<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to________________
Commission File Number 000-22433
BRIGHAM EXPLORATION COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1311 75-2692967
(State of other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
6300 BRIDGE POINT PARKWAY
BLDG. 2, SUITE 500
AUSTIN, TEXAS 78730
(512) 427-3300
(Name, address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X]. No [ ].
As of July 31, 1999, 14,428,621 shares of Common Stock, $.01 per share, were
outstanding.
================================================================================
<PAGE> 2
BRIGHAM EXPLORATION COMPANY
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION: NUMBER
------
<S> <C>
Item 1. Unaudited Financial Statements
Condensed Consolidated Financial Statements of Brigham Exploration Company
Balance Sheets - December 31, 1998 and June 30, 1999 ..................... 1
Statements of Operations - Three and six months ended
June 30, 1998 and 1999 ............................................. 2
Statements of Cash Flows - Three and six months ended
June 30, 1998 and 1999 ............................................. 3
Statement of Changes in Stockholders' Equity - Six months ended
June 30, 1999 ...................................................... 4
Notes to Condensed Consolidated Financial Statements ................. 5-6
Condensed Financial Statements of Brigham Exploration Company Subsidiaries
Balance Sheets - June 30, 1999 ....................................... 7
Balance Sheets - December 31, 1998 ................................... 8
Statements of Operations - Three months ended June 30, 1999 .......... 9
Statements of Operations - Three months ended June 30, 1998 .......... 10
Statements of Operations - Six months ended June 30, 1999 ............ 11
Statements of Operations - Six months ended June 30, 1998 ............ 12
Statements of Cash Flows - Six months ended June 30, 1999 ............ 13
Statements of Cash Flows - Six months ended June 30, 1998 ............ 14
Statements of Changes in Equity - Six months ended June 30, 1999 ..... 15
Notes to Condensed Financial Statements .............................. 16-17
As all Brigham Exploration Company subsidiaries fully and
unconditionally guarantee the Senior Subordinated Secured Notes and
the Company has no significant assets other than its investments in
its subsidiaries, the consolidated financial statements are
substantially the same as the financial statements of the subsidiary
guarantors and separate financial statements have been omitted as they
would not be meaningful to investors.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition ....................................... 18-27
PART II. OTHER INFORMATION:
Item 2. Change in Securities ......................................................... 28
Item 4. Submission of Matters to a Vote of Security Holders .......................... 28
Item 6. Exhibits and Reports on Form 8-K ............................................. 29
</TABLE>
<PAGE> 3
Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements
BRIGHAM EXPLORATION COMPANY
CONDENSED CONSOLIDATED
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
----------- --------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,569 $ 2,752
Accounts receivable 7,938 3,059
Prepaid expenses 290 380
-------- --------
Total current assets 10,797 6,191
-------- --------
Natural gas and oil properties, at cost, net 134,317 105,324
Other property and equipment, at cost, net 2,014 1,888
Drilling advances paid 230 352
Deferred loan fees 3,146 3,296
Other noncurrent assets 12 123
-------- --------
$150,516 $117,174
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 19,883 $ 14,966
Accrued drilling costs 1,219 38
Participant advances received 764 459
Other current liabilities 1,647 1,571
-------- --------
Total current liabilities 23,513 17,034
-------- --------
Notes payable 59,000 48,250
Senior subordinated notes, net 35,786 38,177
Other noncurrent liabilities 7,536 2,510
Stockholders' equity:
Preferred stock, $.01 par value, 10 million shares
authorized, none issued and outstanding -- --
Common stock, $.01 par value, 30 million shares
authorized, 13,306,206 and 14,309,071 issued and outstanding at 133 143
December 31, 1998 and June 30, 1999, respectively
Additional paid-in capital 58,838 62,817
Unearned stock compensation (890) (654)
Accumulated deficit (33,400) (51,103)
-------- --------
Total stockholders' equity 24,681 11,203
-------- --------
$150,516 $117,174
======== ========
</TABLE>
Natural gas and oil properties are accounted for using the full cost method.
See accompanying notes to the condensed consolidated financial statements.
1
<PAGE> 4
BRIGHAM EXPLORATION COMPANY
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------- --------------------
1998 1999 1998 1999
------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Natural gas and oil sales $ 3,987 $ 3,555 $ 7,130 $ 6,746
Workstation revenue 133 71 247 161
------- -------- -------- --------
4,120 3,626 7,377 6,907
------- -------- -------- --------
Costs and expenses:
Lease operating 564 619 978 1,154
Production taxes 262 216 450 385
General and administrative 1,139 891 2,293 1,809
Depletion of natural gas and oil properties 1,520 1,461 2,790 2,811
Depreciation and amortization 92 139 175 266
Amortization of stock compensation 116 55 233 113
------- -------- -------- --------
3,693 3,381 6,919 6,538
------- -------- -------- --------
Operating income 427 245 458 369
------- -------- -------- --------
Other income (expense):
Interest income 40 70 77 94
Interest expense (1,410) (3,154) (2,432) (5,971)
Loss on sale of natural gas and oil properties -- (12,195) -- (12,195)
------- ------- ------- -------
(1,370) (15,279) (2,355) (18,072)
------- ------- ------- -------
Net loss before income taxes (943) (15,034) (1,897) (17,703)
Income tax benefit 316 -- 638 --
------- -------- -------- --------
Net loss $ (627) $(15,034) $ (1,259) $(17,703)
======= ======== ======== ========
Net loss per share:
Basic / Diluted $ (0.05) $ (1.05) $ (0.10) $ (1.28)
Weighted average common shares outstanding:
Basic / Diluted 12,254 14,309 12,254 13,816
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
2
<PAGE> 5
BRIGHAM EXPLORATION COMPANY
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Six Six
Months Ended Months Ended
June 30, June 30,
1998 1999
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,259) $(17,703)
Adjustments to reconcile net loss to cash used
by operating activities:
Depletion of natural gas and oil properties 2,790 2,811
Depreciation and amortization 175 266
Amortization of stock compensation 233 113
Interest paid through issuance of senior subordinated note -- 2,642
Amortization of deferred loan fees 266 628
Amortization of discount on senior subordinated notes -- 228
Loss on sale of natural gas and oil properties -- 12,195
Changes in deferred income tax liability (639) --
Changes in working capital and other items:
(Increase) decrease in accounts receivable (3,025) 4,879
(Increase) decrease in prepaid expenses 63 (90)
Decrease in accounts payable (4,055) (2,001)
Decrease in participant advances received (47) (305)
Increase (decrease) in other current liabilities 3,987 (74)
Other noncurrent assets (119) (111)
Other noncurrent liabilities (62) (4,655)
-------- --------
Net cash used by operating activities (1,692) (1,177)
-------- --------
Cash flows from investing activities:
Additions to natural gas and oil properties (30,044) (13,771)
Proceeds from sale of natural gas and oil properties -- 26,700
Additions to other property and equipment (315) (89)
Increase in drilling advances paid (525) (122)
-------- --------
Net cash (used) provided by investing activities (30,884) 12,718
-------- --------
Cash flows from financing activities:
Increase in notes payable 70,800 6,000
Repayment of notes payable (34,800) (16,750)
Principal payments on capital lease obligations (108) (130)
Deferred loan fees paid (1,911) (478)
-------- --------
Net cash (used) provided by financing activities 33,981 (11,358)
-------- --------
Net increase in cash and cash equivalents 1,405 183
Cash and cash equivalents, beginning of period 1,701 2,569
-------- --------
Cash and cash equivalents, end of period $ 3,106 $ 2,752
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 1,585 $ 2,457
======== ========
Supplemental disclosure of noncash investing and financing activities:
Capital lease asset additions $ 59 $ 51
======== ========
Decrease in accounts payable and other noncurrent liabilities in exchange
for issuance of common stock $ -- $ 3,510
======== ========
Increase in accounts payable for deferred loan fees to be
paid in future periods $ -- $ 300
======== ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
3
<PAGE> 6
BRIGHAM EXPLORATION COMPANY
CONDENSED CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Unearned
------------------------- Paid-in Stock Accum.
Shares Amounts Capital Compensation Deficit Total
---------- ---------- ---------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 13,306,206 $ 133 $ 58,838 $ (890) $(33,400) $ 24,681
Net loss for the period
ended June 30, 1999 -- -- -- -- (17,703) (17,703)
Issuance of common stock 1,002,865 10 3,500 -- -- 3,510
Revision in terms
of warrants -- -- 479 -- -- 479
Amortization of unearned
stock compensation -- -- -- 236 -- 236
---------- ---------- ---------- --------- -------- ----------
Balance, June 30, 1999 14,309,071 $ 143 $ 62,817 $ (654) $(51,103) $ 11,203
========== ========== ========== ========== ======== ==========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
4
<PAGE> 7
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 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 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
(the "SEC") 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.
2. BASIS OF PRESENTATION
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.
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 1998 Annual Report on Form 10-K pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934.
5
<PAGE> 8
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
3. SALE OF NATURAL GAS AND OIL PROPERTIES
In February 1999, the Company entered into a project financing
arrangement with Duke Energy Financial Services, Inc. ("Duke") to fund
the continued exploration of five projects covered by approximately 200
square miles of 3-D seismic data acquired in 1998. In this transaction,
the Company conveyed 100% of its working interest in land and seismic
in these project areas to a newly formed limited liability company (the
"Duke LLC") for a total consideration of $10 million. The Company is
the managing member of the Duke LLC with a 1% interest, and Duke is the
sole remaining member with a 99% interest. Pursuant to the terms of the
Duke LLC agreement, the Company pays 100% of the drilling and
completion costs for all wells drilled by the Duke LLC in exchange for
a 70% working interest in the wells and their associated drilling and
spacing units and allocable seismic data. Upon 100% project payout, the
Company has certain rights to back-in for up to a 94% effective working
interest in the Duke LLC properties.
In June 1999, the Company sold all of its interests in certain
producing and non-producing natural gas and oil properties for a total
sales price of $17.1 million. Due to the magnitude of the reserve
volumes that were attributable to these properties relative to the
Company's remaining net reserve volumes, the Company recognized as a
loss the difference between the sales price received, after adjustment
for transaction costs, and the $28.9 million basis allocated to the
divested properties in accordance with the full-cost method of
accounting for oil and gas properties.
4. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 requires that all derivative instruments be
recorded on the balance sheet at fair value. Changes in the fair value
of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated
as part of a hedge transaction and, if it is, depending on the type of
hedge transaction. For fair value hedge transactions in which the
Company is hedging changes in an asset's, liability's, or firm
commitment's fair value, changes in the fair value of the derivative
instrument will generally be offset in the income statement by changes
in the hedged item's fair value. For cash flow hedge transactions in
which the Company is hedging the variability of cash flows related to a
variable-rate asset, liability, or a forecasted transaction, changes in
the fair value of the derivative instrument will be reported in other
comprehensive income. The gains and losses on the derivative instrument
that are reported in other comprehensive income will be reclassified as
earnings in the periods in which earnings are impacted by the
variability of the cash flows of the hedged item. The ineffective
portion of all hedges will be recognized in current period earnings.
The Company must adopt SFAS No. 133, as amended, effective January 1,
2001. The Company is in the process of analyzing the potential impact
of this standard on its financial statement presentations.
6
<PAGE> 9
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
CONDENSED BALANCE SHEETS
AS OF JUNE 30, 1999
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
BRIGHAM BRIGHAM BRIGHAM
OIL & BRIGHAM, HOLDINGS HOLDINGS
GAS, L.P. INC. I, LLC II, LLC
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,733 $ 2,747 $ 5 $ 6
Accounts receivable 3,059 3,059 -- --
Prepaid expenses 380 380 -- --
--------- --------- --------- ---------
Total current assets 6,172 6,186 5 6
--------- --------- --------- ---------
Natural gas and oil properties, at cost, net 105,324 105,324 -- --
Other property and equipment, at cost, net 1,888 1,888 -- --
Investment in subsidiaries
and intercompany advances 29 21 2,277 45,386
Drilling advances paid 352 352 -- --
Deferred loan fees 1,736 1,736 -- --
Other noncurrent assets 123 123 -- --
--------- --------- --------- ---------
$ 115,624 $ 115,630 $ 2,282 $ 45,392
========= ========= ========= =========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 14,966 $ 14,966 $ -- $ --
Accrued drilling costs 38 38 -- --
Participant advances received 459 459 -- --
Other current liabilities 1,536 1,536 -- --
--------- --------- --------- ---------
Total current liabilities 16,999 16,999 -- --
--------- --------- --------- ---------
Notes payable 48,250 48,250 -- --
Other noncurrent liabilities 2,510 2,510 -- --
Intercompany accounts payable 1,867 1,888 -- 1,742
Intercompany notes payable 42,642 42,642 -- 42,642
Minority interest -- 2,299 -- --
Equity
Partners' capital 3,356 -- 2,282 1,008
Common stock, $1.00 par value, 1,000 shares
authorized, issued and outstanding -- 1 -- --
Additional paid-in capital -- 17,215 -- --
Accumulated deficit -- (16,174) -- --
--------- --------- --------- ---------
Total equity 3,356 1,042 2,282 1,008
--------- --------- --------- ---------
$ 115,624 $ 115,630 $ 2,282 $ 45,392
========= ========= ========= =========
</TABLE>
Natural gas and oil properties are accounted for using the full cost method.
See accompanying notes to the condensed financial statements.
7
<PAGE> 10
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
CONDENSED BALANCE SHEETS
AS OF DECEMBER 31, 1998
(in thousands)
<TABLE>
<CAPTION>
BRIGHAM BRIGHAM BRIGHAM
OIL & BRIGHAM, HOLDINGS HOLDINGS
GAS, L.P. INC. I, LLC II, LLC
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,549 $ 2,563 $ 5 $ 6
Accounts receivable 7,938 7,938 -- --
Prepaid expenses 290 290 -- --
--------- --------- --------- ---------
Total current assets 10,777 10,791 5 6
--------- --------- --------- ---------
Natural gas and oil properties, at cost, net 134,317 134,317 -- --
Other property and equipment, at cost, net 2,014 2,014 -- --
Investment in subsidiaries
and intercompany advances 115 16 11,714 46,913
Drilling advances paid 231 231 -- --
Deferred loan fees 1,397 1,397 -- --
Other noncurrent assets 12 12 -- --
--------- --------- --------- ---------
$ 148,863 $ 148,778 $ 11,719 $ 46,919
========= ========= ========= =========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 19,883 $ 19,883 $ -- $ --
Accrued drilling costs 1,219 1,219 -- --
Participant advances received 764 764 -- --
Other current liabilities 1,647 1,647 -- --
--------- --------- --------- ---------
Total current liabilities 23,513 23,513 -- --
--------- --------- --------- ---------
Notes payable 59,000 59,000 -- --
Other noncurrent liabilities 7,536 7,536 -- --
Intercompany accounts payable 1,690 1,616 -- 1,707
Intercompany notes payable 40,000 40,000 -- 40,000
Minority interest -- 11,730 -- --
Equity
Partners' capital 17,124 -- 11,719 5,212
Common stock, $1.00 par value, 1,000 shares
authorized, issued and outstanding -- 1 -- --
Additional paid-in capital -- 16,109 -- --
Accumulated deficit -- (10,727) -- --
--------- --------- --------- ---------
Total equity 17,124 5,383 11,719 5,212
--------- --------- --------- ---------
$ 148,863 $ 148,778 $ 11,719 $ 46,919
========= ========= ========= =========
</TABLE>
Natural gas and oil properties are accounted for using the full cost method.
See accompanying notes to the condensed financial statements.
8
<PAGE> 11
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1999
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
BRIGHAM BRIGHAM BRIGHAM
OIL & BRIGHAM, HOLDINGS HOLDINGS
GAS, L.P. INC. I, LLC II, LLC
<S> <C> <C> <C> <C>
Revenues:
Natural gas and oil sales $ 3,555 $ 3,555 $ -- $ --
Workstation revenue 71 71 -- --
-------- -------- -------- --------
3,626 3,626 -- --
-------- -------- -------- --------
Costs and expenses:
Lease operating 619 619 -- --
Production taxes 216 216 -- --
General and administrative 881 886 5 5
Depletion of natural gas and oil properties 1,461 1,461 -- --
Depreciation and amortization 139 139 -- --
Amortization of stock compensation 55 55 -- --
-------- -------- -------- --------
3,371 3,376 5 5
-------- -------- -------- --------
Operating income (loss) 255 250 (5) (5)
-------- -------- -------- --------
Other income (expense):
Interest income 70 70 -- --
Interest expense (1,563) (1,563) -- --
Interest expense - intercompany (1,361) (1,361) -- (1,361)
Loss on sale of natural gas and oil properties -- (12,195) -- --
-------- -------- -------- --------
(2,854) (15,049) -- (1,361)
-------- -------- -------- --------
Minority interest in net loss -- (10,135) -- --
-------- -------- -------- --------
Net loss before income taxes (2,599) (4,664) -- (1,366)
Equity in net loss of investee -- -- (10,135) (3,151)
-------- -------- -------- --------
Net loss $ (2,599) $ (4,664) $(10,135) $ (4,517)
======== ======== ======== ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
9
<PAGE> 12
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
BRIGHAM BRIGHAM BRIGHAM
OIL & BRIGHAM, HOLDINGS HOLDINGS
GAS, L.P. INC. I, LLC II, LLC
<S> <C> <C> <C> <C>
Revenues:
Natural gas and oil sales $ 3,987 $ 3,987 $ -- $ --
Workstation revenue 133 133 -- --
------- ------- ------- -------
4,120 4,120 -- --
------- ------- ------- -------
Costs and expenses:
Lease operating 564 564 -- --
Production taxes 262 262 -- --
General and administrative 1,128 1,134 6 6
Depletion of natural gas and oil properties 1,520 1,520 -- --
Depreciation and amortization 92 92 -- --
Amortization of stock compensation 116 116 -- --
------- ------- ------- -------
3,682 3,688 6 6
------- ------- ------- -------
Operating income (loss) 438 432 (6) (6)
------- ------- ------- -------
Other income (expense):
Interest income 40 40 -- --
Interest expense (1,410) (1,410) -- --
------- ------- ------- -------
(1,370) (1,370) -- --
------- ------- ------- -------
Minority interest in net loss -- (639) -- --
------- ------- ------- -------
Net loss before income taxes (932) (299) (6) (6)
Income tax benefit -- 98 -- --
Equity in net loss of investee -- -- (639) (284)
------- ------- ------- -------
Net loss $ (932) $ (201) $ (645) $ (290)
======= ======= ======= =======
</TABLE>
See accompanying notes to the condensed financial statements.
