. SFAS No. 130 will require companies to present certain items as separate
components of stockholders' equity. Management does not believe that the effect
of implementing this standard will materially impact the Company's financial
statements.
3. ACQUISITION
On November 12, 1997, the Company acquired a 50% interest in certain
producing properties in Grady County, Oklahoma (the "Acquisition"). These
properties were formerly owned by Mobil and were acquired by Ward Petroleum. The
acquisition has been accounted for as a purchase and the results of operations
of the properties acquired are included in the Company's results of operations
effective September 1, 1997. The purchase price of $13.4 million was financed
primarily through the Company's existing revolving credit facility and was based
on the Company's determination of the fair value of the assets acquired.
Pro Forma Information
The following unaudited pro forma statement of operations information has
been prepared to give effect to the Acquisition as if the transaction had
occurred at the beginning of 1996 and 1997. The historical results of operations
have been adjusted to reflect (i) the difference between the acquired
properties' historical depletion and such expense calculated based on the value
allocated to the acquired assets, (ii) the increase in interest expense
associated with the debt issued in the transaction, and (iii) the increase in
federal income taxes related to historical net income attributable to the
properties acquired. The pro forma amounts do not
F-9
<PAGE> 76
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
purport to be indicative of the results of operations that would have been
reported had the Acquisition occurred as of the dates indicated, or that may be
reported in the future (in thousands).
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED
DECEMBER 31,
----------------
1997 1996
------- ------
<S> <C> <C>
Revenues.................................................... $11,194 $8,516
Costs and expenses:
Lease operating and production taxes...................... 1,864 1,300
General and administrative................................ 3,570 2,199
Depletion of natural gas and oil properties............... 3,307 2,791
Depreciation and amortization............................. 582 487
Interest expense, net..................................... 2,235 2,355
------- ------
Total costs and expenses.................................. 11,558 9,132
------- ------
Net loss before income taxes................................ (364) (616)
Income tax expense........................................ 1,039 --
------- ------
Net loss.................................................... $(1,403) $ (616)
======= ======
Net loss per share:
Basic/Diluted............................................. $ (0.13) $(0.07)
======= ======
Common shares outstanding:
Basic/Diluted............................................. 11,081 8,929
======= ======
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment, at cost, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
------- -------
<S> <C> <C>
Natural gas and oil properties.............................. $96,458 $37,555
Accumulated depletion....................................... (12,282) (9,550)
------- -------
84,176 28,005
------- -------
Other property and equipment:
3-D seismic interpretation workstations and software...... 1,693 1,456
Office furniture and equipment............................ 1,095 384
Accumulated depreciation.................................. (1,549) (1,308)
------- -------
1,239 532
------- -------
$85,415 $28,537
======= =======
</TABLE>
The Company sold its interest in certain producing properties for $2.1
million and $74,000 during 1996
and 1997, respectively. No gain or loss was recognized on these transaction
because the Company applies the full cost method of accounting for its
investment in natural gas and oil properties.
The Company capitalizes certain payroll and other internal costs directly
attributable to acquisition, exploration and development activities as part of
its investment in natural gas and oil properties over the periods benefited by
these activities. During the years ended December 31, 1995, 1996 and 1997,
certain payroll and other internal costs incurred of $1,640,196, $1,826,013 and
$3,330,518, respectively, were capitalized.
F-10
<PAGE> 77
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. NOTES PAYABLE AND SUBORDINATED NOTES PAYABLE
In April 1996, the Company entered into a revolving credit facility with
Bank One, Texas, NA (the "Bank One Facility") which provided for borrowings up
to $25 million. On November 10, 1997, the Bank One Facility was amended and the
amount available under the agreement was increased to $75 million. The Company's
borrowings under the Bank One Facility were limited to a borrowing base
determined periodically by the lender. This determination was based upon the
Company's proved net gas and oil properties.
The amounts outstanding under the revolving credit facility, excluding a
$5.4 million special advance made November 12, 1997, bore 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 rate
of interest per annum established from time to time by the lender. Interest
accrued on the $5.4 million special advance at 11.50% per annum. The Company
also paid a quarterly commitment fee of 0.5% per annum for the unused portion of
the borrowing base.
In January 1998, the Company entered into a reserve-based revolving credit
facility with the Bank of Montreal (the "Bank of Montreal Facility"). The Bank
of Montreal Facility provides for borrowings up to $75 million until January 31,
1999, at which time the borrowing available will be redetermined by the Bank of
Montreal based on the Company's proved reserve value at that time. The Company
may elect, at its option, to have the borrowing availability redetermined based
on the Company's proved reserve value at any time prior to January 31, 1999.
Amounts outstanding under the Bank of Montreal Facility bear interest at either
the lender's Base Rate or LIBOR plus 2.25%, at the Company's option. The
Company's obligations under the Bank of Montreal Facility are secured by
substantially all of the natural gas and oil properties of the Company. A
portion of the funds available under the Bank of Montreal Facility were used to
repay in full the Bank One Facility.
The subordinated notes payable bore interest at 5% per annum and were due
in 2002. The notes were convertible into a 20% interest in the Company at any
time prior to maturity and were unsecured. Interest payments of 3% were due
semi-annually and the remaining 2% was deferred until maturity. Pursuant to the
Exchange (see Note 1), the holders of these notes exchanged the notes and
related deferred interest for shares of the Company's common stock.
6. CAPITAL LEASE OBLIGATIONS
Property under capital leases consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1997 1996
----- -----
<S> <C> <C>
3-D seismic interpretation workstations and software........ $ 497 $ 525
Office furniture and equipment.............................. 204 17
----- -----
701 542
Accumulated depreciation and amortization................... (241) (305)
----- -----
$ 460 $ 237
===== =====
</TABLE>
F-11
<PAGE> 78
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The obligations under capital leases are at fixed interest rates ranging
from 9% 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, 1997 are as follows (in
thousands):
<TABLE>
<S> <C>
1998........................................................ $ 261
1999........................................................ 185
2000........................................................ 99
2001........................................................ 40
2002........................................................ 24
-----
Total minimum lease payments................................ 609
Estimated executory costs included in capital leases...... (73)
-----
Net minimum lease payments.................................. 536
Amounts representing interest............................. (81)
-----
Present value of net minimum lease payments................. 455
Less: current portion....................................... (181)
-----
Noncurrent portion.......................................... $ 274
=====
</TABLE>
7. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Current income taxes:
Federal................................................... $ --
State..................................................... --
Deferred income taxes:
Federal................................................... 1,228
State..................................................... --
------
$1,228
======
</TABLE>
The difference in income taxes provided and the amounts determined by
applying the federal statutory tax rate to income before income taxes result
from the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Tax at statutory rate....................................... $ 65
Add (deduct) the effect of:
January and February income, not taxable.................. (44)
Nondeductible expenses.................................... 14
Tax effect of Exchange.................................... 1,193
------
$1,228
======
</TABLE>
F-12
<PAGE> 79
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of deferred income tax assets and liabilities are as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 5,563
Amortization of stock compensation........................ 94
Other..................................................... 3
-------
5,660
Deferred tax liability:
Depreciable and depletable property....................... (6,888)
-------
$(1,228)
=======
</TABLE>
The Company has regular and alternative minimum tax net operating loss
carryforwards of approximately $16,361 million and $8,441 million, respectively,
each including separate return limitation year carryovers of approximately
$1,352 million, which expire by December 31, 2012.
8. EARNINGS PER SHARE
Earnings per share have been calculated in accordance with the provisions
of SFAS No. 128. The implementation of the standard has resulted in the
presentation of a basic EPS calculation in the consolidated financial statements
as well as a diluted EPS calculation. Basic EPS is computed by dividing net
income (loss) applicable to common shareholders by the weighted average number
of common shares outstanding during each period. Diluted EPS is computed by
dividing net income (loss) applicable to common shareholders by the weighted
average number of common shares and common share equivalents outstanding (if
dilutive), during each period. The number of common share equivalents
outstanding is computed using the treasury stock method.
Historical earnings per common share for 1996 and 1995 is based on shares
issued upon consummation of the Exchange, assuming such shares has been
outstanding for all periods presented. Earnings per share for 1997 is presented
giving effect to the shares issued pursuant to the Exchange as well as shares
issued in the initial public offering.
At December 31, 1997, options to purchase 644,097 shares of common stock
were outstanding but were not included in the computation of diluted earnings
per share due to the anti-dilutive effect they would have on EPS if converted.
In January 1998, the Company granted 309,247 stock options under the 1997
incentive plan (the "1997 Incentive Plan") with an exercise price of $12.88.
9. COMMITMENTS AND CONTINGENCIES
The Company 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 Company.
F-13
<PAGE> 80
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company 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, 1997, are
as follows (in thousands):
<TABLE>
<S> <C>
1998................................................ $ 765
1999................................................ 763
2000................................................ 684
2001................................................ 684
2002................................................ 342
------
$3,238
======
</TABLE>
Rental expense for the years ended December 31, 1995, 1996 and 1997 was
$239,715, $253,112 and $606,173, respectively.
Since the Company's major products are commodities, significant changes in
the prices of natural gas and oil could have a significant impact on the
Company's results of operations for any particular year.
As of December 31, 1997, there were no known environmental or other
regulatory matters related to the Company's operations which are reasonably
expected to result in a material liability to the Company. Compliance with
environmental laws and regulations has not had, and is not expected to have, a
material adverse effect on the Company's capital expenditures, earnings or
competitive position.
During 1997, approximately 14% and 12% of the Company's natural gas and oil
production was sold to two separate customers. During 1996, approximately 16%,
12% and 10% of the Company's natural gas and oil production was sold to three
separate customers. During 1995, approximately 14%, 11%, 10% and 10% of the
Company's natural gas and oil production was sold to four separate customers.
However, due to the availability of other markets, the Company does not believe
that the loss of any one of these individual customers would adversely affect
the Company's result of operations.
10. FINANCIAL INSTRUMENTS
The Company periodically enters into commodity 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 natural gas
or crude oil without the exchange of the underlying volumes. The notional
amounts of these derivative financial instruments are based on planned
production from existing wells. The Company uses these derivative financial
instruments to manage market risks resulting from fluctuations in commodity
prices. Commodity price swaps are effective in minimizing these risks by
creating essentially equal and offsetting market exposures. The derivative
financial instruments held by the Company are not leveraged and are held for
purposes other than trading.
At December 31, 1996, the Company was a party to crude oil 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 expired 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 Company was not a party to
any swap agreements at December 31, 1997.
In February 1998, the Company entered into a hedging contract whereby
natural gas is purchased and sold subject to a fixed price swap agreement for
monthly periods from April 1998 through October 1999. Total natural gas subject
to this hedging contract is 2,750,000 MMBtu in 1998 and 3,040,000 MMBtu in 1999.
The Company'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
F-14
<PAGE> 81
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
receivable and accounts payable approximate fair value because of their
immediate or short maturities. The carrying value of the Company's revolving
credit facility (see Note 5) approximates its fair market value since it bears
interest at floating market interest rates. At December 31, 1996, the carrying
amount of the Company's subordinated notes payable exceeded the fair market
value by $1.9 million, based on current rates offered to the Company for debt of
the same remaining maturity.
The Company's accounts receivable relate to natural gas and oil sales to
various industry companies, amounts due from industry participants for
expenditures made by the Company on their behalf and workstation revenues.
Credit terms, typical of industry standards, are of a short-term nature and the
Company does not require collateral. The Company's accounts receivable at
December 31, 1997 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.
11. EMPLOYEE BENEFIT PLANS
Retirement Savings Plan
During 1996 the Company 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 Company
may, at its discretion, match employee contributions. The Company did not match
employee contributions in 1997 or 1996.
Stock Compensation
In 1994 three employees were granted restricted interests in the Company
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 (see Note 1), the three employees transferred these company 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 company interests
are substantially the same. The shares vest over a three-year period ending in
1999. No compensation expense will result from this exchange.
The Company adopted an incentive plan, effective upon completion of the
Exchange (see Note 1), which provides for the issuance of stock options, stock
appreciation rights, stock, restricted stock, cash or any combination of the
foregoing. The objective of this plan is to reward key employees whose
performance may have a significant effect on the success of the Company. An
aggregate of 1,588,170 shares of the Company's common stock was 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 granted 644,097 stock options as of March 4, 1997. These
options were granted under the 1997 Incentive Plan established as part of the
Exchange (Note 1). These options have contractual lives of 7.3 years and have an
exercise price of $5.00 compared to the public offering price of $8.00. This
grant resulted in noncash compensation expense which is recognized over the
appropriate vesting period. None of these options were exercisable at December
31, 1997.
As provided under SFAS 123, the Company estimates that the fair value of
these options on their grant date, using the Black-Scholes Option Pricing Model,
was $3.4 million ($5.32 per option). This valuation was determined using the
following assumptions: risk free interest rate of 6.24%; volatility factor of
the expected market prices 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 $3.4
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,
1997 of $1.3 million, or $0.11 per common share.
F-15
<PAGE> 82
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. RELATED PARTY TRANSACTIONS
During the years ended December 31, 1995, 1996 and 1997, the Company paid
approximately $382,000, $596,000 and $837,000 respectively, in fees for land
acquisition services performed by a company owned by a brother of the Company's
President and Chief Executive Officer. Other participants in the Company's 3-D
seismic projects reimbursed the Company for a portion of these amounts.
The Company also participated in various industry projects with affiliates
of the holder of the subordinated notes payable (see Note 5). During 1996 and
1997, the Company received approximately $123,000 and $50,000, respectively, for
workstation and geoscientists' time spent interpreting 3-D seismic data and
workstation use. In 1997, the Company paid approximately $214,000 for an
interest in an exploration project sold by the affiliates. The Company billed
the affiliates $197,000 in 1997 for their proportionate share of the costs
related to this and other projects in which the affiliates participate. The
Company also sold to an affiliate of the holders of the subordinated notes
payable an interest in (i) a 3-D project for approximately $75,000 in 1995 and
(ii) two 3-D delineated potential drilling locations and 3-D seismic data for
approximately $83,000 in 1996.