10
<PAGE> 13
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
BRIGHAM BRIGHAM BRIGHAM
OIL & BRIGHAM, HOLDINGS HOLDINGS
GAS, L.P. INC. I, LLC II, LLC
<S> <C> <C> <C> <C>
Revenues:
Natural gas and oil sales $ 6,746 $ 6,746 $ -- $ --
Workstation revenue 161 161 -- --
-------- -------- -------- --------
6,907 6,907 -- --
-------- -------- -------- --------
Costs and expenses:
Lease operating 1,154 1,154 -- --
Production taxes 385 385 -- --
General and administrative 1,799 1,804 5 5
Depletion of natural gas and oil properties 2,811 2,811 -- --
Depreciation and amortization 266 266 -- --
Amortization of stock compensation 113 113 -- --
-------- -------- -------- --------
6,528 6,533 5 5
-------- -------- -------- --------
Operating income (loss) 379 374 (5) (5)
-------- -------- -------- --------
Other income (expense):
Interest income 94 94 -- --
Interest expense (2,878) (2,878) -- --
Interest expense - intercompany (2,678) (2,678) -- (2,678)
Loss on sale of natural gas and oil properties (12,195) (12,195) -- --
-------- -------- -------- --------
(17,657) (17,657) -- (2,678)
-------- -------- -------- --------
Minority interest in net loss -- (11,836) -- --
-------- -------- -------- --------
Net loss before income taxes (17,278) (5,447) (5) (2,683)
Equity in net loss of investee -- -- (11,836) (2,592)
-------- -------- -------- --------
Net loss $(17,278) $ (5,447) $(11,841) $ (5,275)
======== ======== ======== ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
11
<PAGE> 14
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
BRIGHAM BRIGHAM BRIGHAM
OIL & BRIGHAM, HOLDINGS HOLDINGS
AS, L.P. INC. I, LLC II, LLC
<S> <C> <C> <C> <C>
Revenues:
Natural gas and oil sales $ 7,130 $ 7,130 $ -- $ --
Workstation revenue 247 247 -- --
------- ------- ------- -------
7,377 7,377 -- --
------- ------- ------- -------
Costs and expenses:
Lease operating 978 978 -- --
Production taxes 450 450 -- --
General and administrative 2,282 2,288 6 6
Depletion of natural gas and oil properties 2,790 2,790 -- --
Depreciation and amortization 175 175 -- --
Amortization of stock compensation 233 233 -- --
------- ------- ------- -------
6,908 6,914 6 6
------- ------- ------- -------
Operating income (loss) 469 463 (6) (6)
------- ------- ------- -------
Other income (expense):
Interest income 77 77 -- --
Interest expense (2,432) (2,432) -- --
------- ------- ------- -------
(2,355) (2,355) -- --
------- ------- ------- -------
Minority interest in net loss -- (1,292) -- --
------- ------- ------- -------
Net loss before income taxes (1,886) (600) (6) (6)
Income tax benefit -- 192 -- --
Equity in net loss of investee -- -- (1,292) (575)
------- ------- ------- -------
Net loss $(1,886) $ (408) $(1,298) $ (581)
======= ======= ======= =======
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
12
<PAGE> 15
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
BRIGHAM BRIGHAM BRIGHAM
OIL & BRIGHAM, HOLDINGS HOLDINGS
GAS, L.P. INC. I, LLC II, LLC
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(17,278) $ (5,447) $(11,841) $ (5,275)
Adjustments to reconcile net loss to cash
provided by operating activities:
Depletion of natural gas and oil properties 2,811 2,811 -- --
Depreciation and amortization 266 266 -- --
Amortization of stock compensation 113 113 -- --
Amortization of deferred loan fees and debt issuance costs 440 440 -- --
Loss on sale of natural gas and oil properties 12,195 12,195 -- --
Minority interest in net loss -- (11,836) -- --
Equity in net loss of investee -- -- 11,836 2,592
Changes in working capital and other items:
Decrease in accounts receivable 4,879 4,879 -- --
Increase in prepaid expenses (90) (90) -- --
Decrease in accounts payable (2,001) (2,001) -- --
Decrease in participant advances received (305) (305) -- --
Decrease in other current liabilities (111) (111) -- --
Increase in intercompany accounts payable 31 127 -- 35
Other noncurrent assets (109) (109) -- --
Other noncurrent liabilities (4,655) (4,655) -- --
-------- -------- -------- --------
(3,814) (3,723) (5) (2,648)
-------- -------- -------- --------
Cash flows from investing activities:
Additions to natural gas and oil properties (13,771) (13,771) -- --
Proceeds from sale of natural gas and oil properties 26,700 26,700 -- --
Additions to other property and equipment (89) (89) -- --
Change in investment in subsidiaries and intercompany advances (4) (95) 5 6
Change in drilling advances paid (122) (122) -- --
-------- -------- -------- --------
12,714 12,623 5 6
-------- -------- -------- --------
Cash flows from financing activities:
Increase in notes payable 6,000 6,000 -- --
Repayment of notes payable (16,750) (16,750) -- --
Increase in intercompany notes payable 2,642 2,642 -- 2,642
Principal payments on capital lease obligations (130) (130) -- --
Deferred loan fees paid (478) (478) -- --
-------- -------- -------- --------
(8,716) (8,716) -- 2,642
-------- -------- -------- --------
Net increase in cash and cash equivalents 184 184 -- --
Cash and cash equivalents, beginning of period 2,549 2,563 5 6
-------- -------- -------- --------
Cash and cash equivalents, end of period $ 2,733 $ 2,747 $ 5 $ 6
======== ======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 2,897 $ 2,897 $ -- $ --
Supplemental disclosure of noncash investing and financing activities:
Capital lease asset additions $ 51 $ 51 $ -- $ --
Increase in accounts payable for deferred loan fees to be
paid in future periods $ 300 $ 300 $ -- $ --
Capital contribution received in exchange for accounts
payable and other noncurrent liabilities $ 3,510 $ -- $ -- $ --
Intercompany capital contributions $ -- $ 1,106 $ 2,404 $ 1,071
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
13
<PAGE> 16
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
BRIGHAM BRIGHAM BRIGHAM
OIL & BRIGHAM, HOLDINGS HOLDINGS
GAS, L.P. INC. I, LLC II, LLC
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,886) $ (408) $ (1,298) $ (581)
Adjustments to reconcile net loss to cash
used by operating activities:
Depletion of natural gas and oil properties 2,790 2,790 -- --
Depreciation and amortization 175 175 -- --
Amortization of stock compensation 233 233 -- --
Amortization of deferred loan fees and debt issuance costs 266 266 -- --
Minority interest in net loss -- (1,292) -- --
Equity in net loss of investee -- -- 1,292 575
Changes in working capital and other items:
Increase in accounts receivable (3,026) (3,026) -- --
Decrease in prepaid expenses 63 63 -- --
Decrease in accounts payable (4,055) (4,055) -- --
Decrease in participant advances received (47) (47) -- --
Increase in other current liabilities 3,987 3,987 -- --
Decrease in deferred income tax liability -- (192) -- --
Other noncurrent assets (119) (119) -- --
Other noncurrent liabilities (62) (62) -- --
-------- -------- -------- --------
(1,681) (1,687) (6) (6)
-------- -------- -------- --------
Cash flows from investing activities:
Additions to natural gas and oil properties (30,044) (30,044) -- --
Additions to other property and equipment (315) (315) -- --
Change in investment in subsidiaries and intercompany advances (223) (7) 7 7
Change in drilling advances paid (525) (525) -- --
-------- -------- -------- --------
(31,107) (30,891) 7 7
-------- -------- -------- --------
Cash flows from financing activities:
Increase in notes payable 70,800 70,800 -- --
Repayment of notes payable (34,800) (34,800) -- --
Principal payments on capital lease obligations (108) (108) -- --
Deferred loan fees paid (1,911) (1,911) -- --
-------- -------- -------- --------
33,981 33,981 -- --
-------- -------- -------- --------
Net increase in cash and cash equivalents 1,193 1,403 1 1
Cash and cash equivalents, beginning of period 1,701 1,701 -- --
-------- -------- -------- --------
Cash and cash equivalents, end of period $ 2,894 $ 3,104 $ 1 $ 1
======== ======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 1,851 $ 1,851 $ -- $ --
Supplemental disclosure of noncash investing and financing activities:
Capital lease asset additions $ 59 $ 59 $ -- $ --
Intercompany capital contributions $ -- $ -- $ 29,911 $ 13,318
</TABLE>
See accompanying notes to the condensed financial statements.
14
<PAGE> 17
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
CONDENSED STATEMENTS OF CHANGES IN EQUITY
(in thousands, except shares)
(unaudited)
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings/
--------------------------- Paid-in Accumulated Partners'
Shares Amounts Capital Deficit Capital Total
----------- ----------- ----------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
BRIGHAM OIL & GAS, L.P.
Balance,
December 31, 1998 -- $ -- $ -- $ -- $ 17,124 $ 17,124
Capital contribution -- -- -- -- 3,510 3,510
Net loss -- -- -- -- (17,278) (17,278)
----------- ----------- ----------- ----------- -------- --------
Balance,
June 30, 1999 -- $ -- $ -- $ -- $ 3,356 $ 3,356
=========== =========== =========== =========== ======== ========
BRIGHAM INC
Balance,
December 31, 1998 1,000 $ 1 $ 16,109 $ (10,727) $ -- $ 5,383
Capital contribution -- -- 1,106 -- -- 1,106
Net loss -- -- -- (5,447) -- (5,447)
----------- ----------- ----------- ----------- -------- --------
Balance,
June 30, 1999 1,000 $ 1 $ 17,215 $ (16,174) $ -- $ 1,042
=========== =========== =========== =========== ======== ========
BRIGHAM HOLDING I, LLC
Balance,
December 31, 1998 -- $ -- $ -- $ -- $ 11,719 $ 11,719
Capital contribution -- -- -- -- 2,404 2,404
Net loss -- -- -- -- (11,841) (11,841)
----------- ----------- ----------- ----------- -------- --------
Balance,
June 30, 1999 -- $ -- $ -- $ -- $ 2,282 $ 2,282
=========== =========== =========== =========== ======== ========
BRIGHAM HOLDINGS II, LLC
Balance,
December 31, 1998 -- $ -- $ -- $ -- $ 5,212 $ 5,212
Capital contribution -- -- -- -- 1,071 1,071
Net loss -- -- -- -- (5,275) (5,275)
----------- ----------- ----------- ----------- -------- --------
Balance,
June 30, 1999 -- $ -- $ -- $ -- $ 1,008 $ 1,008
=========== =========== =========== =========== ======== ========
</TABLE>
See accompanying notes to the condensed financial statements.
15
<PAGE> 18
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. ORGANIZATION AND BACKGROUND
In August 1998, upon the filing of a registration statement with the
SEC, Brigham Exploration Company, a Delaware corporation, (the
"Company") issued $50 million of debt and equity securities to two
affiliated institutional investors. The financing transaction consisted
of the issuance of $40 million of senior subordinated secured notes
(the "Notes"). The Notes are fully and unconditionally guaranteed, on a
joint and several basis, by each of the Company's directly or
indirectly wholly-owned subsidiaries which are Brigham Oil & Gas, L.P.
(the "Partnership"), Brigham Inc., Brigham Holdings I LLC ("Holdings
I"), and Brigham Holdings II LLC ("Holdings II"). Furthermore, these
subsidiaries have pledged their respective stock and partnership
interests as collateral for the Notes. These financial statements
include the financial statements for the wholly owned subsidiaries
whose securities and partnership interests comprise substantially all
of the collateral pledged for the Notes.
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 West Texas, the Anadarko Basin and the onshore
Gulf Coast. Brigham, Inc. is a Nevada corporation whose only asset
prior to the Exchange was its less than 1% ownership interest in the
Partnership. Brigham, Inc. is the managing general partner of the
Partnership.
On February 25, 1997, the Company was formed for the purpose of
exchanging its common stock for the common stock of Brigham, Inc. and
the partnership interests of the Partnership.
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
(the "SEC") 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. 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. As a result of the Exchange and the Offering, the Company owns a
68.5% partnership interest in the Partnership and all of the
outstanding shares of Brigham, Inc. Brigham, Inc. owns the remainder of
the Partnership interest in the Partnership. The proceeds of the
Offering were contributed to the Partnership by the Company.
Subsequent to the Exchange and the Offering, the Company owned a 68.5%
interest in the Partnership and Brigham, Inc. owned a 31.50% interest
in the Partnership. Effective January 1, 1998, Brigham, Inc.
contributed 30.5% of its 31.5% interest in the Partnership to Holdings
II, a newly formed Nevada LLC and wholly owned subsidiary of Brigham,
Inc., whose only asset is its investment in the Partnership. Also
effective January 1, 1998 the Company contributed its 68.5% interest in
the Partnership to Brigham Holdings I, a newly formed Nevada LLC and
wholly owned subsidiary of the Company whose only asset is its
investment in the Partnership.
16
<PAGE> 19
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(unaudited)
2. BASIS OF PRESENTATION
The accompanying financial condensed 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 financial statements should
be read in conjunction with the Company's 1998 Annual Report on Form 10-K
pursuant to Section 13 or 15(d) of the Securities and Exchange Act of
1934.
3. SALE OF NATURAL GAS AND OIL PROPERTIES
In February 1999, the Partnership entered into a project financing
arrangement with Duke Energy Financial Services, Inc. ("Duke") to fund
the continued exploration of five projects covered by approximately 200
square miles of 3-D seismic data acquired in 1998. In this transaction,
the Partnership conveyed 100% of its working interest in land and seismic
in these project areas to a newly formed limited liability company (the
"Duke LLC") for a total consideration of $10 million. The Partnership is
the managing member of the Duke LLC with a 1% interest, and Duke is the
sole remaining member with a 99% interest. Pursuant to the terms of the
Duke LLC agreement, the Partnership pays 100% of the drilling and
completion costs for all wells drilled by the Duke LLC in exchange for a
70% working interest in the wells and their associated drilling and
spacing units and allocable seismic data. Upon 100% project payout, the
Partnership has certain rights to back-in for up to a 94% effective
working interest in the Duke LLC properties.
In June 1999, the Company sold all of its interests in certain producing
and non-producing natural gas and oil properties for a total sales price
of $17.1 million. Due to the magnitude of the reserve volumes that were
attributable to these properties relative to the Company's remaining net
reserve volumes, the Company recognized as a loss the difference between
the sales price received, after adjustment for transaction costs, and the
$28.9 million basis allocated to the divested properties in accordance
with the full-cost method of accounting for oil and gas properties.
4. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 requires that all derivative instruments be
recorded on the balance sheet at fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as
part of a hedge transaction and, if it is, depending on the type of hedge
transaction. For fair value hedge transactions in which the Partnership
is hedging changes in an asset's, liability's, or firm commitment's fair
value, changes in the fair value of the derivative instrument will
generally be offset in the income statement by changes in the hedged
item's fair value. For cash flow hedge transactions in which the
Partnership is hedging the variability of cash flows related to a
variable-rate asset, liability, or a forecasted transaction, changes in
the fair value of the derivative instrument will be reported in other
comprehensive income. The gains and losses on the derivative instrument
that are reported in other comprehensive income will be reclassified as
earnings in the periods in which earnings are impacted by the variability
of the cash flows of the hedged item. The ineffective portion of all
hedges will be recognized in current period earnings. The Partnership
must adopt SFAS No. 133, as amended, effective January 1, 2001. The
Partnership is in the process of analyzing the potential impact of this
standard on its financial statement presentations.
17
<PAGE> 20
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
RESULTS OF OPERATIONS
Comparison of three month periods ended June 30, 1998 and June 30, 1999
Natural gas and oil sales. Natural gas and oil sales decreased 11% from $4
million in the second quarter of 1998 to $3.6 million in the second quarter of
1999. Of this net decrease, $751,000 was attributable to a decrease in
production, offset in part by $319,000 attributable to an increase in the
average sales price for natural gas and oil. Production volumes for natural gas
decreased 17% from 1,207 MMcf in the second quarter of 1998 to 1,006 MMcf in the
second quarter of 1999. The average price received for natural gas decreased
from $2.09 per Mcf in the second quarter of 1998 to $2.07 per Mcf in the second
quarter of 1999. Production volumes for oil decreased 23% from 117 MBbls in the
second quarter of 1998 to 90 MBbls in the second quarter of 1999. This decrease
in net oil production volumes was primarily due to the natural decline of
existing producing oil wells coupled with the Company's strategic decision to
reduce its drilling for oil prospects during 1998 and 1999 in response to low
oil prices. The average price received for oil increased 33% from $12.17 per Bbl
in the second quarter of 1998 to $16.24 per Bbl in the second quarter of 1999.
As a result of hedging activities, natural gas revenues decreased $30,275, or
$0.03 per Mcf, in the second quarter of 1999 compared to the same period of
1998.
Workstation revenue. Workstation revenue decreased 47% from $133,000 in
the second quarter of 1998 to $71,000 in the second quarter of 1999. Brigham
recognizes workstation revenue as industry participants in the Company's seismic
programs are charged an hourly rate for the work performed by Brigham on its 3-D
seismic interpretation workstations. This decrease is primarily attributable to
the Company's increased working interests in its most recently acquired 3-D
seismic data, which reduces the amount of workstation interpretation costs that
Brigham can bill to its project participants. The Company expects workstation
revenue to continue to decline in 1999 due to the Company's increased working
interests in the square miles of 3-D seismic it acquired in 1997 and 1998.
Lease operating expenses. Lease operating expenses increased 10% from
$564,000 for the second quarter of 1998 to $619,000 for the second quarter of
1999 and, on a per unit of production basis, lease operating expenses for the
same periods increased 33% from $0.30 per Mcfe to $0.40 per Mcfe. The increase
in lease operating expenses was primarily due to an increase in the number of
producing wells in the second quarter of 1999 as compared with the same period
in 1998.
Production taxes. Production taxes decreased 18% from $262,000 ($0.14 per
Mcfe) for the second quarter of 1998 to $216,000 ($0.14 per Mcfe) for the second
quarter of 1999, primarily as a result of reduced average natural gas and oil
production volumes.
General and administrative expenses. General and administrative expenses
decreased 22% from $1.1 million for the second quarter of 1998 to $891,000 for
the second quarter of 1999 primarily due to an increase in overhead fees billed
to working interest participants on Company-operated wells and the reduction of
various administrative costs, the most significant of which was the elimination
of accrued bonuses for 1999 and a 10% payroll reduction that was effective
mid-May 1999. On a per unit of production basis, general and administrative
expenses decreased from $0.60 per Mcfe for the second quarter of 1998 to $0.58
per Mcfe for the second quarter of 1999.
Depletion of natural gas and oil properties. Depletion of natural gas and
oil properties decreased from $1.52 million ($0.80 per Mcfe) in the second
18
<PAGE> 21
quarter of 1998 to $1.46 million ($0.94 per Mcfe) in the second quarter of 1999.
Of this net decrease, $287,000 was due to the decrease in production volumes,
which was partially offset by $228,000 due to an 18% increase in the depletion
rate per unit of production.
Interest expense. Net interest expense increased 125% from $1.4 million in
the second quarter of 1998 to $3.1 million in the second quarter of 1999. This
increase was due to a higher average debt balance with a higher average interest
rate in the second quarter of 1999 compared with the second quarter of 1998
resulting from increased capital expenditures funded with debt. The weighted
average outstanding debt balance increased from $59.6 million in the second
quarter of 1998 to $104.1 million in the second quarter of 1999. The average
effective annual interest rate on borrowings outstanding during the second
quarter of 1999 was 12% compared to 9.3% for the second quarter of 1998.
Interest expense in the second quarter of 1999 included $1.8 million of non-cash
charges, including (i) $1.3 million of interest expense related to the
Subordinated Notes that was paid through the issuance of additional Subordinated
Notes (or "paid-in-kind"), (ii) $366,000 for amortization of deferred financing
fees, and (iii) $136,000 for amortization of debt discounts related to the
issuance of the Subordinated Notes. In connection with issuance of the
Subordinated Notes in August 1998, the Company recorded the Subordinated Notes
at a discount of $4.5 million to reflect the estimated value of the warrants to
purchase common stock that were issued in connection with the issuance of the
Subordinated Notes. This discount was increased by $479,000 in March 1999 to
adjust the estimated value of the warrants based on the amendment of certain
terms of the warrants, including a decrease in the exercise price per share and
an increase in the term of the warrants. The Company amortizes this debt
discount over the five-year term of the Subordinated Notes based on the interest
method of amortization and includes such amortization in interest expense.
Loss on sale of natural gas and oil properties. In June 1999, the Company
sold all of its interests in certain producing and non-producing natural gas and
oil properties for a total sales price of $17.1 million. Due to the magnitude of
the reserve volumes that were attributable to these properties relative to the
Company's remaining net reserve volumes, the Company recognized as a loss the
difference between the sales price received, after adjustment for transaction
costs, and the $28.9 million basis allocated to the divested properties in
accordance with the full-cost method of accounting for oil and gas properties.
No property divestitures occurred during the second quarter of 1998 for which
recognition of gain or loss was appropriate.