In 1996 and 1997, the Company paid $110,000 and $18,000 for working
interests in natural gas and oil properties owned by affiliates of a member of
the Company's board of directors/management committee. The Company billed the
affiliates $13,000 and $68,000 in 1995 and 1996, respectively, for their
proportionate share of the costs related to this project.
A limited partner and member of the Company's management committee served
as a consultant to the Company on various aspects of the Company's business and
strategic issues. Fees paid for these services by the Company were $72,000,
$79,200 and $86,580 for the twelve month periods ended December 31, 1995, 1996
and 1997, respectively. Additional disbursements totaling approximately $13,000
were made during 1997 for the reimbursement of certain expenses.
13. 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,
------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Natural gas and oil sales.................................. $9,184 $6,141 $3,578
Costs and expenses:
Lease operating.......................................... 1,151 726 761
Production taxes......................................... 549 362 165
Depletion of natural gas and oil properties.............. 2,732 2,323 1,626
Income taxes............................................. 1,322 -- --
------ ------ ------
Total costs and expenses................................... 5,754 3,411 2,552
------ ------ ------
$3,430 $2,730 $1,026
====== ====== ======
Depletion per physical unit of production (equivalent Mcf
of gas).................................................. $ 0.87 $ 1.13 $ 1.22
====== ====== ======
</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
F-16
<PAGE> 83
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
include production and severance taxes. No provision was made for income taxes
for 1995 and 1996 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,
---------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Costs incurred for the year:
Exploration........................................... $29,421 $10,527 $ 6,893
Property acquisition.................................. 26,922 6,195 1,885
Development........................................... 2,953 1,328 713
Proceeds from participants............................ (319) (4,111) (1,296)
------- ------- -------
$58,977 $13,939 $ 8,195
======= ======= =======
</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.
Capitalized costs related to natural gas and oil acquisition, exploration
and development activities follow (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
-------- -------
<S> <C> <C>
Cost of natural gas and oil properties at year-end:
Proved.................................................... $ 67,615 $30,487
Unproved.................................................. 28,843 7,068
-------- -------
Total capitalized costs................................... 96,458 37,555
Accumulated depletion..................................... (12,282) (9,550)
-------- -------
$ 84,176 $28,005
======== =======
</TABLE>
Following is a summary of costs (in thousands) excluded from depletion at
December 31, 1997, by year incurred. At this time, the Company 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>
DECEMBER 31,
----------------------- PRIOR
1997 1996 1995 YEARS TOTAL
------- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C>
Property acquisition...................... $17,382 $2,515 $694 $1,852 $22,443
Exploration............................... 4,393 1,242 234 531 6,400
------- ------ ---- ------ -------
Total..................................... $21,775 $3,757 $928 $2,383 $28,843
======= ====== ==== ====== =======
</TABLE>
F-17
<PAGE> 84
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. NATURAL GAS AND OIL RESERVES AND RELATED FINANCIAL DATA (UNAUDITED)
Information with respect to the Company'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 Company's independent petroleum consultants and internal
petroleum reservoir engineer.
Natural Gas and Oil Reserve Data
The following tables present the Company's estimates of its proved natural
gas and oil reserves. The Company 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, 1994........................ 3,579 1,022
Revisions to previous estimates........................... (1,600) (214)
Extensions, discoveries and other additions............... 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 to 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
Revisions of previous estimates........................... (3,044) (447)
Extensions, discoveries and other additions............... 33,721 735
Purchase of minerals-in-place............................. 13,718 1,244
Sales of minerals-in-place................................ (40) --
Production................................................ (1,382) (291)
------ -----
Proved reserves at December 31, 1997........................ 53,230 3,181
====== =====
Proved developed reserves at December 31:
1995...................................................... 3,819 1,274
1996...................................................... 6,034 1,453
1997...................................................... 30,677 2,665
</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.
F-18
<PAGE> 85
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED 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 Company'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 Company's natural gas and oil reserves.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Future cash inflows.................................. $165,156 $ 84,987 $ 38,333
Future development and production costs.............. (40,923) (20,998) (12,543)
Future income taxes.................................. (22,919) -- --
-------- -------- --------
Future net cash inflows.............................. $101,314 $ 63,989 $ 25,790
======== ======== ========
Future net cash inflow before income taxes,
discounted at 10% per annum........................ $ 69,249 $ 44,506 $ 18,222
======== ======== ========
Standardized measure of future net cash inflows
discounted at 10% per annum........................ $ 64,274 $ 44,506 $ 18,222
======== ======== ========
</TABLE>
The average natural gas and oil prices used to calculate the future net
cash inflows at December 31, 1997 were $16.64 per barrel and $2.11 per Mcf,
respectively. At December 31, 1997, the NYMEX price for natural gas was $2.26
per MMBtu and the NYMEX price for oil was $17.64 per barrel. From January 1,
1998 to March 24, 1997, the NYMEX price for natural gas ranged from $2.00 per
MMBtu to $2.38 per MMBtu and the NYMEX price for oil ranged from $13.21 per
barrel to $17.82 per barrel.
Changes in the future net cash inflows discounted at 10% per annum follow:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Beginning of period.................................... $ 44,506 $18,222 $10,240
Sales of natural gas and oil produced, net of
production costs.................................. (7,484) (5,053) (2,652)
Development costs incurred........................... 1,955 246 169
Extensions and discoveries........................... 38,016 29,457 11,669
Purchases of minerals-in-place....................... 16,965 384 --
Sales of minerals-in-place........................... (94) (2,380) (198)
Net change of prices and production costs............ (20,466) 7,023 1,394
Change in future development costs................... 319 303 419
Changes in production rates and other................ (1,954) (342) (364)
Revisions of quantity estimates...................... (6,964) (5,176) (3,479)
Accretion of discount................................ 4,450 1,822 1,024
Change in income taxes............................... (4,975) -- --
-------- ------- -------
End of period.......................................... $ 64,274 $44,506 $18,222
======== ======= =======
</TABLE>
F-19
<PAGE> 86
BRIGHAM EXPLORATION COMPANY
CONDENSED CONSOLIDATED
BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 1,701 $ 1,800
Accounts receivable....................................... 4,909 5,510
Prepaid expenses.......................................... 280 267
------- --------
Total current assets.............................. 6,890 7,577
------- --------
Natural gas and oil properties, at cost, net................ 84,176 96,676
Other property and equipment, at cost, net.................. 1,239 1,374
Drilling advances paid...................................... 78 62
Deferred loan fees.......................................... -- 1,805
Other noncurrent assets..................................... 18 14
------- --------
$92,401 $107,508
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $11,892 $ 5,819
Accrued drilling costs.................................... 2,406 3,071
Participant advances received............................. 489 3,110
Other current liabilities................................. 726 1,374
------- --------
Total current liabilities......................... 15,513 13,374
------- --------
Notes payable............................................... 32,000 50,000
Other noncurrent liabilities................................ 507 478
Deferred income tax liability............................... 1,228 914
Stockholders' equity:
Preferred stock, $.01 par value, 10 million shares
authorized, none issued and outstanding................ -- --
Common stock, $.01 par value, 30 million shares
authorized, 12,253,574 issued and outstanding.......... 123 123
Additional paid-in capital................................ 44,344 44,344
Unearned stock compensation............................... (1,340) (1,136)
Retained earnings (accumulated deficit)................... 26 (589)
------- --------
Total stockholders' equity........................ 43,153 42,742
------- --------
$92,401 $107,508
======= ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
F-20
<PAGE> 87
BRIGHAM EXPLORATION COMPANY
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------
1997 1998
------- ------
<S> <C> <C>
Revenues:
Natural gas and oil sales................................. $ 2,136 $3,143
Workstation revenue....................................... 164 114
------- ------
2,300 3,257
------- ------
Costs and expenses:
Lease operating........................................... 206 414
Production taxes.......................................... 127 188
General and administrative................................ 702 1,154
Depletion of natural gas and oil properties............... 687 1,267
Depreciation and amortization............................. 108 83
Amortization of stock compensation 29 95
------- ------
1,859 3,201
------- ------
Operating income....................................... 441 56
------- ------
Other income (expense):
Interest income........................................... 18 37
Interest expense.......................................... (216) (1,022)
Interest expense -- related party......................... (174) --
------- ------
(372) (985)
------- ------
Net income (loss) before income taxes....................... 69 (929)
Income tax (expense) benefit................................ (4,964) 314
------- ------
Net loss.................................................. $(4,895) $ (615)
======= ======
Net loss per share:
Basic/Diluted............................................. $ (0.55) $(0.05)
Weighted average common shares outstanding:
Basic/Diluted............................................. 8,929 12,254
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
F-21
<PAGE> 88
BRIGHAM EXPLORATION COMPANY
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE THREE
MONTHS ENDED MONTHS ENDED
MARCH 31, MARCH 31,
1997 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(4,895) $ (615)
Adjustments to reconcile net loss to cash provided by
operating activities:
Depletion of natural gas and oil properties............ 687 1,267
Depreciation and amortization.......................... 108 83
Amortization of stock compensation..................... 29 95
Amortization of deferred loan fees..................... -- 106
Changes in deferred income tax liability............... 4,964 (314)
Changes in working capital and other items............. 3,331 (3,418)
------- --------
Net cash provided (used) by operating
activities...................................... 4,224 (2,796)
------- --------
Cash flows from investing activities:
Additions to natural gas and oil properties............... (6,830) (12,993)
Additions to other property and equipment................. (33) (159)
(Increase) decrease in drilling advances paid............. (321) 16
Increase in exploration advances paid..................... (117) --
------- --------
Net cash used by investing activities................ (7,301) (13,136)
------- --------
Cash flows from financing activities:
Increase in notes payable................................. 2,850 52,800
Repayment of notes payable................................ -- (34,800)
Principal payments on capital lease obligations........... (56) (58)
Deferred loan fees........................................ -- (1,911)
------- --------
Net cash provided by financing activities............ 2,794 16,031
------- --------
Net (decrease) increase in cash and cash equivalents........ (283) 99
Cash and cash equivalents, beginning of period.............. 1,447 1,701
------- --------
Cash and cash equivalents, end of period.................... $ 1,164 $ 1,800
======= ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
F-22
<PAGE> 89
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND NATURE OF OPERATIONS
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 partnership interests of Brigham Oil &
Gas, L.P. (the "Partnership"). Brigham, Inc. is a Texas corporation whose only
asset is its ownership interest in the Partnership. 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 West Texas, the Anadarko Basin and the onshore
Gulf Coast.
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 the public offering of
common stock (the "Offering"), the shareholders of Brigham, Inc. transferred all
of the outstanding stock of Brigham, Inc. to the Company in exchange for
3,859,821 shares of common stock of the Company. 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
3,314,286 shares of common stock of the Company. Furthermore, the holders of the
Partnership's subordinated convertible notes transferred these notes to the
Company in exchange for 1,754,464 shares of common stock. 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 a result of the Exchange, the Company now owns all the
partnership interests in the Partnership.
In May 1997, the Company sold 3,325,000 shares of its common stock in the
Offering at a price of $8.00 per share. With a portion of the proceeds from the
Offering, the Company repaid the then outstanding borrowings ($13.3 million)
under the Company's revolving credit facility.
2. BASIS OF PRESENTATION
The unaudited condensed consolidated balance sheets at December 31, 1997
and March 31, 1998 reflect the consolidated accounts of the Company. The
unaudited condensed consolidated statements of operations and of cash flows for
the three months ended March 31, 1997 and 1998 include the results of operations
and of cash flows of the Partnership for the period from January 1, 1997 to
February 27, 1997 and of the Company for the period from February 25, 1997, the
date of its inception, to March 31, 1997 and for the three months ended March
31, 1998. As the Exchange was the conversion of a partnership to a corporation,
the Exchange was accounted for by the Company as a reorganization.
The accompanying condensed consolidated financial statements are unaudited,
and in the opinion of management, reflect all adjustments that are necessary for
a fair presentation of the financial position and results of operations for the
periods presented. All such adjustments are of a normal and recurring nature.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the entire year. The unaudited
condensed consolidated financial statements should be read in conjunction with
the Company's 1997 Annual Report on Form 10-K pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
3. NOTES PAYABLE
In January 1998, the Company entered into a new reserve based revolving
credit facility (the "Credit Facility"). The Credit Facility provides for
borrowings up to $75 million, all of which is immediately available for
borrowing to fund capital expenditures, until January 31, 1999, at which time
the borrowing availability
F-23
<PAGE> 90
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
will be redetermined by the lender based on the Company's proved reserve value
at that time. The Company may elect, at its option, to have the borrowing
availability redetermined based on the Company's proved reserve value at any
time prior to January 31, 1999. Amounts outstanding under the Credit Facility
bear interest at either the lender's Base Rate or LIBOR plus 2.25%, at the
Company's option. The Company's obligations under the Credit Facility are
secured by substantially all of the natural gas and oil properties of the
Company. A portion of the funds borrowed under the Credit Facility were used to
repay in full the debt outstanding under the Company's previous revolving credit
facility.
In connection with the origination of the Credit Facility, certain bank
fees and other expenses totaling approximately $1.9 million were recorded as
deferred costs and will be amortized over the life of the loan which matures
January 26, 2001.
4. INCOME TAXES
Prior to the consummation of the Exchange, the Partnership was not subject
to federal income taxes. Income and losses were passed through to its partners
on the basis of the allocation provisions established by the partnership
agreement. Upon consummation of the Exchange, the Partnership's net income
became subject to federal income taxes through its ownership by the Company.
Also, in conjunction with the Exchange, the Company recorded a deferred income
tax liability of $5 million to recognize the temporary differences between the
financial statement and tax bases of the assets and liabilities of the
Partnership at the Exchange date, February 27, 1997, given the provisions of
enacted tax laws. Subsequent to this date, the Company elected to record a
step-up in basis of its assets for tax purposes as a result of the Exchange. As
a result of this election, the Company recorded a $3.8 million deferred income
tax benefit in the fourth quarter of 1997, which resulted in a net $1.2 million
non-cash deferred income tax charge for the year ended December 31, 1997.
5. EARNINGS PER SHARE
Earnings per share have been calculated in accordance with the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 128. The
implementation of this standard has resulted in the presentation of a basic EPS
calculation in the consolidated financial statements as well as a diluted EPS
calculation. Basic EPS is computed by dividing net income (loss) applicable to
common shareholders by the weighted average number of common shares outstanding
during each period. Diluted EPS is computed by dividing net income (loss)
applicable to common shareholders by the weighted average number of common
shares and common share equivalents outstanding, if dilutive, during each
period. The number of common share equivalents outstanding is computed using the
treasury stock method.
Historical earnings per share for the three months ended March 31, 1997 is
based on shares of common stock issued upon consummation of the Exchange (Note
1). At March 31, 1997 and 1998, options to purchase 644,097 and 935,987,
respectively, shares of common stock were outstanding but were not included in
the computation of diluted EPS due to the anti-dilutive effect they would have
on EPS if converted.
6. REPORTING COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income." The new standard, which is effective
for financial statements issued for periods ending after December 15, 1997,
established standards for reporting, in addition to net income, comprehensive
income and its components including, as applicable, foreign currency items,
minimum pension liability adjustments and unrealized gains and losses on certain
investments in debt and equity securities. Upon adoption, the Company is also
required to reclassify financial statements for earlier periods provided for
F-24
<PAGE> 91
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
comparative purposes. The Company adopted this standard in the first quarter of
1998. There is no difference between the Company's net income as reported and
comprehensive income.
7. SEGMENT REPORTING
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information", which the Company adopted in the first
quarter of 1998. The standard established requirements for reporting information
about operating segments in interim financial reports issued to shareholders. It
also established standards for related disclosures about products and services,
geographic areas and major customers. Under SFAS No. 131, operating segments are
to be determined consistent with management's organization and evaluation of
financial information internally for making operating decisions and assessing
performance. The disclosure provisions of this standard are not applicable for
interim periods in the year of adoption. The adoption of this new standard is
not expected to have a material impact on the Company's consolidated balance
sheet or statement of operations.
F-25
<PAGE> 92
May 26, 1998
Brigham Exploration Company
6300 Bridge Point Parkway
Building Two, Suite 500
Austin, Texas 78730
Re: Evaluation
BRIGHAM EXPLORATION COMPANY
Proved Reserves
As of December 31, 1997
Pursuant to the Guidelines of the Securities
and Exchange Commission for Reporting
Corporate Reserves and Future Net Revenue
Gentlemen:
As requested, we are submitting our estimated proven reserves and future
net cash flows, as of December 31, 1997, attributable to the interest of Brigham
Exploration Company in certain natural gas and oil 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 Tables I-P, I-PDP, I-PDNP and I-PUD, respectively. The proved
reserves and economics for all three groups 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...................... 2,146,422 26,002,050 $ 67,895,820 $44,240,260
Non-Producing.................. 518,606 4,674,717 14,544,070 3,980,896
Proved Undeveloped............... 516,290 22,552,930 41,783,310 21,028,250
--------- ----------- ------------ -----------
Total Proved................ 3,181,318 53,229,700 $124,233,200 $69,249,406
========= =========== ============ ===========
</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 effect 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 interest in acreage
beyond the location for which undeveloped reserves have been estimated.
Oil and gas prices being received at December 31, 1997 were utilized as
furnished. Direct lease operating expenses are based on 1996 and 1997 historical
data and do not include general and administrative 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
A-1
<PAGE> 93
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 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 cost 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
volume and future net revenue.
Ownership was accepted as furnished and has not been independently
confirmed. We are independent registered professional engineers and geologists.
We do not own an interest in the properties or Brigham Exploration Company and
are not employed on a contingent basis. Our work-papers 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
AC:rkf
A-2
<PAGE> 94
======================================================
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
Disclosure Regarding Forward-Looking
Statements.............................. 12
Risk Factors.............................. 12
The Company............................... 19
Use of Proceeds........................... 20
Price Range of Common Stock and Dividend
Policy.................................. 20
Capitalization............................ 21
Selected Financial Data................... 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 24
Business and Properties................... 32
Management................................ 49
Certain Transactions...................... 56
Principal and Selling Stockholders........ 58
Description of Capital Stock.............. 59
Shares Eligible for Future Sale........... 61
Underwriting.............................. 62
Legal Matters............................. 63
Experts................................... 63
Available Information..................... 63
Glossary of Certain Oil and Gas Terms..... 64
Index to Financial Statements............. F-1
Letter of Cawley, Gillespie & Associates,
Inc..................................... A-1
</TABLE>
---------------------
UNTIL , 1998 (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.
======================================================
======================================================
3,400,000 SHARES
BRIGHAM LOGO
COMMON STOCK
----------------
PROSPECTUS
----------------
BEAR, STEARNS & CO. INC.
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
HOWARD, WEIL,
LABOUISSE, FRIEDRICHS
INCORPORATED
, 1998
======================================================
<PAGE> 95
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........................................ $ 13,940
NASD Filing Fee............................................. 5,100
Nasdaq National Market Listing Fee.......................... 17,500
Blue Sky Qualification Fees and Expenses.................... 2,000
Accounting Fees and Expenses................................ 35,000
Legal Fees and Expenses..................................... 50,000
Engineering Fees and Expenses............................... --
Transfer Agent and Registrar Fees........................... 1,500
Printing and Engraving Expenses............................. 65,000
Miscellaneous............................................... 129,960
--------
Total............................................. $320,000
========
</TABLE>
- ---------------
* To be provided by amendment.
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, 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> 96
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 10.23 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 conducts 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 1,759,464 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 that remain
outstanding to purchase an aggregate of 935,987 shares of Common Stock, subject
to vesting, and issued 156,250 shares of restricted stock to officers and key
employees.
II-2
<PAGE> 97
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 (filed as Exhibit 2.1 to the Company's
Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
3.1 -- Certificate of Incorporation (filed as Exhibit 3.1 to the
Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
3.2 -- Bylaws (filed as Exhibit 3.2 to the Company's
Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
4.1 -- Form of Common Stock Certificate (filed as Exhibit 4.1 to
the Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
5+ -- Opinion of Thompson & Knight, A Professional Corporation
10.1 -- 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 (filed as Exhibit
10.2 to the Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
10.2 -- Regulations of Quest Resources, L.L.C. (filed as Exhibit
10.3 to the Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
10.3 -- 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. (filed as Exhibit 10.4 to the Company's
Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.4*+ -- Consulting Agreement, dated May 1, 1997, by and between
Brigham Oil & Gas, L.P. and Harold D. Carter.
10.5* -- Employment Agreement, by and between Brigham Exploration
Company and Ben M. Brigham (filed as Exhibit 10.7 to the
Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
10.6* -- Form of Confidentiality and Noncompete Agreement between
the Registrant and each of its executive officers (filed
as Exhibit 10.8 to the Company's Registration Statement
on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.7* -- 1997 Incentive Plan of Brigham Exploration Company (filed
as Exhibit 10.9 to the Company's Registration Statement
on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.7.1* -- Form of Option Agreement for certain executive officers
(filed as Exhibit 10.9.1 to the Company's Registration
Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
</TABLE>
II-3
<PAGE> 98
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.7.2* -- Option Agreement dated as of March 4, 1997, by and
between Brigham Exploration Company and Jon L. Glass
(filed as Exhibit 10.9.2 to the Company's Registration
Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.8* -- Incentive Bonus Plan dated as of February 28, 1997 of
Brigham, Inc. and Brigham Oil & Gas, L.P. (filed as
Exhibit 10.10 to the Company's Registration Statement on
Form S-1 (Registration No. 333-22491), and incorporated
herein by reference).
10.9.1+ -- First Amendment to Two Bridge Point Lease Agreement dated
April 11, 1997 between Investors Life Insurance Company
of North America and Brigham Oil & Gas, L.P.
10.9.2+ -- Second Amendment to Two Bridge Point Lease Agreement
dated October 13, 1997 between Investors Life Insurance
Company of North America and Brigham Oil & Gas, L.P.
10.9.3+ -- Letter dated April 17, 1998 exercising Right of First
Refusal to Lease "3rd Option Space."
10.9 -- Two Bridge Point Lease Agreement, dated September 30,
1996, by and between Investors Life Insurance Company of
North America and Brigham Oil & Gas, L.P. (filed as
Exhibit 10.14 to the Company's Registration Statement on
Form S-1 (Registration No. 333-22491), and incorporated
herein by reference).
10.10 -- Anadarko Basin Seismic Operations Agreement, dated
February 15, 1996, by and between Brigham Oil & Gas, L.P.
and Veritas Geophysical, Ltd. (filed as Exhibit 10.15 to
the Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
10.10.1 -- Letter Amendment to Anadarko Basin Seismic Operations
Agreement, dated June 10, 1996, between Brigham Oil &
Gas, L.P. and Veritas Geophysical, Ltd. (filed as Exhibit
10.15.1 to the Company's Registration Statement on Form
S-1 (Registration No. 333-22491), and incorporated herein
by reference).
10.11 -- Expense Allocation and Participation Agreement, dated
April 1, 1996, between Brigham Oil & Gas, L.P. and Gasco
Limited Partnership. (filed as Exhibit 10.16 to the
Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
10.11.1 -- Amendment to Expense Allocation and Participation
Agreement, dated October 21, 1996, between Brigham Oil &
Gas, L.P. and Gasco Limited Partnership (filed as Exhibit
10.16.1 to the Company's Registration Statement on Form
S-1 (Registration No. 333-22491), and incorporated herein
by reference).
10.12 -- Expense Allocation and Participation Agreement, dated
April 1, 1996, between Brigham Oil & Gas, L.P. and Middle
Bay Oil Company, Inc. (filed as Exhibit 10.17 to the
Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
10.12.1 -- Amendment to Expense Allocation and Participation
Agreement, dated September 26, 1996, between Brigham Oil
& Gas, L.P. and Middle Bay Oil Company, Inc. (filed as
Exhibit 10.17.1 to the Company's Registration Statement
on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.12.2 -- Letter Amendment to Expense Allocation and Participation
Agreement, dated May 20, 1996, between Brigham Oil & Gas,
L.P. and Middle Bay Oil Company, Inc. (filed as Exhibit
10.17.2 to the Company's Registration Statement on Form
S-1 (Registration No. 333-22491), and incorporated herein
by reference).
</TABLE>
II-4
<PAGE> 99
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.13 -- Anadarko Basin Joint Participation Agreement, dated May
1, 1996, by and among Stephens Production Company and
Brigham Oil & Gas, L.P. (filed as Exhibit 10.18 to the
Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
10.14 -- Anadarko Basin Joint Participation Agreement, dated May
1, 1996, by and between Vintage Petroleum, Inc. and
Brigham Oil & Gas, L.P. (filed as Exhibit 10.19 to the
Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
10.15 -- Processing Alliance Agreement, dated July 20, 1993,
between Veritas Seismic Ltd. and Brigham Oil & Gas, L.P.
(filed as Exhibit 10.20 to the Company's Registration
Statement on Form S-1 (Registration No. 333- 22491), and
incorporated herein by reference).
10.15.1 -- Letter Amendment to Processing Alliance Agreement, dated
November 3, 1994, between Veritas Seismic Ltd. and
Brigham Oil & Gas, L.P. (filed as Exhibit 10.20.1 to the
Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
10.16 -- 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. (filed as Exhibit 10.21 to the Company's
Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.17 -- 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. (filed as Exhibit 10.22 to the
Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
10.18 -- 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. (filed as Exhibit 10.23 to the Company's
Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.19 -- 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. (filed as
Exhibit 10.24 to the Company's Registration Statement on
Form S-1 (Registration No. 333-22491), and incorporated
herein by reference).
10.20 -- 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 (filed as Exhibit 10.25 to the Company's
Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.21 -- 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
(filed as Exhibit 10.26 to the Company's Registration
Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
</TABLE>
II-5
<PAGE> 100
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.22 -- 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 (filed as Exhibit 10.27 to the
Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
10.23 -- Form of Indemnity Agreement between the Registrant and
each of its executive officers (filed as Exhibit 10.28 to
the Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
10.24 -- 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 (filed as Exhibit 10.29 to the Company's
Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.25 -- 1997 Director Stock Option Plan (filed as Exhibit 10.30
to the Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
10.26 -- Form of Employee Stock Ownership Agreement (filed as
Exhibit 10.31 to the Company's Registration Statement on
Form S-1 (Registration No. 333-22491), and incorporated
herein by reference).
10.27 -- 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 (filed as Exhibit 10.33 to the
Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
10.28 -- 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. (filed as Exhibit 10.34 to the Company's
Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.29 -- 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. (filed as
Exhibit 10.35 to the Company's Registration Statement on
Form S-1 (Registration No. 333-22491), and incorporated
herein by reference).
10.30 -- Proposed Trade Structure, RIMCO/Tigre Project, Vermillion
Parish, Louisiana, among Brigham Oil & Gas, L.P., Tigre
Energy Corporation and Resource Investors Management
Company (filed as Exhibit 10.36.1 to the Company's
Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.30.1 -- Letter relating to Proposed Trade Structure, RIMCO/Tigre
Project, dated January 31, 1997, from Resource Investors
Management Company to Brigham Oil & Gas, L.P. (filed as
Exhibit 10.36.1 to the Company's Registration Statement
on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.31 -- Anadarko Basin Seismic Operations Agreement II, dated as
of April 1, 1997, by and between Brigham Oil & Gas, L.P.