Comparison of six month periods ended June 30, 1998 and June 30, 1999
Natural gas and oil sales. Natural gas and oil sales decreased 5% from
$7.1 million in the first six months of 1998 to $6.8 million in the first six
months of 1999. Of this net decrease, $459,000 was attributable to a decrease in
production, offset in part by $75,000 attributable to an increase in the average
sales price for natural gas and oil. Production volumes for natural gas
increased 5% from 1,947 MMcf in the first six months of 1998 to 2,053 MMcf in
the first six months of 1999. The average price received for natural gas
decreased from $2.10 per Mcf in the first six months of 1998 to $2.08 per Mcf in
the first six months of 1999. Production volumes for oil decreased 23% from 232
MBbls in the first six months of 1998 to 178 MBbls in the first six months of
1999. This decrease in net oil production volumes was primarily due to the
natural decline of existing producing oil wells coupled with the Company's
strategic decision to reduce its drilling for oil prospects during 1998 and 1999
and the curtailment of certain producing oil wells in early 1999, both in
response to low oil prices. The average price received for oil increased 5% from
$13.15 per Bbl in the first six months of 1998 to $13.85 per Bbl in the first
six months of 1999. As a result of hedging activities, natural gas revenues
increased $528,945, or $0.26 per Mcf, in the first six months of 1999 compared
to the same period for 1998.
19
<PAGE> 22
Workstation revenue. Workstation revenue decreased 35% from $247,000 in
the first six months of 1998 to $161,000 in the first six months of 1999.
Brigham recognizes workstation revenue as industry participants in the Company's
seismic programs are charged an hourly rate for the work performed by Brigham on
its 3-D seismic interpretation workstations. This decrease is primarily
attributable to the Company's increased working interests in its most recently
acquired 3-D seismic data, which reduces the amount of workstation
interpretation costs that Brigham can bill to its project participants. The
Company expects workstation revenue to continue to decline in 1999 due to the
Company's increased working interests in the square miles of 3-D seismic it
acquired in 1997 and 1998.
Lease operating expenses. Lease operating expenses increased 18% from
$978,000 for the first six months of 1998 to $1.2 million for the first six
months of 1999, and, on a per unit of production basis, lease operating expenses
for the same periods increased 28% from $0.29 per Mcfe to $0.37 per Mcfe. The
increase in lease operating expenses was primarily due to an increase in the
number of producing wells in the first six months of 1999 as compared with the
same period in 1998.
Production taxes. Production taxes decreased 14% from $450,000 ($0.13 per
Mcfe) for the first six months of 1998 to $385,000 ($0.12 per Mcfe) for the
first six months of 1999, primarily as a result of reduced average natural gas
and oil production volumes.
General and administrative expenses. General and administrative expenses
decreased 21% from $2.3 million for the first six months of 1998 to $1.8 million
for the first six months of 1999 primarily due to an increase in overhead fees
billed to working interest participants on Company-operated wells and the
reduction of various administrative costs, the most significant of which was the
elimination of accrued bonuses for 1999 and a 10% payroll reduction that was
effective mid-May 1999. On a per unit of production basis, general and
administrative expenses decreased 16% from $0.69 per Mcfe for the first six
months of 1998 to $0.58 per Mcfe for the first six months of 1999.
Depletion of natural gas and oil properties. Depletion of natural gas and
oil properties increased from $2.79 million ($0.84 per Mcfe) in the first six
months of 1998 to $2.8 million ($0.90 per Mcfe) in the first six months of 1999.
Of this net increase, $202,000 was due to a 7% increase in the depletion rate
per unit of production, which was partially offset by $181,000 due to the
decrease in production volumes.
Interest expense. Net interest expense increased 150% from $2.4 million in
the first six months of 1998 to $5.9 million in the first six months of 1999.
This increase was due to a higher average debt balance with a higher average
interest rate in the first six months of 1999 compared with the first six months
of 1998 resulting from increased capital expenditures related to the Company's
exploration activities funded with debt. The weighted average outstanding debt
balance increased from $51.3 million in the first six months of 1998 to $101.9
million in the first six months of 1999. The average effective annual interest
rate on borrowings outstanding during the first six months 1999 was 11.7%
compared to 9.4% for the first six months 1998. Interest expense in the first
six months of 1999 included $3.5 million of non-cash charges, including (i) $2.6
million of interest expense related to the Subordinated Notes that was paid
through the issuance of additional Subordinated Notes (or "paid-in-kind"), (ii)
$628,000 for amortization of deferred financing fees, and (iii) $228,000 for
amortization of debt discounts related to the issuance of the Subordinated
Notes. In connection with issuance of the Subordinated Notes in August 1998, the
Company recorded the Subordinated Notes at a discount of $4.5 million to reflect
the estimated value of the warrants to purchase common stock that were issued in
connection with the issuance of the Subordinated Notes. This discount was
increased by $479,000 in March 1999 to adjust the estimated value of the
warrants based on the amendment of certain terms of the warrants, including a
decrease in the exercise price per share and an increase in the term of the
warrants. The Company amortizes this debt discount over the five-year term of
the Subordinated Notes
20
<PAGE> 23
based on the interest method of amortization and includes such amortization in
interest expense.
Loss on sale of natural gas and oil properties. In June 1999, the Company
sold all of its interests in certain producing and non-producing natural gas and
oil properties for a total sales price of $17.1 million. Due to the magnitude of
the reserve volumes that were attributable to these properties relative to the
Company's remaining net reserve volumes, the Company recognized as a loss the
difference between the sales price received, after adjustment for transaction
costs, and the $28.9 million basis allocated to the divested properties in
accordance with the full-cost method of accounting for oil and gas properties.
No property divestitures occurred during the first six months of 1998 for which
recognition of gain or loss was appropriate.
LIQUIDITY
Despite the Company's success in building its inventory of 3-D seismic data
and potential drilling locations, a number of key factors have contributed to
significantly limit the Company's capital resources available to fund its
continued long-term growth-oriented exploration strategy. Management believes
these principal factors include: (i) lower commodity sales prices during the
second half of 1998 and the early part of 1999, which reduced revenues and cash
flow from the Company's production volumes, (ii) reduced access to public,
private and industry sources of capital on cost-effective terms due to the
continuing low commodity price environment and outlook, (iii) less than
anticipated success in placing working interests with industry or financial
participants in certain of its high equity interest projects during the second
half of 1998, resulting in lower levels of project cost recoupment than
budgeted, (iv) high levels of expenditures in 1997 and 1998 for 3-D seismic and
land activities that do not generate proved reserves and cash flow until the
drilling stage of the project cycle, (v) the utilization of high levels of debt
to fund its accelerating exploration expenditures, and (vi) disappointing
drilling results during 1998 on a number of high equity interest exploratory
and development wells, several of which were completed and subsequently plugged
and abandoned or otherwise performed below expectations.
As a result of these limiting factors and an expectation for continuing
difficult industry and capital markets conditions, Brigham has substantially
reduced its planned capital budget for 1999 and has undertaken a number of
strategic initiatives in an effort to improve and preserve its capital liquidity
in the current environment. While the Company remains focused on its long-term
growth objectives and the continuation of its established business model for 3-D
seismic-based exploration, Brigham has adapted its business strategy in the
near-term in an effort to maximize value for its shareholders on a long-term
basis through the implementation of the following principal strategic
initiatives: (i) focusing all of the Company's planned exploration efforts in
1999 toward the drilling of its highest-grade 3-D prospects identified in its
Anadarko Basin and Gulf Coast projects, concentrated primarily in trends where
Brigham has achieved exploration success, (ii) elimination of substantially all
planned seismic and land expenditures for new projects until its capital
resources can support such additional activity, (iii) divestiture of certain
producing natural gas and oil properties to raise capital to reduce debt
borrowings and to redirect capital to drilling projects that have the potential
to generate higher investment returns, (iv) restructure of its outstanding
senior and subordinated debt agreements to provide the Company with flexibility
needed to preserve cash flow to fund its expected near-term exploration
activities, (v) implementation of overhead reduction plan to reduce general and
administrative expenses, and (vi) evaluating opportunities to raise additional
equity capital either through the sales of interests in certain of its seismic
projects or the issuance of equity securities. The Company believes that the
successful execution of these strategic initiatives will provide Brigham with
sufficient capital resources to execute its planned 1999 exploration program and
position the Company to realize the significant value it believes it has
captured in its inventory of 3-D seismic projects and delineated drilling
locations. While the Company has initiated each of these strategic directives in
late 1998 and early 1999, and has effected
21
<PAGE> 24
certain of them to date, the successful completion of any or all of these
efforts to improve the Company's capital availability within the expected
timeframe is uncertain and will likely have a material impact on the Company's
liquidity, near-term capital expenditure levels and growth profile.
On March 30, 1999, the Company entered into an agreement with Veritas DGC
Land, Inc. ("Veritas") to exchange 1,002,865 shares of newly issued Brigham
common stock valued at $3.50 per share for approximately $3.5 million of payment
obligations due to Veritas in 1999 for certain seismic acquisition and
processing services previously performed. In addition, this agreement provides
for the payment by Brigham of up to $1 million in future seismic processing
services to be performed by Veritas in newly issued shares of Brigham common
stock valued at $3.50 per share, in the event that the Company does not elect to
pay for such services in cash. The settlement of these seismic processing
services has been determined on a quarterly basis. During the third quarter
1999, Brigham issued an additional 119,550 shares of common stock valued at
$3.50 per share to Veritas pursuant to its election to settle certain seismic
processing service obligations, incurred primarily during the second quarter of
1999, in stock instead of cash. Brigham considers this arrangement to have been
beneficial as it has enabled the Company to reduce its working capital
commitments and preserve additional cash flow and capital availability to fund
its 1999 drilling program.
CAPITAL RESOURCES
The Company's primary sources of capital have been revolving credit
facility and other debt borrowings, public and private equity financings, the
sale of interests in projects and properties, and funds generated by operations.