(filed as Exhibit 10.37 to the Company's Registration
Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
</TABLE>
II-6
<PAGE> 101
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.31.1 -- Letter Amendment to Anadarko Basin Seismic Operations
Agreement II, dated March 20, 1997, between Brigham Oil &
Gas, L.P. and Veritas DGC Land, Inc. (filed as Exhibit
10.37 to the Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
10.32 -- Expense Allocation and Participation Agreement II, dated
April 1, 1997, between Brigham Oil & Gas, L.P., and Gasco
Limited Partnership (filed as Exhibit 10.31 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997, and incorporated herein by
reference).
10.33 -- Credit Agreement dated as of January 26, 1998 among
Brigham Oil & Gas, L.P., Bank of Montreal, as Agent, and
the lenders signatory thereto (filed as Exhibit 10.36 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1997, and incorporated herein by
reference).
10.33.1++ -- Guaranty Agreement dated January 26, 1998 by Brigham
Exploration Company in favor of Bank of Montreal, as
Agent, and each of the Lenders party to the Credit
Agreement.
10.33.2+ -- First Amendment to Guaranty Agreement dated as of March
30, 1998 between Brigham Exploration Company and Bank of
Montreal, as agent for the Lenders party to the Credit
Agreement.
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.
</TABLE>
- ---------------
* Management contract or compensatory plan.
+ Filed herewith.
++ Previously filed.
(b) Financial Statement Schedules: None.
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.
II-7
<PAGE> 102
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-8
<PAGE> 103
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Brigham
Exploration Company has duly caused this Amendment to Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Austin, Texas, on June 4, 1998.
BRIGHAM EXPLORATION COMPANY
By: /s/ BEN M. BRIGHAM
----------------------------------
Ben M. Brigham
President, Chief Executive Officer
and
Chairman of the Board
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 June 4, 1998
- ----------------------------------------------------- Officer and Chairman of the Board
Ben M. Brigham (principal executive officer)
/s/ ANNE L. BRIGHAM* Executive Vice President and June 4, 1998
- ----------------------------------------------------- Director
Anne L. Brigham
/s/ CRAIG M. FLEMING* Chief Financial Officer June 4, 1998
- ----------------------------------------------------- (principal financial and
Craig M. Fleming accounting officer)
/s/ JON L. GLASS* Vice President -- Exploration and June 4, 1998
- ----------------------------------------------------- Director
Jon L. Glass
/s/ HAROLD D. CARTER* Director June 4, 1998
- -----------------------------------------------------
Harold D. Carter
/s/ GARY J. MILAVEC* Director June 4, 1998
- -----------------------------------------------------
Gary J. Milavec
/s/ ALEXIS M. CRANBERG* Director June 4, 1998
- -----------------------------------------------------
Alexis M. Cranberg
/s/ STEPHEN P. REYNOLDS* Director June 4, 1998
- -----------------------------------------------------
Stephen P. Reynolds
*By: /s/ BEN M. BRIGHAM
------------------------------------------------
Ben M. Brigham
Attorney-in-fact
</TABLE>
II-9
<PAGE> 104
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1+ -- Form of Underwriting Agreement
2.1 -- Exchange Agreement (filed as Exhibit 2.1 to the Company's
Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
3.1 -- Certificate of Incorporation (filed as Exhibit 3.1 to the
Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
3.2 -- Bylaws (filed as Exhibit 3.2 to the Company's
Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
4.1 -- Form of Common Stock Certificate (filed as Exhibit 4.1 to
the Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
5+ -- Opinion of Thompson & Knight, A Professional Corporation
10.1 -- 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 (filed as Exhibit
10.2 to the Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
10.2 -- Regulations of Quest Resources, L.L.C. (filed as Exhibit
10.3 to the Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
10.3 -- 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. (filed as Exhibit 10.4 to the Company's
Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.4*+ -- Consulting Agreement, dated May 1, 1997, by and between
Brigham Oil & Gas, L.P. and Harold D. Carter.
10.5* -- Employment Agreement, by and between Brigham Exploration
Company and Ben M. Brigham (filed as Exhibit 10.7 to the
Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
10.6* -- Form of Confidentiality and Noncompete Agreement between
the Registrant and each of its executive officers (filed
as Exhibit 10.8 to the Company's Registration Statement
on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.7* -- 1997 Incentive Plan of Brigham Exploration Company (filed
as Exhibit 10.9 to the Company's Registration Statement
on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.7.1* -- Form of Option Agreement for certain executive officers
(filed as Exhibit 10.9.1 to the Company's Registration
Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
</TABLE>
<PAGE> 105
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.7.2* -- Option Agreement dated as of March 4, 1997, by and
between Brigham Exploration Company and Jon L. Glass
(filed as Exhibit 10.9.2 to the Company's Registration
Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.8* -- Incentive Bonus Plan dated as of February 28, 1997 of
Brigham, Inc. and Brigham Oil & Gas, L.P. (filed as
Exhibit 10.10 to the Company's Registration Statement on
Form S-1 (Registration No. 333-22491), and incorporated
herein by reference).
10.9.1+ -- First Amendment to Two Bridge Point Lease Agreement dated
April 11, 1997 between Investors Life Insurance Company
of North America and Brigham Oil & Gas, L.P.
10.9.2+ -- Second Amendment to Two Bridge Point Lease Agreement
dated October 13, 1997 between Investors Life Insurance
Company of North America and Brigham Oil & Gas, L.P.
10.9.3+ -- Letter dated April 17, 1998 exercising Right of First
Refusal to Lease "3rd Option Space."
10.9 -- Two Bridge Point Lease Agreement, dated September 30,
1996, by and between Investors Life Insurance Company of
North America and Brigham Oil & Gas, L.P. (filed as
Exhibit 10.14 to the Company's Registration Statement on
Form S-1 (Registration No. 333-22491), and incorporated
herein by reference).
10.10 -- Anadarko Basin Seismic Operations Agreement, dated
February 15, 1996, by and between Brigham Oil & Gas, L.P.
and Veritas Geophysical, Ltd. (filed as Exhibit 10.15 to
the Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
10.10.1 -- Letter Amendment to Anadarko Basin Seismic Operations
Agreement, dated June 10, 1996, between Brigham Oil &
Gas, L.P. and Veritas Geophysical, Ltd. (filed as Exhibit
10.15.1 to the Company's Registration Statement on Form
S-1 (Registration No. 333-22491), and incorporated herein
by reference).
10.11 -- Expense Allocation and Participation Agreement, dated
April 1, 1996, between Brigham Oil & Gas, L.P. and Gasco
Limited Partnership. (filed as Exhibit 10.16 to the
Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
10.11.1 -- Amendment to Expense Allocation and Participation
Agreement, dated October 21, 1996, between Brigham Oil &
Gas, L.P. and Gasco Limited Partnership (filed as Exhibit
10.16.1 to the Company's Registration Statement on Form
S-1 (Registration No. 333-22491), and incorporated herein
by reference).
10.12 -- Expense Allocation and Participation Agreement, dated
April 1, 1996, between Brigham Oil & Gas, L.P. and Middle
Bay Oil Company, Inc. (filed as Exhibit 10.17 to the
Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
10.12.1 -- Amendment to Expense Allocation and Participation
Agreement, dated September 26, 1996, between Brigham Oil
& Gas, L.P. and Middle Bay Oil Company, Inc. (filed as
Exhibit 10.17.1 to the Company's Registration Statement
on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.12.2 -- Letter Amendment to Expense Allocation and Participation
Agreement, dated May 20, 1996, between Brigham Oil & Gas,
L.P. and Middle Bay Oil Company, Inc. (filed as Exhibit
10.17.2 to the Company's Registration Statement on Form
S-1 (Registration No. 333-22491), and incorporated herein
by reference).
</TABLE>
<PAGE> 106
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.13 -- Anadarko Basin Joint Participation Agreement, dated May
1, 1996, by and among Stephens Production Company and
Brigham Oil & Gas, L.P. (filed as Exhibit 10.18 to the
Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
10.14 -- Anadarko Basin Joint Participation Agreement, dated May
1, 1996, by and between Vintage Petroleum, Inc. and
Brigham Oil & Gas, L.P. (filed as Exhibit 10.19 to the
Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
10.15 -- Processing Alliance Agreement, dated July 20, 1993,
between Veritas Seismic Ltd. and Brigham Oil & Gas, L.P.
(filed as Exhibit 10.20 to the Company's Registration
Statement on Form S-1 (Registration No. 333- 22491), and
incorporated herein by reference).
10.15.1 -- Letter Amendment to Processing Alliance Agreement, dated
November 3, 1994, between Veritas Seismic Ltd. and
Brigham Oil & Gas, L.P. (filed as Exhibit 10.20.1 to the
Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
10.16 -- 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. (filed as Exhibit 10.21 to the Company's
Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.17 -- 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. (filed as Exhibit 10.22 to the
Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
10.18 -- 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. (filed as Exhibit 10.23 to the Company's
Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.19 -- 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. (filed as
Exhibit 10.24 to the Company's Registration Statement on
Form S-1 (Registration No. 333-22491), and incorporated
herein by reference).
10.20 -- 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 (filed as Exhibit 10.25 to the Company's
Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.21 -- 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
(filed as Exhibit 10.26 to the Company's Registration
Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
</TABLE>
<PAGE> 107
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.22 -- 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 (filed as Exhibit 10.27 to the
Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
10.23 -- Form of Indemnity Agreement between the Registrant and
each of its executive officers (filed as Exhibit 10.28 to
the Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
10.24 -- 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 (filed as Exhibit 10.29 to the Company's
Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.25 -- 1997 Director Stock Option Plan (filed as Exhibit 10.30
to the Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
10.26 -- Form of Employee Stock Ownership Agreement (filed as
Exhibit 10.31 to the Company's Registration Statement on
Form S-1 (Registration No. 333-22491), and incorporated
herein by reference).
10.27 -- 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 (filed as Exhibit 10.33 to the
Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
10.28 -- 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. (filed as Exhibit 10.34 to the Company's
Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.29 -- 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. (filed as
Exhibit 10.35 to the Company's Registration Statement on
Form S-1 (Registration No. 333-22491), and incorporated
herein by reference).
10.30 -- Proposed Trade Structure, RIMCO/Tigre Project, Vermillion
Parish, Louisiana, among Brigham Oil & Gas, L.P., Tigre
Energy Corporation and Resource Investors Management
Company (filed as Exhibit 10.36.1 to the Company's
Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.30.1 -- Letter relating to Proposed Trade Structure, RIMCO/Tigre
Project, dated January 31, 1997, from Resource Investors
Management Company to Brigham Oil & Gas, L.P. (filed as
Exhibit 10.36.1 to the Company's Registration Statement
on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.31 -- Anadarko Basin Seismic Operations Agreement II, dated as
of April 1, 1997, by and between Brigham Oil & Gas, L.P.
(filed as Exhibit 10.37 to the Company's Registration
Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
</TABLE>
<PAGE> 108
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.31.1 -- Letter Amendment to Anadarko Basin Seismic Operations
Agreement II, dated March 20, 1997, between Brigham Oil &
Gas, L.P. and Veritas DGC Land, Inc. (filed as Exhibit
10.37 to the Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
10.32 -- Expense Allocation and Participation Agreement II, dated
April 1, 1997, between Brigham Oil & Gas, L.P., and Gasco
Limited Partnership (filed as Exhibit 10.31 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997, and incorporated herein by
reference).
10.33 -- Credit Agreement dated as of January 26, 1998 among
Brigham Oil & Gas, L.P., Bank of Montreal, as Agent, and
the lenders signatory thereto (filed as Exhibit 10.36 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1997, and incorporated herein by
reference).
10.33.1++ -- Guaranty Agreement dated January 26, 1998 by Brigham
Exploration Company in favor of Bank of Montreal, as
Agent, and each of the Lenders party to the Credit
Agreement.
10.33.2+ -- First Amendment to Guaranty Agreement dated as of March
30, 1998 between Brigham Exploration Company and Bank of
Montreal, as agent for the Lenders party to the Credit
Agreement.
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.
</TABLE>
- ---------------
* Management contract or compensatory plan.
+ Filed herewith.
++ Previously filed.
<PAGE> 1
EXHIBIT 1
3,910,000 Shares of Common Stock
BRIGHAM EXPLORATION COMPANY
UNDERWRITING AGREEMENT
, 1998
BEAR, STEARNS & CO. INC.
DAIN RAUSCHER WESSELS
HOWARD, WEIL, LABOUISSE,
FRIEDRICHS INCORPORATED
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 3,400,000 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
<PAGE> 2
of the Firm Shares, 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 510,000
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 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:
(i) 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. 333-53873),
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.
(ii) 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 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
2
<PAGE> 3
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.
(iii) 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.
(iv) 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, 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
3
<PAGE> 4
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.
(v) 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.
(vi) 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 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.
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<PAGE> 5
(vii) 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.
(viii) 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 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
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<PAGE> 6
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 (i) 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 0.45% interest and (ii) Venture Acquisition, L.P., in
which Quest Resources, L.L.C. shares profits and losses with RIMCO
Energy, Inc., RIMCO Production Company, Inc., RIMCO Exploration
Partners, L.P. I and RIMCO Exploration Partners, L.P. II.
(ix) 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.
(x) Except as disclosed in the Prospectus, the Company and its
Subsidiaries have good and marketable title to all the producing oil
and gas properties described as being owned by them in the Prospectus,
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
6
<PAGE> 7
interfere with the Company's or such Subsidiary's use and enjoyment of
its oil and gas properties.
(xi) The written engineering reports prepared by Cawley,
Gillespie & Associates, Inc. ("Cawley, Gillespie"), an oil and gas
engineering consulting firm, as of December 31, 1997, 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, 1997, 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.
(xii) 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.
(xiii) 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.
(xiv) 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.
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<PAGE> 8
(xv) 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.
(xvi) 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.
(xvii) 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.
(xviii) 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
8
<PAGE> 9
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.
(xix) 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.
(xx) 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.
(xxi) The Common Stock is quoted and the Shares have been
approved for quotation on the Nasdaq National Market ("NASDAQ").
(xxii) The Company has obtained and delivered to you before
the date hereof the written agreements of each of its directors and
officers and General Atlantic Partners, L.L.C. and Resource Investors
Management Company that, for a period of 90 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 Common Stock or securities convertible into or
exchangeable or exercisable for any shares of the Common Stock, or
publicly disclose the intention to make any such offer, sale, pledge,
disposal or filing, without the prior written consent of Bear, Stearns
& Co. Inc.
(xxiii) 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.
(xxiv) 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
90 days of the Closing Date or any Additional Closing Date.
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<PAGE> 10
(b) Each Selling Stockholder represents and warrants to, and
agrees with, the several Underwriters that:
(i) 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").
(ii) 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 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.
(iii) 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,
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<PAGE> 11
including the sale, assignment, transfer and delivery of the Shares to
be sold, assigned, transferred and delivered by such Selling
Stockholder hereunder.
(iv) 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.
(v) 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.
(vi) 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 which might be reasonably expected to
cause or result in stabilization or manipulation of the price of the
shares of Common Stock.
(vii) 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
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<PAGE> 12
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.
(viii) 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 and Selling 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 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 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.
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<PAGE> 13
(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 Selling Stockholders hereby grant to the
several Underwriters the option to purchase up to 510,000 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 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 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 each Selling Stockholder
listed on Schedule II hereto shall be on a pro rata basis in accordance with the
percentages set forth opposite their names on Schedule II hereto, 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 3,400,000, 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> 14
(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.
(a) The Company covenants and agrees with the several
Underwriters that:
(i) 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
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<PAGE> 15
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.
(ii) 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 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.
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<PAGE> 16
(iii) 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.
(iv) 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.
(v) 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.
(vi) During the period of 90 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 exchangeable for
Common Stock), and the Company will obtain the undertaking of each of
its officers and directors, all of which are listed on Schedule III
hereto, and General Atlantic Partners, L.L.C. and Resource Investors
Management Company, 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.
(vii) 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
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<PAGE> 17
or information statements filed by the Company with the Commission or
any national securities exchange.
(viii) The Company will apply the proceeds from the sale of
the Shares as set forth under "Use of Proceeds" in the Prospectus.
(ix) 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 90 days of the Closing Date or any Additional Closing Date.
(b) Each Selling Stockholder covenants and agrees with the
several Underwriters that:
(i) During a period of 90 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.
(ii) 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 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).
(iii) 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
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<PAGE> 18
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 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,
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<PAGE> 19
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 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 (i)
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 0.45% interest and (ii) Venture
Acquisition, L.P., in which Quest Resources, L.L.C. shares
profits and losses with RIMCO Energy, Inc., RIMCO Production
Company, Inc.,
19
<PAGE> 20
RIMCO Exploration Partners, L.P. I and RIMCO Exploration Partners, L.P.
II.
(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, 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.
20
<PAGE> 21
(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, 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.
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<PAGE> 22
(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
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 90 days after the date of the 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
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<PAGE> 23
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 Common Stock is quoted and the Shares have
been approved for quotation on the NASDAQ.
(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 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
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<PAGE> 24
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 (A) such as may be
required under 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 (B) 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 and Selling Stockholders," insofar as such
statements relate to the Selling Stockholders, fairly present
the information called for with respect to such matters.
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<PAGE> 25
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 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.
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<PAGE> 26
(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
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, 1997
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, 1997 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, 1997 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, 1997, 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,
excluding net losses, 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, 1998 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, 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
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<PAGE> 27
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 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
or officer of the Company, all of whom are listed on Schedule III
hereto, and from General Atlantic Partners, L.L.C. and Resource
Investors Management Company, 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
27
<PAGE> 28
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 90 days after the date of the
Prospectus.
(i) At the Closing Date, the Common Stock is quoted and the
Shares have been approved for quotation on the NASDAQ.
(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
canceled 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
canceled 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 reasonable attorneys' fees and
any and all reasonable 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
28
<PAGE> 29
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 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
29
<PAGE> 30
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.
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
30
<PAGE> 31
(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, 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
31
<PAGE> 32
promptly after receiving the aforesaid notice from such indemnified
party, to assume the defense thereof with counsel satisfactory to such
indemnified party. 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
32
<PAGE> 33
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 neither (a) have reimbursed such indemnified party in
accordance with such request for fees and expenses of counsel prior to
the date of such settlement nor (b) no later than ten days prior to
such settlement being entered into, have both given written notice to
such indemnified party of the amount of such fees and expenses that it
believes are unreasonable and the basis (which must be reasonable) for
that view and reimbursed such indemnified party for all other such fees
and expenses.
(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
33
<PAGE> 34
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 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.
34
<PAGE> 35
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 amendment or supplement to the
Registration Statement or the Prospectus which, in the opinion of
Underwriters' Counsel, may thereby be made necessary or advisable.
35
<PAGE> 36
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
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
36
<PAGE> 37
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, to 6300 Bridge Point
Parkway, Building 2, Suite 500, Austin, Texas 78730, Attention: Ben M. Brigham,
and, in the case of any Selling Stockholder, to 6300 Bridge Point Parkway,
Building 2, Suite 500, Austin, Texas 78730.
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 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
37
<PAGE> 38
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.
38
<PAGE> 39
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:
GENERAL ATLANTIC PARTNERS, L.L.C.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
RESOURCE INVESTORS MANAGEMENT
COMPANY
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
Accepted as of the date first above written.
BEAR, STEARNS & CO. INC.,
DAIN RAUSCHER WESSELS
HOWARD, WEIL, LABOUISSE,
FRIEDRICHS INCORPORATED
BY BEAR, STEARNS & CO. INC.
By
------------------------------------
On behalf of themselves and the other several
Underwriters named in Schedule I hereto.
<PAGE> 40
SCHEDULE I
<TABLE>
<CAPTION>
Number of Firm
Shares to be
Name of Underwriter Purchased
- -------------------- ------------------------- --------------
<S> <C>
Bear, Stearns & Co. Inc
Dain Rauscher Wessels
Howard, Weil, Labouisse, Friedrichs Incorporated
Total.................................................... 3,400,000
</TABLE>
<PAGE> 41
SCHEDULE II
Additional Shares to be sold by the
Company and the Selling Stockholders
<TABLE>
<CAPTION>
Percentage of
Number of Additional Additional
Shares to be Sold Shares to be Sold
----------------- ------------------
<S> <C> <C>
General Atlantic Partners, L.L.C.
Resource Investors Management
Company
</TABLE>
<PAGE> 42
SCHEDULE III
Lockup List of Stockholders
Ben M. Brigham
Anne L. Brigham
Jon L. Glass
Craig M. Fleming
David T. Brigham
A. Lance Langford
Karen E. Lynch
Harold D. Carter
Alexis M. Cranberg
Gary J. Milavec
Stephen P. Reynolds
General Atlantic Partners, L.L.C.
Resource Investors Management Company
<PAGE> 1
Exhibit 5
June 5, 1998
Brigham Exploration Company
6300 Bridge Point Parkway
Building Two, Suite 500
Austin, Texas 78730
Dear Sirs and Madams:
We have acted as counsel for Brigham Exploration Company, a Delaware
corporation (the "Company"), in connection with the preparation of the Company's
Registration Statement on Form S-1 (Registration No. 333-53873), as amended (the
"Registration Statement"), filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, relating to the proposed offering
of 3,400,000 shares (the "Shares") of the Company's common stock, par value $.01
per share (the "Common Stock"), together with 510,000 additional shares of
Common Stock (the "Additional Shares") subject to the underwriters'
over-allotment option as described in the Registration Statement.
In connection with the foregoing, we have examined the originals or
copies, certified or otherwise authenticated to our satisfaction, of the
Registration Statement and such corporate records of the Company, certificates
of public officials and of officers of the Company, and other agreements,
instruments and documents as we have deemed necessary as a basis for the
opinions hereinafter expressed. Where facts material to the opinions hereinafter
expressed were not independently established by us, we have relied upon the
statements of officers of the Company, where we deemed such reliance appropriate
under the circumstances.
Based upon the foregoing and in reliance thereon, and subject to the
assumptions and qualifications hereinafter specified, it is our opinion that:
1. The Company is a corporation duly incorporated under the laws of the
State of Delaware.
2. Upon (a) the taking of action by the duly authorized Pricing
Committee of the Board of Directors of the Company to determine the price at
which the Shares and Additional Shares are to be sold under the Underwriting
Agreement and (b) the sale of the Shares and the Additional Shares in accordance
with the terms of the Underwriting Agreement for the price so determined, the
Shares and any Additional Shares will be duly authorized by all necessary
corporate action on the part of the Company, legally issued, fully paid and
nonassessable.
<PAGE> 2
Brigham Exploration Company
June 5, 1998
Page 2
We hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the prospectus forming a part of the Registration Statement. In
giving this consent, we do not thereby admit that we are within the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules or regulations of the Commission thereunder.
Respectfully submitted,
THOMPSON & KNIGHT,
A Professional Corporation
By: /s/ Joe Dannenmaier
------------------------------
Joe Dannenmaier, Attorney
<PAGE> 1
EXHIBIT 10.4
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement") is made as of May 1, 1997,
by and between Brigham Oil & Gas, L.P., a Delaware limited partnership (the
"Company") and Harold D. Carter ("Consultant").
W I T N E S S E T H:
WHEREAS, the Company previously had entered into a consulting agreement
with Consultant which expired for all purposes on May 1, 1997; and
WHEREAS, the Company desires to enter into a separate agreement to
retain the services of Consultant on a current basis, and Consultant desires to
perform such services for the Company, subject to and upon the terms and
conditions contained herein;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties, intending to be legally bound, agree as follows:
1. Employment and Duties. The Company agrees to retain the services of
Consultant to perform such consulting and advisory services regarding the
operations of the Company as the Company shall request from time to time during
the term of this Agreement. Consultant shall make himself available to consult
with the Chief Executive Officer and other officers of the Company at reasonable
times, concerning matters pertaining to the acquisition, exploration,
development and operation of Company properties, the overall business plan,
operating and capital budgets and other fiscal policy issues of the Company,
employee issues, and, in general, any issue concerning the business affairs of
the Company.
2. Amount of Service. It is understood that Consultant's time
commitment to the Company may vary over time consistent with the needs of the
Company and Consultant agrees to devote such time and attention to the
performance and fulfillment of such duties, functions and responsibilities as is
necessary to fulfill such duties. Notwithstanding the foregoing, it is
specifically understood and agreed that Consultant may act as a consultant or
perform services for other parties other than the Company and therefore will
only be required to devote a portion of his time to his services under this
Agreement, which will not exceed 50% of his normal working time without his
consent. Consultant shall be deemed an independent contractor for all purposes.
3. Compensation. The Company shall pay Consultant for his services
under this Agreement a consulting fee of $7,200 per month during the term of
this Agreement. All federal withholding and other employment and income related
taxes shall be the responsibility of Consultant.
4. Business Expenses. Consultant shall be reimbursed by the Company for
any out of pocket expenses reasonably paid or incurred by him in connection with
the performance of his duties hereunder upon presentation of expense statements
or vouchers or such other supporting information reasonably evidencing such
expenses.
5. Office Expenses. Consultant shall be solely responsible for any
office expenses and overhead incurred by Consultant in the performance of his
duties hereunder; provided, however, that during thee term of this Agreement the
Company shall pay Associated Energy Managers directly $1,000 per month to offset
some of Consultant's office expenses and/or overhead incurred in connection with
services under this Agreement. As partial consideration for the $1,000 per month
payment to Associated Energy Managers
<PAGE> 2
as aforesaid, the Company and its employees shall have reasonable limited access
to Consultant's office conference room and phones for purposes of conducting the
Company's business and affairs while traveling in Dallas, Texas.
6. Term. The term of this Agreement shall commence on the date hereof
and terminate on December 31, 1998.
7. Termination. This Agreement shall terminate upon the first to occur
of (i) the expiration of the term hereof, (ii) the death, disability or other
incapacity of Consultant, or (iii) the written consent of both parties to this
Agreement. For purposes of this Agreement, the "disability or incapacity" of
Consultant shall occur if, as a result of Consultant's incapacity due to
physical or mental illness, Consultant shall have been absent from his services
hereunder on a continuous basis for the entire period of six consecutive months,
and within thirty (30) days after written notice of termination is given (which
may occur before or after the end of such six-month period) shall not have
returned to performing his services hereunder.
8. Limited Liability. With regard to the services to be performed by
Consultant pursuant to the terms of this Agreement, Consultant shall not be
liable to the Company, or to anyone who may claim any right due to his
relationship with the Company, for any acts or omissions in the performance of
said services on the part of Consultant or on the part of the agents or
employees of Consultant, except when said acts or omissions of Consultant are
due to his willful misconduct or gross negligence. The Company shall hold
Consultant free and harmless from any obligations, costs, claims, judgments,
attorneys' fees and attachments arising from or growing out of the services
rendered to the Company pursuant to the terms of this Agreement or in any way
connected with the rendering of said services, except when the same shall arise
due to the willful misconduct or gross negligence of Consultant, and Consultant
is adjudged to be guilty of willful misconduct or gross negligence by a court of
competent jurisdiction.