The Company's primary capital requirements are 3-D seismic acquisition,
processing and interpretation costs, land acquisition costs and drilling
expenditures. In January 1998, the Company entered into a new revolving credit
facility that provided for an initial borrowing availability of $75 million that
was used to repay its then outstanding borrowings under its previous credit
facility and to fund capital expenditures. This revolving credit facility has
been subsequently amended, most recently in July 1999, to provide for a
borrowing availability of $56 million. In August 1998, the Company issued $50
million of debt and equity securities, including $40 million of Subordinated
Notes, that generated proceeds of approximately $47.5 million, net of offering
costs, that were used to repay a portion of then outstanding borrowings under
the Credit Facility, thereby increasing the Company's borrowing availability
under its Credit Facility to fund capital expenditures. In late June 1999, the
Company received $17.1 million ($16.8 million after adjustment for transaction
costs and post-closing adjustments) from the sale of its interests in producing
and non-producing natural gas and oil properties within two non-operated fields
in its Anadarko Basin province.
Cash Flow Analysis
In the first six months of 1999, cash flow used by operating activities
was $1.2 million primarily as a result of a $4.7 million decrease in other
noncurrent liabilities partially offset by a net $2.4 million increase in
non-cash working capital and a net $1.2 million cash flow from total revenues,
net of lease operating expenses, production taxes, general and administrative
expenses and cash interest expense. Cash flow provided by investing activities
was
22
<PAGE> 25
$12.7 million in the first six months of 1999 primarily as a net result of $13.8
million of capital expenditures related to exploration activities and $26.7
million of proceeds received from the sale of interests in certain seismic
projects and natural gas and oil properties. Cash flow used in financing
activities was $11.4 million the first six months of 1999 resulting from a $10.8
million net reduction in notes payable attributable to the net repayment of
outstanding borrowings under the revolving credit facility and the payment of
deferred loan fees and principal payments made on capital lease obligations.
Revolving Credit Facility
In January 1998, the Company entered into a new revolving credit agreement
(the "Credit Facility"), which provided for an initial borrowing availability of
$75 million. The Credit Facility was amended in March 1999 to reduce the
borrowing availability, extend the date of borrowing base redetermination,
modify certain financial covenants, include certain additional covenants that
place significant restrictions on the Company's ability to incur certain capital
expenditures, and to increase the interest rate on outstanding borrowings.
As a result of the completion of the majority of the Company's strategic
initiatives to improve its capital resources, including the late June 1999
property divestitures and the application of the net sales proceeds to reduce
borrowings outstanding under the Credit Facility, the Company and its senior
lenders entered into an amendment to the Credit Facility in July 1999. This most
recent amendment provides the Company with borrowing availability of $56 million
(approximately $8 million of which remained available at the time the amendment
was effected) principally to fund its planned drilling activities and
anticipated working capital requirements through the end of 1999. The Company's
lenders have indicated that the borrowing availability provided under the
amended Credit Facility exceeds that which would otherwise be made available
under a more traditional conforming borrowing base calculation based on the
estimated value of the Company's current net proved reserves and its cash flow.
As consideration for this amendment to the Credit Facility, the Company has
issued to its senior lenders one million warrants to purchase the Company's
common stock at an exercise price of $2.25 per share. The warrants have a
seven-year term from the date of issuance and are exercisable at the holders'
option at any time.
Principal outstanding under the Credit Facility is due at maturity on
January 26, 2001 with interest due monthly for base rate tranches or
periodically as LIBOR tranches mature. The annual interest rate for borrowings
under the Credit Facility is either the lender's base rate or LIBOR plus 3.00%,
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 and other
tangible assets of the Company. The borrowing availability will be redetermined
by the senior lenders at January 31, 2000, based on the Company's then estimated
net proved reserve value and cash flows.
At August 12, 1999, the Company had $50.8 million in borrowings
outstanding under the Credit Facility, which bear interest at an average annual
rate of 8.39%.
The Credit Facility has certain financial covenants including current and
interest coverage ratios, as defined. The Company and its lenders effected the
March 1999 amendment to the Credit Facility to enable the Company to comply with
certain financial covenants of the Credit Facility, including the minimum
current ratio, minimum interest coverage ratio and the limitation on capital
expenditures related to seismic and land activities. The Company believes its
amendments are indicative of its senior lenders' cooperation in the current oil
and natural gas industry environment. If oil and natural gas prices deteriorate
beyond the date of redetermination of borrowing availability or the Company
does not generate its expected growth in proved reserves through its drilling
activities planned for the second half of 1999, the Company believes its senior
lenders may require the Company to reduce its level of borrowing under the
Credit Facility accordingly. Should the Company be unable to comply with
certain of the financial covenants, its senior lenders may be unwilling to
waive compliance or amend the covenants in the future. In such instance, the
Company's liquidity may be adversely affected, which could in turn have an
adverse impact on the Company's future financial position and results of
operations.
23
<PAGE> 26
Subordinated Notes
In August 1998, the Company issued $50 million of debt and equity
securities to affiliates of Enron Corp. ("Enron"). Securities issued by the
Company in connection with this financing transaction included: (i) $40 million
of Subordinated Notes, (ii) warrants to purchase 1,000,000 shares of the
Company's common stock at a price of $10.45 per share (the "Warrants"), and
(iii) 1,052,632 shares of the Company's common stock at a price of $9.50 per
share. The approximate $47.5 million in net proceeds received by the Company
from this financing transaction were used to repay a portion of outstanding
borrowings under its Credit Facility, which increased the Company's borrowing
availability under its Credit Facility to fund capital expenditures.
Principal outstanding under the Subordinated Notes is due at maturity on
August 20, 2003. Interest on the Subordinated Notes is payable quarterly at
rates that vary depending upon whether accrued interest is paid in cash or "in
kind" through the issuance of additional Subordinated Notes ("PIK Interest").
Interest shall be paid in cash at interest rates of 12%, 13% and 14% per annum
during years one through three, year four and year five, respectively, of the
term of the Subordinated Notes; provided, however, that the Company may pay PIK
Interest for a cumulative total of six quarterly interest payments at interest
rates of 13%, 14% and 15% per annum during years one through three, year four
and year five, respectively, of the term of the Notes.
The Subordinated Notes rank subordinate in right of payment to Senior
Indebtedness (as defined) and senior to all other financings (other than any
allowed capital leases and purchase money financings) of the Company. The
Subordinated Notes are secured by a second lien against substantially all of the
natural gas and oil properties and other tangible assets of the Company. The
Subordinated Notes may be prepaid at any time, in whole or in part, without
premium or penalty, provided that all partial prepayments must be pro rata to
the various holders of the Subordinated Notes. The Subordinated Notes were
issued pursuant to an indenture (the "Indenture") that contains certain
covenants that, among other things, limit the ability of the Company and its
subsidiaries to incur additional indebtedness, pay dividends, make
distributions, enter into certain sale and leaseback transactions, enter into
certain transactions with affiliates, dispose of certain assets, incur liens,
and engage in mergers and consolidations.
In March 1999, the Company and Chase Bank of Texas, National Association,
as trustee (the "Trustee") for the holders of the Subordinated Notes, entered
into an amendment to the Indenture. This amendment provides the Company with the
option to pay interest due on the Subordinated Notes in kind, for any reason,
through the second quarter of 2000. In addition, certain financial and other
covenants were amended. The amendment also provides for a reduction in the
exercise price per share of the Warrants from $10.45 per share to $3.50 per
share and extended the term of the Warrants from seven to ten years.
The Indenture governing the Subordinated Notes has certain financial
covenants including current and interest coverage ratios, as defined. The
Company and the holders of the Subordinated Notes effected the recent amendment
to the Indenture to enable the Company to comply with certain financial
covenants of the Indenture that parallel those of the Credit Facility, including
the minimum current ratio and the minimum interest coverage ratio. Should the
Company be unable to comply with certain of the financial covenants, the holders
of the Subordinated Notes may be unwilling to waive compliance or amend the
covenants in the future. In such instance, the Company's liquidity may be
24
<PAGE> 27
adversely affected, which could in turn have an adverse impact on the Company's
future financial position and results of operations.
At June 30, 1999 and August 12, 1999, the Company had $42.6 million
principal amount of Subordinated Notes outstanding.
Capital Expenditures
As a result of the Company's limited available capital resources, Brigham
has significantly reduced its planned capital expenditure budget for 1999 from
the Company's previously anticipated levels in an effort to match its current
and expected future capital resources. The Company's current 1999 capital budget
is estimated to be $28 million, or approximately 34% of 1998 expenditures. The
Company's budgeted 1999 capital expenditures consist of approximately $18.5
million to drill an estimated 25 to 30 gross wells, $5.5 million for seismic and
land costs, consisting primarily of previous year commitments and obligations to
acquire 3-D data and acreage, and $4 million for capitalized general and
administrative expenses and other fixed asset expenditures. Brigham expects that
its 1999 drilling expenditures will be allocated to prospects identified among
its 3-D projects primarily in its Anadarko Basin and Gulf Coast provinces, and
such expenditures will be devoted to the drilling of the highest grade prospects
in the Company's inventory of identified potential drilling locations. The
Company intends to fund these budgeted capital expenditures through a
combination of cash flow from operations, available borrowings under its Credit
Facility and the sales of certain assets and equity interests (including the
Anadarko Basin property divestitures completed in late June 1999, the sale of
interests in certain 3-D seismic projects for $11.5 million completed in January
1999 and the potential sales of additional interests in certain 3-D seismic
projects during the second half of 1999). The Company's capital availability
during 1999 will depend to a large extent on its success raising additional
financing through its planned and potential strategic initiatives discussed
above, and therefore the Company's actual 1999 capital expenditures may differ
from its current estimates. In the event additional financing is not available
in the amounts or timing needed, the Company may be required to curtail its
planned exploration activities in 1999 and take further measures to reduce the
size and scope of its business.
OTHER MATTERS
Year 2000 Issues
Many computer software systems, as well as certain hardware and equipment
using date-sensitive data, were structured to use a two-digit date field meaning
that they may not be able to properly recognize dates in the year 2000. The
Company has developed a plan to address this issue and is taking steps to review
its information technology systems, such as computer hardware and software, as
well as non information technology systems, including computer controlled
equipment and electronic devices used to operate equipment involved in
processing and interpreting 3-D seismic data.