9. Confidentiality. Consultant will maintain the confidentiality of,
and will not disclose without the Company's express consent, any and all
proprietary or confidential information of the Company. The provisions of this
paragraph will be deemed to encompass any and all confidential or proprietary
information of the Company that was obtained by Consultant since the
commencement of Consultant's employment with the Company. This paragraph will
continue after, and will not be deemed to be extinguished or terminated by, the
termination of this Agreement or of Consultant's employment by the Company. For
purposes of this paragraph "proprietary or confidential information" of the
Company does not include (a) information that is or becomes generally available
to the public other than as a result of disclosure by the Consultant in breach
of this Agreement, (b) information that was or is available to Consultant on a
non-confidential basis, (c) information that is or was conceived, created or
independently developed by Consultant, or (d) information that is disclosed by
Consultant to others on behalf of the Company or to further the business
opportunities or best interests of the Company.
10. Miscellaneous. (a) Notices. Any notice or communication required or
permitted hereunder shall be given in writing and shall be (i) sent by first
class registered or certified United States mail, postage prepaid, (ii) sent by
overnight or express mail or expedited delivery service, (iii) delivered by hand
or (iv) transmitted by wire, telex or telefax, addressed as follows:
If to Consultant: Harold D. Carter
5949 Sherry Lane, Suite 620
Dallas, Texas 75225
Telephone No.: (214) 692-7785
Fax No.: (214) 692-7820
2
<PAGE> 3
If to the Company: Brigham Oil & Gas, L.P.
6300 Bridge Point Parkway
Bldg.2, Suite 500
Austin, Texas 78730
Attn: Ben M. Brigham
Telephone No.: (512) 427-3300
Fax No.: (512) 427-3400
or to such other address or to the attention of such other person as hereafter
shall be designated in writing by the applicable party in accordance herewith.
Any such notice or communication shall be deemed to have been given as of the
date of first attempted delivery at the address and in the manner provided
above.
(b) Successors and Assigns. This Agreement is personal in nature and
neither of the parties hereto shall, without the consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder; provided,
however, that in the event of a merger, consolidation or transfer or sale of all
or substantially all of the assets of the Company, this Agreement shall be
binding upon the successor to the Company's business and assets.
(c) Interpretation. When the context in which words are used in this
Agreement indicates that such is the intent, words in the singular number shall
include the plural and vice versa.
(d) Severability. Every provision in this Agreement is intended to be
severable. In the event that any provision of this Agreement shall be held to be
invalid, the same shall not affect in any respect whatsoever the validity of the
remaining provisions of this Agreement.
(e) Remedies. If any action at law or equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorney's fees, costs and necessary disbursements in addition to any
other relief to which he may be entitled.
(f) Captions. Any section or paragraph titles or captions contained in
this Agreement are for convenience only and shall not be deemed a part of the
context of this Agreement.
(g) Entire Agreement. This Agreement contains the entire understanding
and agreement between the parties and supersedes any prior written or oral
agreements between them respecting the subject matter contained herein. There
are no representations, agreements, arrangements or understandings, oral or
written, between and among the parties hereto relating to the subject matter of
this Agreement which are not fully expressed herein.
(h) No Waiver. The failure of any party to insist upon strict
performance of a covenant hereunder or of any obligation hereunder, irrespective
of the length of time for which such failure continues, shall not be a waiver of
such party's right to demand strict compliance in the future. No consent or
waiver, express or implied, to or of any breach or default in the performance of
any obligation hereunder shall constitute a consent or waiver to or of any other
breach or default in the performance of the same or any obligation hereunder.
(i) Amendment. This Agreement may be changed, modified or amended only
by an instrument in writing duly executed by all of the parties hereto. Any such
amendment shall be effective as of such date as may be determined by the parties
hereto.
3
<PAGE> 4
(j) Choice of Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY TEXAS LAW.
IN WITNESS WHEREOF, the parties have executed this Agreement or caused
the same to be executed by their duly authorized corporate officers, all as of
the day and year first above written.
"Consultant"
/s/ HAROLD D. CARTER
------------------------------------
Harold D. Carter
"Company" BRIGHAM OIL & GAS, L.P.
By: Brigham, Inc., its Managing
General Partner
By: /s/ BEN M. BRIGHAM
--------------------------
Ben M. Brigham, President
4
<PAGE> 1
EXHIBIT 10.9.1
FIRST AMENDMENT TO
TWO BRIDGEPOINT LEASE AGREEMENT
This FIRST AMENDMENT TO TWO BRIDGEPOINT LEASE AGREEMENT (this
"Amendment") is entered into as of April 11, 1997, by and between INVESTORS LIFE
INSURANCE COMPANY OF NORTH AMERICA, a Washington corporation ("Landlord"), and
BRIGHAM OIL & GAS, L.P., a Delaware limited partnership ("Tenant").
RECITALS:
1. Landlord and Tenant executed that certain Two Bridgepoint Lease
Agreement dated as of September 20, 1996, covering part of the building (the
"Building") known as Two Bridgepoint, located at 6300 Bridgepoint Parkway,
Austin, Travis County, Texas, as more particularly described therein. Such lease
agreement is hereinafter called the "Original Lease". Capitalized terms used in
this Amendment and not otherwise defined herein shall have the meanings given to
them in the Original Lease, unless amended herein.
2. Landlord did not deliver the Occupancy Notice or the Affiliate
Lease Notice to Tenant on or before December 31, 1996, as contemplated by
Exhibit "F" to the Original Lease, and neither Landlord nor Landlord's Affiliate
occupies at least 40,000 rentable square feet of space in the Building.
3. Landlord and Tenant wish to modify and amend the Original Lease in
order to, among other things, (i) acknowledge that Landlord did not deliver the
Occupancy Notice or the Affiliate Lease Notice to Tenant on or before December
31, 1996, as contemplated by Exhibit "F" to the Original Lease, and neither
Landlord nor Landlord's Affiliate occupies at least 40,000 rentable square feet
of space in the Building, (ii) amend the terms and conditions of the Expansion
Option which are set forth in Exhibit "G" to the Original Lease, and (iv)
correct an error in the formula used in Exhibit "F" to the Original Lease and
again in Exhibit "G" to the Original Lease concerning the construction allowance
applicable to expansions of the Premises pursuant to those Exhibits.
NOW, THEREFORE, in consideration of the above recitals and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Landlord and Tenant agree as follows:
1. Amendment of the Original Lease. As of the effective date of
this Amendment, the Original Lease is amended as follows:
a. Premises. As a result of the modification to the Expansion Option
and Exhibit "G" to the Original Lease as set forth below, the Fourth Floor Plan
attached to the Original Lease as the second page of Exhibit "A" to the Original
Lease is deleted and in lieu thereof is inserted the Fourth Floor Plan attached
as Exhibit "A" to this Amendment. The first and third page of Exhibit "A" to the
Original Lease shall not be effected by this Amendment.
b. Right of First Refusal. Landlord and Tenant acknowledge and agree
that (i) Landlord did not deliver the Occupancy Notice or the Affiliate Lease
Notice to Tenant on or before December 31, 1996, as contemplated by Exhibit "F"
to the Original Lease, and (ii) neither Landlord nor Landlord's Affiliate
occupies at Least 40,000 rentable square feet of space in the Building.
Therefore, Landlord and Tenant acknowledge and agree that Tenant shall be
entitled to its Right of
<PAGE> 2
First Refusal with respect to the Refusal Space, subject to the renewal
requirement during the last three years of the Primary Term and the conditions
to exercising such right set forth in Exhibit "F" to the Original Lease. Also,
to correct an error in the Original Lease, clauses (i) and (ii) of Section 1(e)
of Exhibit "F" to the Original Lease are amended to read as follows:
(i) For shell condition rentable area in the Refusal Space, an
amount per square foot leased, rounded up or down to the
nearest cent (but not to exceed $18.00), equal to X $18.00,
times (Y) the number of months remaining in the Term
(excluding all renewals, unless such renewals have been
irrevocably exercised by Tenant), divided by (Z) one hundred
twenty (120).
(ii) For previously finished-out rentable area in the Refusal
Space, an amount per square foot leased, rounded up or down to
the nearest cent (but not to exceed $7.50), equal to (X)
$7.50, times (Y) the number of months remaining in the Term
(excluding all renewals, unless such renewals have been
irrevocably exercised by Tenant), divided by (Z) one hundred
twenty (120).
c. Expansion Option. Landlord and Tenant also acknowledge and
agree that the Limited Expansion Option mentioned in Section 2.05 of the
Original Lease is no longer applicable. All references to the Limited Expansion
Option in the Original Lease are hereby deleted. The Expansion Option mentioned
in Section 2.05 of the Original Lease is still in full force and effect,
although Exhibit "G" to the Original Lease which sets forth the terms and
conditions of the Expansion Option, is deleted and in lieu thereof is inserted
Exhibit "G" attached to this Amendment.
2 Ratification. The Original Lease, as amended by this Amendment, is
hereby ratified and confirmed in all respects.
3. Counterparts. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed an original. Such
counterparts, together, shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
LANDLORD:
INVESTORS LIFE INSURANCE COMPANY OF NORTH
AMERICA, a Washington corporation
By: /s/ JAMES M. GRACE
-----------------------------------------
James M. Grace
Executive Vice President
Assistant Secretary
-2-
<PAGE> 3
TENANT:
BRIGHAM OIL & GAS, L.P., a Delaware limited
Partnership
By: Brigham Exploration Company, a Texas
corporation, as managing general partner
By: /s/ BEN M.BRIGHAM
-------------------------------------
Ben M. Brigham
President and CEO
-3-
<PAGE> 4
EXHIBIT "A"
TO FIRST AMENDMENT TO LEASE BETWEEN INVESTORS LIFE INSURANCE COMPANY
OF NORTH AMERICA, AS LANDLORD,
AND BRIGHAM OIL & GAS, L.P., AS TENANT
FOURTH FLOOR PLAN
A-1
<PAGE> 5
[VIEW FOURTH FLOOR PLAN]
<PAGE> 6
EXHIBIT "G"
TO LEASE BETWEEN INVESTORS LIFE INSURANCE COMPANY
OF NORTH AMERICA, AS LANDLORD,
AND BRIGHAM OIL & GAS, L.P., AS TENANT
EXPANSION OPTION
1. Landlord grants to Tenant an expansion option (the "Expansion Option")
exercisable as hereinafter set forth to add certain additional rentable square
feet of the Building to the Premises, all as hereinafter set forth:
(a) Until May 1, 1997, so long as no Default by Tenant has
occurred and is continuing, Tenant may exercise the Expansion Option to
include under this Lease, beginning July 1, 1997, all or part of the
contiguous rentable area on the fourth floor of the Building designated
as the "1st Option Space" on Exhibit "A" (the "1st Option Space"),
upon the terms set forth in this Exhibit "G". In the event Tenant
desires to exercise the Expansion Option as provided in this Section
1(a), Tenant shall deliver to Landlord written notice of Tenant's
election on or before May 1, 1997. The Rent for the space added to the
Premises pursuant to this Section 1 (a) shall be the same per square
rentable foot as for the original Premises, and Landlord shall do the
work necessary to furnish and install improvements within any such
space, on the same terms and conditions (including the same dollar
allowances per square foot) as required with respect to the original
Premises pursuant to Exhibit "C".
(b) Provided that Tenant has timely elected to exercise the
Expansion Option as set forth in Section 1(a) above, or that Landlord
and Tenant have otherwise amended this Lease to add the 1st Option
Space to the Premises, and further provided that no Default by Tenant
has occurred and is continuing, Tenant may exercise the Expansion
Option to include under this Lease, beginning the first day of either
(as designated by Landlord) the 36th, 37th, 38th, 39th or 40th month of
the Term of this Lease, all or part of the contiguous rentable area on
the fourth floor of the Building designated as the "2nd Option Space"
on Exhibit "A" (the "2nd Option Space"), upon the terms set forth in
this Exhibit "G". If Tenant desires to exercise the Expansion Option
for the 2nd Option Space as provided in this Section 1(b), Tenant must
deliver to Landlord written notice of Tenant's election no later than
December 31, 1999. If Tenant fails to timely exercise its right to
exercise the Expansion Option on the 2nd Option Space by December 31,
1999, Tenant's option to expand the Premises by adding the 2nd Option
Space as set forth in this Exhibit "G" shall terminate and be of no
further force or effect. If Tenant does exercise the Expansion Option
as provided in this Section (b). Landlord shall respond within thirty
days thereafter with a notice to Tenant designating the month during
which (i.e., the 36th, 37th, 38th, 39th or 40th month of the Term of
this Lease) the 2nd Option Space will be added to the Premises. The
Rent for the 2nd Option Space shall the same per rentable square foot
as for the Rent for the original Premises.
(c) Provided that Tenant has timely elected to exercise the
Expansion Option as set forth in Section 1 (b) above, or that Landlord
and Tenant have otherwise amended this Lease to add the 2nd Option
Space to the Premises, and further provided that no Default by Tenant
has occurred and is continuing, then Tenant may exercise the Expansion
Option to include under this Lease, beginning the first day of either
(as designated by Landlord) the 58th, 59th, 60th, 61st, 62nd, 63rd,
64th or 65th month of the Term of this Lease, the remainder of the
fourth floor of the Building, as shown on Exhibit "A" (the "3rd Option
Space"), upon the terms set forth in this Exhibit "G". If Tenant
desires to exercise the Expansion Option for the 3rd Option Space,
Tenant must deliver to Landlord written notice of Tenant's election no
later than September 30, 2001, If Tenant fails to timely exercise its
G-1
<PAGE> 7
right to exercise the Expansion Option on the 3rd Option Space
by September 30, 2001, Tenant's option to expand the Premises as set
forth in this Section l(c) shall terminate and be of no further force
or effect. If Tenant does exercise the Expansion Option as provided in
this Section 1(C), landlord shall respond within thirty days thereafter
with a notice to Tenant designating the month during which (i.e., the
58th, 59th, 60th, 61st, 62nd, 63rd, 64th or 65th month of the Term of
this Lease) the 3rd Option Space will be added to the Premises. The
Rent for the 3rd Option Space shall the same per rentable square foot
as for the Rent for the original Premises.
(d) After Landlord's receipt of notice of Tenant's election to
lease all or any part of the 1st Option Space, 2nd Option Space or 3rd
Option Space as set forth above, such space, if any, as Tenant elects
not to lease may thereafter be leased by Landlord to third parties
without any further obligation to Tenant, except as expressly provided
in this Lease.
(e) The term "Premises," as used in this Lease, shall include
all expansions thereof that may occur from time to time.
(f) In the event Tenant exercises the Expansion Option
pursuant to Sections 1(b) or 1(c), Landlord shall do the work
necessary to furnish and install within the 2nd Option Space or the 3rd
Option Space, in accordance with drawings to be prepared by Tenant and
approved in writing by Landlord, the Building Standard tenant
improvements and other additional tenant improvements provided for in
the drawings. The cost of the work shall be advanced by Landlord for
the benefit of Tenant (to be repaid by Tenant through Tenant's payment
of Base Rent), but only to the extent that the aggregate cost of
furnishing the Building Standard improvements and such additional
improvements provided for in the drawings does not exceed:
(i) For shell condition rentable area in the 2nd Option Space
or 3rd Option Space, an amount per square foot leased,
rounded up or down to the nearest cent (but not to exceed
$18.00), equal to (X) $18.00, times (Y) the number of months
remaining in the Term (excluding all renewals, unless such
renewals have been irrevocably exercised by Tenant), divided
by (Z) one hundred twenty (120).
(ii) For previously finished-out rentable area in the 2nd
Option Space or 3rd Option Space, an amount per square foot
leased, rounded up or down to the nearest cent (but not to
exceed $7.50), equal to (X) $7.50, times (Y) the number of
months remaining in the Term (excluding all renewals, unless
such renewals have been irrevocably exercised by Tenant),
divided by (Z) one hundred twenty (120).
(g) The failure by Tenant to timely give the written notice
described in Sections 1(a), 1(b) or 1(c) above shall constitute the
Tenant's decision not to exercise the Expansion Option pursuant to
those Sections, whereupon Tenant shall be considered to have
permanently waived any rights to lease the 1st Option Space, 2nd
Option Space and/or the 3rd Option Space, as the case may be, pursuant
to this Exhibit.
(h) Upon the exercise of the Expansion Option pursuant to the
terms hereof, Landlord and Tenant shall execute, at the request of
either, an instrument delineating and describing the space added
thereby.
(i) All expansion space leased pursuant to this Exhibit "G"
shall be for a term which is coterminous with the Term originally
stated herein and any renewal or extension thereof. Notwithstanding
anything herein to the contrary, the initial term for all rentable area
added to this
G-2
<PAGE> 8
Lease pursuant to the Expansion Option shall terminate on the
last day of the then current Term of this Lease of the Premises subject
hereto. As to each such addition, and so long as this Lease remains in
full force and effect and Tenant is not in default hereunder, Tenant
shall have the right to renew this Lease for the renewal term under
Exhibit "F" hereof, upon the same terms and conditions as the original
Premises, except as set forth in said Exhibit "F". In no event shall
this Lease continue in force and effect as to any expansion space
beyond the termination of this Lease as to all space constituting a
part of the original Premises.
2. Landlord shall use reasonable efforts to accommodate Tenant's
additional expansion first within Two Bridgepoint, then One
Bridgepoint, then within Bridgepoint Square.
G-3
<PAGE> 1
EXHIBIT 10.9.2
SECOND AMENDMENT TO
TWO BRIDGEPOINT LEASE AGREEMENT
This SECOND AMENDMENT TO TWO BRIDGEPOINT LEASE AGREEMENT (the
"Second Amendment") is entered into as of October 13, 1997, by and between
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA, a Washington corporation
("Landlord"), and BRIGHAM OIL & GAS, L.P., a Delaware limited partnership
("Tenant").
R E C I T A L S:
1. Landlord and Tenant executed that certain Two Bridgepoint Lease
Agreement ("Original Lease") dated as of September 20, 1996, covering part of
the building (the "Building") known as Two Bridgepoint, located at 6300
Bridgepoint Parkway, Austin, Travis County, Texas, as more particularly
described therein. Landlord and Tenant executed that certain Amendment to Two
Bridgepoint Lease Agreement ("First Amendment") dated April 11, 1997, amending
the Original Lease. The Original Lease and the First Amendment are hereinafter
collectively referred to as the "Lease". Capitalized terms used in this Second
Amendment and not otherwise defined herein shall have the meanings given to
them in the Lease, unless amended herein.
2. Landlord and Tenant have had certain disagreements regarding the
amount of usable square feet ("Usable Square Feet") contained in the Premises,
the applicable common area factors ("Common Area Factors") used to determine
the amount of rentable square feet ("Rentable Square Feet") contained in the
Premises, the actual amount of Rentable Square Feet contained in the Premises,
and the amount of the Additional Tenant Improvement Allowance. Landlord and
Tenant have reached agreement on these matters and such agreement is reflected
in this Second Amendment.
3. Landlord and Tenant wish to modify and amend the Lease in order
to, among other things, (i) confirm the amount of Usable Square Feet contained
in the Premises, (ii) confirm the Common Area Factors to be applied in the
Building to convert "usable" space to "rentable" space, (iii) confirm the amount
Rentable Square Feet in the Premises, (iv) confirm that the Premises includes
the entire fifth floor of the Building and the portion of the fourth floor shown
on Exhibit "A" to the First Amendment and designated as the "Initial Area of the
Lease" and the "1st Option Space", (v) confirm the amount of Usable Square Feet
and Rentable Square Feet contained in the 2nd Option Space and the 3rd Option
Space as described on Exhibit "A" to the First Amendment, (vi) to attach a
revised Exhibit "A" to the Lease, (vi) confirm the execution of the Commencement
Date Declaration, (vii) confirm the amount of the Additional Tenant Improvement
Allowance that will be amortized over the Term of the Lease, (viii) confirm the
revised Base Rent based on the amortization of the Additional Tenant Improvement
Allowance, and (ix) confirm Landlord's grant to Tenant of an additional sixty
(60) day option, effective as of the date of this Second Amendment, to exercise
its Expansion Option for up to 6,000 Rentable Square Feet out of the 2nd Option
Space and the 3rd Option Space, but specifically excluding the portion of the
2nd Option Space that Landlord has agreed to lease to Amherst Securities.
<PAGE> 2
NOW, THEREFORE, in consideration of the above recitals and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Landlord and Tenant agree to amend the Lease as follows:
1. Premises: The Floor Plans attached as Exhibit "A" to the Original
Lease, and the Fourth Floor Plan attached as Exhibit "A" to First Amendment are
hereby deleted and in lieu thereof are inserted the Floor Plans for the fourth
and fifth floors attached to this Second Amendment as Exhibits "A-1 and "A-2".
Landlord and Tenant agree that Premises include the entire fifth floor of the
Building (as shown on Exhibit "A-1") and the portion of the fourth floor of the
Building designated as the "Initial Area of Lease" and the "1st Option Space"
(as shown on Exhibit "A-2").
2. Usable Square Feet; Common Area Factors; and Rentable Square Feet.
Landlord and Tenant agree that the Usable Square Feet contained in the Premises
is 27,284, with 19,089 on the fifth floor of the Building and 8,195 on the
fourth floor of the Building. Landlord and Tenant agree that the Common Area
Factor attributable to a single tenant floor in the Building is 1.0556 and the
Common Area Factor for a multi-tenant floor in the Building is 1.1568.
Landlord and Tenant agree that the Common Area Factor is applied to the Usable
Square Feet in the Premises to determine the Rentable Square Feet in the
Premises. The calculation of Rentable Square Feet in the Premises is as
follows:
<TABLE>
<CAPTION>
Floor Usable Common Rentable
----- ------ ------ --------
Square Feet Area Factor Square Feet
----------- ----------- -----------
<S> <C> <C> <C> <C>
5th (full floor) 19,089 x 1.0556 20,151
4th (multi-tenant) 8,195 x 1.1568 9,480
----------- -----------
Premises 27,284 29,631
</TABLE>
Therefore, Landlord and Tenant agree that the Rentable Square Feet contained in
the Premises is 29,631 square feet.
Landlord and Tenant acknowledge and agree that the calculation of Usable
Square Feet and Rentable Square Feet on multi-tenant floors in the Building is
different from single tenant floors in the Building. As long as the fourth
floor is multi-tenant floor, Landlord and Tenant agree that the usable square
feet contained in the 2nd option space is 4,615 square feet and the Usable
Square Feet contained in the 3rd Option Space is 4,324 square feet. As long the
fourth floor is a multi-tenant floor, Landlord and Tenant agree that the Common
Area Factor applied to Usable Square Feet is 1.1568. Therefore, as long as the
fourth floor is multi-tenant floor, Landlord and Tenant agree that the Rentable
Square Feet contained in the 2nd Option Space is 5,338 (4,615 x 1.1568) and the
Rentable Square Feet contained in the 3rd Option Space is 5,002 (4,324 x
1.1568). If Tenant occupies a portion of the 2nd Option Space or a portion of
the 3rd Option Space, the determination of Usable Square Feet shall be measured
in accordance with the most recent BOMA Standard Method of Floor Measurement
(the "BOMA Standard"), which will be confirmed by Landlord's architect and
Tenants architect, and the multi-tenant Common Area Factor of 1.1568 shall be
applied to such determination of Usable Square Feet.
-2-
<PAGE> 3
At such time as Tenant occupies the entire fourth floor, the Usable
Square Feet for the fourth floor will be calculated as a single tenant floor
instead of a multi-tenant floor. The Usable Square Feet for the fourth floor as
a single tenant floor is 18,833. The Common Area Factor for a single tenant
floor in the Building is 1.0556. Therefore, if Tenant occupies the entire
fourth floor as a single tenant floor, Landlord and Tenant agree that the
Rentable Square Feet contained in the fourth floor is 19,880 (18,833 x 1.0556).
3. Commencement Date Declaration. Tenant has executed and delivered
to Landlord the Commencement Date Declaration, a copy of which is attached
hereto as Exhibit "B" and made a part hereof for all purposes.
4. Additional Tenant Improvement Allowance. Landlord and Tenant
acknowledge and agree that the total amount of the Additional Tenant
Improvement Allowance, as described in Section 5 of Exhibit "C" of the Original
Lease, is $256,450.00, and that such amount, plus interest thereon at the rate
of ten percent (10%) per annum, shall be added to the Base Rent and amortized
over the Term of the Lease. Therefore, the Base Rent shall be increased by
$3,389.00 per month to amortize the Additional Tenant Improvement Allowance.
5. Base Rent. The monthly Base Rent for the Premises (excluding the
2nd Option Space and the 3rd Option Space) for Lease Years one (1) through (5)
is $60,181.00 which amount constitutes $56,792.00 monthly Base Rent for the
29,631 Rentable Square Feet, plus $3,389.00 additional monthly Base Rent
resulting from the amortized Additional Tenant Improvement Allowance. The
monthly Base Rent for the Premises (excluding the 2nd Option Space and the 3rd
Option Space) for Lease Years six (6) through (10) is $62,651.00, which amount
constitutes $59,262.00 monthly Base Rent on the 29,631 Rentable Square Feet,
plus $3,389.00 additional monthly Base Rent resulting from the amortized
Additional Tenant Improvement Allowance.
6. Expansion Option. Landlord has disclosed to Tenant that Landlord
is currently negotiating a lease with Amherst Securities (the "Amherst
Securities Lease") for approximately 4,000 square feet in the 2nd Option Space,
which space is adjacent to the Premises and is reflected on Exhibit "C"
attached hereto (the "Amherst Premises"). Landlord acknowledges and agrees that
the Amherst Securities Lease will be subject to Tenant's existing Expansion
Option as set Forth in Section 2.05 and Exhibit "G" of the Lease. In Addition
to the Tenant's rights under the Current Expansion Option as set forth in the
Lease, Landlord hereby grants to Tenant, for a period of sixty (60) days from
the date of this Second Amendment, the limited right to exercise Tenant's
Expansion Option for a maximum of 6,000 Rentable Square Feet in the 2nd Option
Space and/or the 3rd Option Space (excluding the Amherst Premises). Except as
set forth in this Section 6 of this Second Amendment, all of the terms and
conditions of Exhibit "G" shall be applicable to Tenant's right to exercises the
Expansion Option on such portions of the 2nd Option Space and/or the 3rd Option
Space. Further, Landlord agrees not to enter into any additional leases related
to the 2nd Option Space or the 3rd Option Space (other than the Amherst
Securities Lease) during this sixty (60) day period. If Tenant elects not to
exercise its right to exercise the Expansion Option during such sixty (60) day
period, Tenant's limited right to exercise the Expansion Option early as set
forth in this Second Amendment shall terminate, but Tenant shall continue to
have all rights to exercise the Expansion Option in accordance with Exhibit "G"
of the Lease at the times set forth therein.
-3-
<PAGE> 4
7. Ratification . The Lease, as amended by this Second Amendment, is
hereby ratified and confirmed in all respects.
8. Counterparts. This Second Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed an original. Such
counterparts, together, shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Second Amendment as of
the date first above written.