The Company has completed the initial phases of its plan by identifying
all computerized systems and substantially completing an inventory of its
equipment and component parts. Both information technology and non information
technology systems may contain embedded technology, which complicates the
Company's Year 2000 identification, assessment, remediation and testing efforts.
The Company continues to inventory its equipment and facilities to determine if
they contain embedded date-sensitive technology. The Company is currently
reviewing all of its systems to determine which are not Year 2000 compliant and
will need to be replaced or modified. This current phase includes comparisons of
inventory to manufacturer's information and/or performance testing. If problems
are identified, the Company will undertake remediation, replacement or
25
<PAGE> 28
alternative procedures for non-compliant equipment or facilities on a business
priority basis. The Company's identification and assessment efforts to date have
not identified any computer equipment or software it currently uses which will
require replacement or modification, except that one of the word processing
software programs the Company uses may be non-compliant and may need to be
discontinued or upgraded. In addition, in the ordinary course of replacing
computer equipment and software, the Company attempts to obtain replacements
that are Year 2000 compliant. The Company currently anticipates that its
identification, assessment, remediation and testing efforts will continue and,
depending upon the results of the assessment efforts, be completed by September
30, 1999.
As of June 30, 1999, all costs incurred by the Company in connection with
its Year 2000 compliance efforts were included within the Company's normal
general and administrative expenses (for example, regular maintenance of
software programs). The Company is currently expensing as incurred all costs
related to the assessment and remediation of the Year 2000 issue, and these
costs are being funded through operating cash flow. However, in certain
instances the Company may determine that replacing existing equipment may be
appropriate and may capitalize such replacements. The Company is unable
currently to estimate the amount of its total out-of-pocket costs to become Year
2000 compliant, but the Company currently expects that such costs will not have
a material adverse effect on the Company's financial condition, operations or
liquidity.
The foregoing timetable and assessment of costs to become Year 2000
compliant reflect management's current best estimates. These estimates are based
on many assumptions, including assumptions about the cost, availability and
ability of resources to locate, remediate and modify affected systems, equipment
and facilities. Based upon its activities to date, the Company does not
currently believe that these factors will cause results to differ significantly
from those estimated. However, the Company cannot reasonably estimate the
potential impact on its financial condition and operations if key third parties
including, among others, suppliers, contractors, joint venture participants,
financial institutions, customers and governments do not become Year 2000
compliant on a timely basis. The Company is currently identifying third parties
whose business significantly impacts the Company, has contacted some significant
third parties to determine the extent to which interfaces with such entities are
vulnerable to Year 2000 issues, and will contact others as it completes the
identification phase.
In the event that the Company is unable to complete the remediation or
replacement of its critical systems, facilities and equipment, establish
alternative procedures in a timely manner, or if those with whom the Company
conducts business are unsuccessful in implementing timely solutions, Year 2000
issues could have a material adverse effect on the Company's liquidity and
results of operations. At this time, the potential effect in the event the
Company and/or third parties are unable to timely resolve their Year 2000
problems is not determinable. A contingency plan has not been developed for
dealing with the most reasonably likely worst case scenario, and such scenario
has not yet been clearly identified. However, the Company currently believes
that it will be able to resolve its own Year 2000 issues in a timely manner.
The disclosure set forth in this section is provided pursuant to
Securities Act Release No. 33-7558. As such it is protected as a forward-looking
statement under the Private Securities Litigation Reform Act of 1995. See
"Forward-Looking Information." This disclosure is also subject to protection
under the Year 2000 Information and Readiness Disclosure Act of 1998, Public Law
105-271, as a "Year 2000 Statement" and "Year 2000 Readiness Disclosure" as
defined therein.
Forward Looking Information
The Company may make forward looking statements, oral or written,
26
<PAGE> 29
including statements in this report, press releases and other filings with the
SEC, relating to the Company's drilling plans, its potential drilling locations,
capital expenditures, use of offering proceeds, the ability of expected sources
of liquidity to support working capital and capital expenditure requirements and
the Company's financial position, business strategy and other plans and
objectives for future operations. Such statements involve risks and
uncertainties, including those relating to the Company's dependence on
exploratory drilling activities, the volatility of natural gas and oil prices,
the risks associated with growth (including the risk of reduced availability of
seismic gathering and drilling services in the face of growing demand), the
substantial capital requirements of the Company's exploration and development
projects, operating hazards and uninsured risks and other factors detailed in
the Company's registration statement and other filings with the SEC. All
subsequent oral and written forward looking statements attributable to the
Company are expressly qualified in their entirety by these factors. The Company
assumes no obligation to update these statements.
27
<PAGE> 30
PART II. OTHER INFORMATION:
Item 2. Changes in Securities
Pursuant to the Company's agreement dated March 30, 1999 with Veritas
DGC Land, Inc. ("Veritas"), in July 1999 the Company exchanged 119,550
shares of newly issued Brigham Exploration Company common stock valued
at $3.50 per share for approximately $420,000 of payment obligations
due to Veritas in 1999 for certain seismic acquisition and processing
services previously performed. These shares were issued pursuant to
the exemption provided by Section 4(2) of the Securities Act of 1933,
as amended. Veritas represented its intention to acquire the shares
for investment purposes only and not for the purpose of resale or
distribution, and appropriate legends were affixed to the certificate
issued in such transaction. Veritas was given access to information
about the Company.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of stockholders of the Company was held at
10:00 a.m., local time, on Thursday, May 13, 1999 in Austin,
Texas.
(b) Proxies were solicited by the Board of Directors of the
Company pursuant to Regulation 14A under the Securities
Exchange Act of 1934. There was no solicitation in opposition
to the Board of Directors' nominees as listed in the proxy
statement and all such nominees were duly elected.
(c) Out of a total of 14,309,071 shares of common stock of the
Company outstanding and entitled to vote, 11,210,288 shares
were present in person or by proxy, representing approximately
78 percent.
<TABLE>
<CAPTION>
Number of Shares
Number of Shares WITHHOLDING AUTHORITY
Voting FOR Election to Vote for Election
As Director As Director
----------- -----------
<S> <C> <C>
Ben M. Bud Brigham 11,182,788 27,500
Anne L. Brigham 11,182,788 27,500
Jon L. Glass 11,182,688 27,600
Harold D. Carter 11,182,688 27,600
Alexis M. Cranberg 11,182,688 27,600
W. Craig Childers 11,182,688 27,600
Stephen P. Reynolds 11,182,688 27,600
</TABLE>
The proposal to appoint PricewaterhouseCoopers, LLP as the
Company's independent auditors for 1999 was voted upon as
follows: 11,156,588 shares voted FOR; 2,000 shares voted
AGAINST; and 51,700 shares WITHHOLDING AUTHORITY to vote.
28
<PAGE> 31
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Third amendment to Credit Agreement dated as of July
19, 1999 among Brigham Oil & Gas, L.P., Bank of
Montreal, as Agent, and the lenders signatory
thereto.
10.2 Fourth amendment to Guaranty Agreement dated as of
July 19, 1999 between Brigham Exploration Company and
Bank of Montreal, as Agent for the lenders party to
the Credit Agreement.
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on July 12, 1999,
to report the closing on June 25, 1999 of the sale of its
entire interest in certain producing and non-producing
natural gas and oil properties in the Company's Anadarko
Basin province. The Form 8-K included unaudited pro forma
financial statements presented to reflect the divestiture.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto, duly authorized, in the City of Austin, State of Texas,
on the 13th day of August, 1999.
BRIGHAM EXPLORATION COMPANY
By: /s/ BEN M. BRIGHAM
----------------------------------------
Ben M. Brigham
Chief Executive Officer, President and
Chairman of the Board
By: /s/ CRAIG M. FLEMING
----------------------------------------
Craig M. Fleming
Chief Financial Officer
29
<PAGE> 32
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--- -----------
<S> <C>
10.1 Third amendment to Credit Agreement dated as of July 19, 1999
among Brigham Oil & Gas, L.P., Bank of Montreal, as Agent,
and the lenders signatory thereto.
10.2 Fourth amendment to Guaranty Agreement dated as of
July 19, 1999 between Brigham Exploration Company and Bank
of Montreal, as Agent for the lenders party to the Credit
Agreement.
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
THIRD AMENDMENT TO CREDIT AGREEMENT
THIRD AMENDMENT TO CREDIT AGREEMENT, dated as of July 19, 1999
("this Amendment"), among Brigham Oil & Gas, L.P., a limited partnership formed
under the laws of the State of Delaware (the "Borrower"), the financial
institutions party to the Credit Agreement referred to below (each a "Lender"
and collectively the "Lenders") and Bank of Montreal, a Canadian bank, as agent
for Lenders under the Credit Agreement (in such capacity, the "Agent").
RECITALS
WHEREAS, the Borrower, the Lenders and the Agent are parties
to that certain Credit Agreement, dated as of January 26, 1998, as amended by
that certain First Amendment to Credit Agreement, dated as of August 20, 1998
and that certain Second Amendment to Credit Agreement dated as of March 26, 1999
(as so amended, the "Credit Agreement"); and
WHEREAS, the Borrower has advised the Lenders and the Agent
that it desires to amend certain provisions of the Credit Agreement, and the
Borrower has requested that the Lenders and the Agent agree to various
amendments to certain provisions of the Credit Agreement; and
WHEREAS, the Lenders and the Agent have agreed to so amend
certain provisions of the Credit Agreement upon the terms and subject to the
conditions and limitations of this Amendment;
NOW, THEREFORE, in consideration of the premises, covenants
and agreements contained herein, the parties hereto hereby agrees as follows:
Section 1. Definitions. Capitalized terms used and not
otherwise defined herein are used with the meanings ascribed thereto in the
Credit Agreement. The following capitalized terms shall have the following
respective meanings when used herein:
A. "Lending Relationship" shall refer to the Credit Agreement
and the other Loan Documents, including, without limitation, this Amendment,
together with any and all negotiations, discussions, acts, omissions, renewals,
extensions, and other agreements or events related to the Credit Agreement and
such other Loan Documents, the parties' obligations thereunder and the
transactions contemplated thereby, including, without limitation, any such
negotiations, discussions, acts, omissions, renewals, extensions, other
agreements or events that (a) occurred prior to the date hereof, (b) may occur
on the date hereof, or (c) occurred prior to the execution of this Amendment and
the instruments and documents executed and delivered in connection herewith or
relating hereto.