LANDLORD:
INVESTORS LIFE INSURANCE COMPANY OF
NORTH AMERICA, a Washington
corporation
By: /s/ RAY MITTE
-----------------------------------
Name: Ray Mitte
--------------------------------
Title: President
--------------------------------
TENANT:
BRIGHAM OIL & GAS, L.P., a Delaware
limited partnership
By: Brigham, Inc., a Texas
corporation, as managing
general partner
By: /s/ BEN M. BRIGHAM
-----------------------------
Ben M. Brigham
President and CEO
-4-
<PAGE> 5
EXHIBIT "A"
TO SECOND AMENDMENT TO LEASE BETWEEN
INVESTORS LIFE INSURANCE COMPANY
OF NORTH AMERICA, AS LANDLORD,
AND BRIGHAM OIL & GAS, L.P., AS TENANT
FLOOR PLANS
<PAGE> 6
[FIFTH FLOOR PLAN]
EXHIBIT "A-1"
<PAGE> 7
[FOURTH FLOOR PLAN]
EXHIBIT "A-2"
<PAGE> 8
EXHIBIT "B"
TO SECOND AMENDMENT TO LEASE BETWEEN
INVESTORS LIFE INSURANCE COMPANY
OF NORTH AMERICA, AS LANDLORD,
AND BRIGHAM OIL & GAS, L.P., AS TENANT
COMMENCEMENT DATE DECLARATION
<PAGE> 9
COMMENCEMENT DATE DECLARATION
This declaration is executed with respect to that certain Lease Agreement
(the "Original Lease") dated September 20, 1996 by and between Investors Life
Insurance Company of North America, a Washington corporation ("Landlord"), and
Brigham Oil & Gas, L.P., a Delaware limited partnership ("Tenant"), amended by
that certain First Amendment to Two Bridgepoint Lease Agreement ("First
Amendment) dated April 11, 1997, and further amended by that certain Second
Amendment to Two Bridgepoint Lease Agreement ("Second Amendment") dated
October ___, 1997, covering approximately 29,631 square feet of rentable area on
floors four and five of the Building. The Original Lease, the First Amendment
and the Second Amendment are hereinafter collectively referred to as the
"Lease". Capitalized terms used but not defined herein shall have the meanings
given to them in the Lease.
By their respective execution below, Landlord and Tenant each hereby
stipulates and agrees that:
(1) The Commencement Date (as defined in Section 2.02 of the Lease)
occurred on July 15, 1997, and the Expiration Date is June 30,
2007.
(2) The portion of the Premises located on the fifth floor of the
Building contains 20,151 rentable square feet as depicted on
Exhibit "A" attached hereto and made a part hereof for all
purposes, intentionally deleting the previous Exhibit "A-3"
attached to the Lease, and the portion of the Premises located on
the fourth floor of the Building contains 9,480 rentable square
feet as depicted on Exhibit "B" attached hereto and made a part
hereof for all purposes, intentionally deleting the previous
Exhibit "A-2" attached to the Lease. The space occupied by Tenant
on the fourth floor of the Building includes the initial area
contemplated by the Lease, as well as the 1st Option Space as
described in Exhibit "G" to the Lease.
(3) Tenants Percentage Share for purposes of calculating Tenants
Percentage Share of Operating Expenses in excess of the Expense
Stop is 32.048%
(4) Base Rent, including the amortized Additional Tenant Improvement
Allowance, is $24.37 per rentable square foot per year for Lease
Years 1 through 5, payable in equal monthly installments of
$60,181.00 starting on July 15, 1997 (provided, however, the Base
Rent for the month of July, 1997 shall be prorated as provided in
Section 3.01 of the Lease). Base Rent, including the amortized
Additional Tenant Improvement Allowance, is $25.37 per rentable
square foot per year for Lease Years 6 through 10, payable in
equal monthly installments of $62,651.00, starting on July
1,2001.
1
<PAGE> 10
(5) All construction work per the Drawings is complete.
This declaration may be relied upon by any person having or acquiring an
interest in the Lease or the Building, without notice to or consent of Landlord
or Tenant.
EXECUTED on this _____ day of October, 1997.
LANDLORD:
INVESTORS LIFE INSURANCE COMPANY OF NORTH
AMERICA, a Washington corporation
By:
----------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
TENANT:
BRIGHAM OIL & GAS, L.P., a Delaware limited
partnership
By: Brigham, Inc., a Texas corporation, as
managing general partner
By:
----------------------------------
Ben M. Brigham
President and CEO
2
<PAGE> 11
EXHIBIT "C"
TO SECOND AMENDMENT TO LEASE BETWEEN
INVESTORS LIFE INSURANCE COMPANY
OF NORTH AMERICA, AS LANDLORD,
AND BRIGHAM OIL & GAS, L.P., AS TENANT
AMHERST PREMISES
<PAGE> 12
[FOURTH FLOOR PLAN]
EXHIBIT "C"
<PAGE> 13
[BRIGHAM EXPLORATION COMPANY LETTERHEAD]
April 7, 1998
Via Facsimile Transmission and Hand Delivery
Ms. Trina Willis Mr. David M. Lepore
FIC Realty Services Hand Delivered M&P Partners Limited Partnership
6300 Bridge Point Parkway by Sheri Lancon 400 Centre Street
Bldg. One, Suite 325 4/7/98 Newton, MA 02158
Austin, Texas 78730 Fax # (617) 332-2261
Fax # (512) 404-5212
Ms. Julia D. Finney
Reit Management & Research, Inc.
6300 Bridge Point Parkway, Bldg. One, Suite 125
Austin, Texas 78730
Fax # (512) 346-7561
Re: Two Bridge Point Lease Agreement by and between Investors Life
Insurance Company of North America and Brigham Oil & Gas, L.P.,
dated September 20, 1996, as amended (the "Lease Agreement");
EXERCISE OF RIGHT OF FIRST REFUSAL
Ladies and Gentlemen:
On March 24, 1998 we received Ms. Julia D. Finney's letter dated March
20, 1998, notifying us that the Right of First Refusal Space (the "Refusal
Space") is available for lease and that Health and Retirement Properties Trust
("Landlord") has prospects interested in leasing the Refusal Space.
Brigham Oil & Gas, L.P. ("Tenant") hereby notifies Landlord that, under
and pursuant to the terms of Section 2.04 and Exhibit F of the Lease Agreement,
Tenant is exercising its Right of First Refusal to lease all of the "3rd Option
Space" as depicted on Exhibit A-2 to the Lease Agreement, being the same space
which is also known as the "5 Year Option Space."
Tenant is not exercising its Right of First Refusal with respect to the
remainder of the "2nd Option Space" (being all of the 2nd Option Space which has
not already been leased to Amherst).
Please feel free to give me a call if anything else is needed with
respect to this matter.
Sincerely,
BRIGHAM OIL & GAS, L.P.
By Brigham, Inc.
Its Managing General Partner
/s/ ANNE L. BRIGHAM
Anne L. Brigham
Executive Vice President
cc: Ms. Diana Barbour, Oxford Commerical, Inc.
<PAGE> 1
Exhibit 10.9.3
[BRIGHAM EXPLORATION COMPANY LETTERHEAD]
April 7, 1998
Via Facsimile Transmission and Hand Delivery
Ms. Trina Willis Mr. David M. Lepore
FIC Realty Services M&P Partners Limited Partnership
6300 Bridge Point Parkway Hand Delivered 400 Centre Street
Bldg. One, Suite 325 by Sheri Lancon Newton, MA 02158
Austin, Texas 78730 4/7/98 Fax # (617) 332-2261
Fax # (512) 404-5212
Ms. Julia D. Finney
Reit Management & Research, Inc.
6300 Bridge Point Parkway, Bldg. One, Suite 125
Austin, Texas 78730
Fax # (512) 346-7561
Re: Two Bridge Point Lease Agreement by and between Investors Life
Insurance Company of North America and Brigham Oil & Gas, L.P.,
dated September 20, 1996, as amended (the "Lease Agreement");
EXERCISE OF RIGHT OF FIRST REFUSAL
Ladies and Gentlemen:
On March 24, 1998 we received Ms. Julia D. Finney's letter dated March
20, 1998, notifying us that the Right of First Refusal Space (the "Refusal
Space") is available for lease and that Health and Retirement Properties Trust
("Landlord") has prospects interested in leasing the Refusal Space.
Brigham Oil & Gas, L.P. ("Tenant") hereby notifies Landlord that, under
and pursuant to the terms of Section 2.04 and Exhibit F of the Lease Agreement,
Tenant is exercising its Right of First Refusal to lease all of the "3rd Option
Space" as depicted on Exhibit A-2 to the Lease Agreement, being the same space
which is also known as the "5 Year Option Space."
Tenant is not exercising its Right of First Refusal with respect to the
remainder of the "2nd Option Space" (being all of the 2nd Option Space which has
not already been leased to Amherst).
Please feel free to give me a call if anything else is needed with
respect to this matter.
Sincerely,
BRIGHAM OIL & GAS, L.P.
By Brigham, Inc.
Its Managing General Partner
/s/ ANNE L. BRIGHAM
Anne L. Brigham
Executive Vice President
cc. Ms. Diana Barbour, Oxford Commercial, Inc.
<PAGE> 1
EXHIBIT 10.33.2
FIRST AMENDMENT TO GUARANTY AGREEMENT
THIS FIRST AMENDMENT TO GUARANTY AGREEMENT (this "Amendment")
dated as of March 30, 1998 is between BRIGHAM EXPLORATION COMPANY, a Delaware
corporation (the "Guarantor") and BANK OF MONTREAL, as agent ("Agent") for the
lenders (the "Lenders") that are or become parties to the Credit Agreement
defined below.
RECITALS
A. Brigham Oil & Gas, L.P., a Delaware limited partnership (the
"Borrower"), the Agent and the Lenders previously entered into that certain
Credit Agreement dated as of January 26, 1998 (the "Credit Agreement"),
pursuant to which the Lenders agreed to make certain loans and extensions of
credit to the Borrower.
B. One of the terms and conditions stated in the Credit Agreement
for the making of the loans was the execution and delivery of that certain
Guaranty Agreement of even date therewith by Guarantor (the "Guaranty
Agreement").
C. Guarantor and the Agent now desire to amend certain provisions
of the Guaranty Agreement.
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the Guarantor, the Agent and the Lenders hereby agree that
the Guaranty Agreement shall be amended as follows:
Section 1. Certain Definitions. As used in this Amendment, the
terms "Agent", "Amendment", "Borrower", "Credit Agreement", "Guarantor" and
"Lenders" shall have the meanings indicated above; and unless otherwise defined
herein, all terms beginning with a capital letter which are defined in the
Guaranty Agreement shall have the same meanings herein as therein unless the
context hereof otherwise requires.
Section 2. Amendments to Guaranty Agreement. Section 5.2(s) is
hereby amended in its entirety to read as follows:
"(s) Interest Coverage Ratio. The Guarantor will not
permit its Interest Coverage Ratio as of the end of the fiscal
quarters of the Guarantor stated below (calculated quarterly at the
end of each fiscal quarter) to be less than the ratios stated below.
Interest Coverage Ratio shall mean the following ratios of (i) EBITDA
to (ii) cash interest payments made during the following periods:
(i) not less than 1.75 to 1 for the three (3) month
period ending June 30, 1998;
(ii) not less than 3 to 1 for the three (3) month period
ending September 30, 1998;
<PAGE> 2
(iii) not less than 3 to 1 for the three (3) month period
ending December 31, 1998; and
(iv) thereafter, not less than 3 to 1 for the twelve (12)
month periods ending at the end of each fiscal
quarter of the Guarantor."
Section 3. Representations and Warranties. Guarantor hereby
reaffirms that as of the effective date of this Amendment, the representations
and warranties made by the Guarantor in Article III of the Guaranty Agreement
will be true and correct as though made on and as of the effective date of this
Amendment.
Section 4. Ratification. Guarantor hereby expressly ratifies
and affirms its obligations under the Guaranty Agreement as amended by this
Amendment and agrees that the Guaranty Agreement as amended by this Amendment
remains in full force and effect.
Section 5. Governing Law. This Amendment and the rights and
obligations of the parties hereunder and under the Credit Agreement shall be
construed in accordance with and be governed by the laws of the State of Texas
and the United States of America.
Section 6. Descriptive Headings, etc. The descriptive headings
of the several Sections of this Amendment are inserted for convenience only and
shall not be deemed to affect the meaning or construction of any of the
provisions hereof.
Section 7. Counterparts. This Amendment may be executed in any
number of counterparts and by different parties on separate counterparts and
all of such counterparts shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered and effective as of the date first above
written.
NOTICE PURSUANT TO TEX. BUS. & COMM. CODE Section 26.02
THIS AMENDMENT AND OTHER LOAN DOCUMENTS EXECUTED BY ANY OF THE PARTIES
BEFORE OR SUBSTANTIALLY CONTEMPORANEOUSLY WITH THE EXECUTION HEREOF TOGETHER
CONSTITUTE A WRITTEN LOAN AGREEMENT AND REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NOT UNWRITTEN ORAL
AGREEMENT BETWEEN THE PARTIES.
- 2 -
<PAGE> 3
GUARANTOR: BRIGHAM EXPLORATION COMPANY
By: /s/ CRAIG M. FLEMING
-------------------------
Name: Craig M. Fleming
Title: CEO
AGENT AND LENDER: BANK OF MONTREAL
By: /s/ J.B. WHITMORE
-------------------------
Name: J.B. Whitmore
Title: Director
- 3 -
<PAGE> 1
EXHIBIT 21
Brigham Holdings I, LLC
Brigham, Inc.
Brigham Oil & Gas, L.P.
Brigham Holdings II, LLC
<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 Form S-1 of our report dated March 6, 1998, relating
to the financial statements of Brigham Exploration Corporation, which appears
in such Prospectus. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
/S/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Houston, Texas
May 28, 1998