1
<PAGE> 2
B. "New Mortgage" shall mean that certain Mortgage, Deed of
Trust, Assignment of Production, Security Agreement and Financing Statement
dated as of March 26, 1999 from Brigham Oil & Gas, L.P. to Thomas McGraw, as
Trustee, for the benefit of Bank of Montreal, as Agent.
C. "Released Claims" shall mean any and all claims (including
without limitation any liabilities, damages, demands and causes of action
arising therefrom), whether (a) at law or in equity, (b) on the alleged
commission of a tort, (c) on the alleged breach (or anticipatory breach or
repudiation) of any contract, duty, or warranty (whether oral or written,
express or implied), (d) on the alleged violation of any statute, tariff, or
regulation (whether promulgated by the United States, any state thereof, any
foreign state or country, or any other governmental agency or entity, wherever
located), or (e) on any other factual, legal or equitable theory, including,
without limitation, any claim for damages of any type or nature, for injunctive
or other relief, for attorneys' fees, interest or any other liability whatsoever
on any theory, including without limitation any loss, cost or damage in
connection with or based upon "lender liability", unfair dealing, duress,
coercion, control or undue influence, extortion or commercial bribery, breach of
an implied covenant or duty of good faith and fair dealing, material
misrepresentation or omission, overreaching, unconscionability, conflict of
interest, bad faith, malpractice, disparate bargaining position, detrimental
reliance, promissory estoppel, estoppel by deed, waiver, laches, or any other
equitable theory, equitable subordination, breach of fiduciary duty or any other
duty, or tortious inducement to commit such breach, tortious interference with
contract or prospective business relations, negligent performance of contractual
obligations, or other theories of negligence, negligent or intentional
infliction of emotional distress, slander, libel, other defamation, fraudulent
transfer, conversion, trespass to (or clouding the title of) property, usury,
violations of the Racketeer Influenced and Corrupt Organizations Act, deceptive
trade practices, conspiracy, or any theory of liability as partners or joint
venturers, that any Releasing Party may have as of the date hereof against any
Released Party with respect to the Lending Relationship.
D. "Released Party" shall mean each of the Agent, the Lenders
and their respective predecessors, successors, assigns, directors, officers,
partners, employees, agents, attorneys, principals and Affiliates and all other
Persons liable or who might be claimed to be liable on their behalf
(collectively, the "Released Parties").
E. "Releasing Party" shall mean each of the Borrower and the
Guarantors and their respective predecessors, successors, assigns, directors,
officers, partners, employees, agents, attorneys, principals, Affiliates and all
other Persons who might have a claim against any Released Party (collectively,
the "Releasing Parties").
F. "Warrant Agreements" shall mean collectively (i) that
certain Warrant Agreement between Brigham Exploration and Bank of Montreal and
(ii) that certain Warrant Agreement between Brigham Exploration and Societe
Generale, each to be entered into within thirty (30) days after the date hereof.
2
<PAGE> 3
Section 2. Amendments to Credit Agreement. The Credit
Agreement is amended hereby as follows:
A. Section 1.02 is amended hereby:
(i) by deleting the definition of the term "Aggregate
Maximum Credit Amounts" in its entirety and substituting the following therefor:
"`Aggregate Maximum Credit Amounts' at any time prior
to the initial Borrowing Base determination shall equal
$56,000,000, as the same may be reduced pursuant to Section
2.03(b) and Section 2.07(d), and thereafter shall equal the
sum of the Maximum Credit Amounts.";
(ii) by deleting the definition of the term "EBITDA"
in its entirety and substituting the following therefor:
"'EBITDA' shall mean, for any period, the sum of
Consolidated Net Income for such period PLUS the following expenses or
charges to the extent deducted from Consolidated Net Income in such
period: interest, taxes, depreciation, depletion and amortization, and
other non-cash charges, MINUS (i) all non-cash income added to
Consolidated Net Income in such period and (ii) capitalized general and
administrative charges for such period.";
(iii) by deleting the reference "June 1, 1999" in the
definition of the term "First Borrowing Base Determination Date" and
substituting therefor the reference "January 31, 2000";
B. Section 2.03 of the Credit Agreement is amended hereby by
deleting the text of subsection (a) in its entirety, and substituting the
following therefor:
"Prior to the initial Borrowing Base determination,
the Aggregate Commitments shall at all times be equal to the
Aggregate Maximum Credit Amounts, after which date the
Aggregate Commitments shall be equal to the lesser of (i) the
Aggregate Maximum Credit Amounts or (ii) the Borrowing Base as
determined from time to time.".
C. Section 2.07 of the Credit Agreement is amended hereby as
follows:
(i) by inserting the following reference before the
last sentence of subsection (d):
"Prior to the initial Borrowing Base determination, all
prepayments on the Loans other than prepayments made from the
proceeds of sale of any equity or equity derivative securities
shall reduce the Aggregate Maximum Credit Amounts."
3
<PAGE> 4
(ii) by inserting the following new subsection (e):
"(e) Prior to the initial determination of the Borrowing Base,
the Borrower shall make prepayments as set forth below:
(i) Upon the sale, transfer or other disposition of
any asset that would be included in the Borrowing Base, as determined by the
Agent in its discretion, the Borrower shall prepay the Loans in an amount equal
to 100% of the net cash proceeds of any such sale; and
(ii) Upon any sale, transfer or other disposition of
any asset that would not be included in the Borrowing Base, the Borrower shall
prepay the Loans in an amount equal to 66-2/3% of the net cash proceeds
exceeding $500,000 of any such sale."
D. Section 8.07 of the Credit Agreement is amended hereby by
deleting the reference "June 1, 1999 " in the first sentence of subsection (b)
and substituting therefor the reference "January 31, 2000";
E. Annex I of the Credit Agreement is amended hereby by
deleting Annex I in its entirety and substituting therefor Annex I attached
hereto as Exhibit A.
Section 3. Covenants. The Borrower or Brigham Exploration, as
the case may be, covenants and agrees that during the period from July 1, 1999
through and including January 31, 2000:
A. Brigham Exploration shall deliver weekly cash budgets
reasonably satisfactory to the Agent in the form provided under the Second
Amendment to Credit Agreement, and weekly cash flow statements reasonably
satisfactory to the Agent based on such form, with variance analysis to budget
(including accounts receivables and accounts payables reporting) not later than
the Friday following the week to which such budgets and statements relate.
B. The Borrower shall not use any amounts advanced by the
Lenders to spud any wells or conduct any other drilling operations (other than
routine workovers and recompletions normally expensed in accordance with past
practice) without the prior written consent of the Agent and the Lenders, and
shall not use any amounts advanced by the Lenders to acquire acreage, leases or
seismic data provided that, notwithstanding the foregoing, (i) the Borrower may
pay liabilities and/or obligations outstanding as of the date hereof, (ii) the
Borrower may incur up to $300,000, in the aggregate, in discretionary new
commitments during the period from the date hereof through and including January
31, 2000 to acquire leases and seismic data (or licenses thereto) if, and only
if, the Borrower shall grant the Agent, for the benefit of the Lenders, a
perfected Lien on its interest in any new leases acquired pursuant to this
proviso within thirty (30) days or, upon request by the Agent, within fifteen
(15) days, of any such acquisition under a form
4
<PAGE> 5
of mortgage substantially identical to that of the New Mortgage; and (iii) the
Borrower may use amounts advanced by the Lenders to spud, drill and complete
wells identified in Schedule I hereto and any other wells that have no dry hole
costs associated therewith.
C. The Borrower shall provide to the Agent from time to time
upon request by the Agent the certificate of a Responsible Officer of the
Borrower stating that, except as disclosed in a schedule thereto, the Borrower
has not received written notice that any mechanics' liens have been filed or
will be filed on the Mortgaged Properties; provided that mere receipt of an
invoice for services rendered shall not constitute written notice that a
mechanics' lien will be filed.
D. The Borrower shall provide the Agent and Lenders with an
internal engineering report by October 31, 1999.
E. The Borrower will not, and will not allow any of its
Subsidiaries to, (i) transfer any assets to Quest Resources LLC or (ii) make any
investments in or loans or advances to Quest Resources LLC.
Section 4. Conditions Precedent. This Amendment shall become
binding upon receipt by the Agent of the following documents and satisfaction of
the other conditions provided in this Section 4, each of which must be
satisfactory to the Agent in form and substance:
A. counterparts of this Amendment executed by the Borrower,
the Agent and the Lenders;
B. certificates of the Secretary or an Assistant Secretary of
the Borrower and each of the Guarantors setting forth for each of them (i) the
resolutions of its board of directors or managers (or if such Guarantor is a
partnership, resolutions of the general partner of such partnership), as
applicable, with respect to the authorization to execute and deliver this
Amendment and consummate the transactions contemplated hereby; (ii) the
Responsible Officer of such entity authorized to sign this Amendment, and (iii)
the signature of such authorized Responsible Officer of such entity;
C. a Fourth Amendment to Guaranty Agreement executed by
Brigham Exploration Company;
D. a Consent and Acknowledgement executed by each of the
Guarantors;
E. an opinion of in-house counsel of Borrower and Brigham
Exploration substantially in the form issued by counsel to Borrower in
connection with the Second Amendment;
5
<PAGE> 6
F. payment to the Agent for the ratable benefit of the Lenders
of all accrued and unpaid Interest outstanding on all Base Rate Loans under the
Credit Agreement and the Notes;
G. payment of the expenses of the Agent and the Lenders in
accordance with Section 8.B hereof; and
H. such other documents as Agent or its counsel may reasonably
request.
Section 5. Representations and Warranties.
A. Except as provided in subsection (iii) of this Section
5.A., the Borrower hereby reaffirms that, as of the date of this Amendment, the
representations and warranties made by the Borrower and Brigham Exploration in
the Credit Agreement are true and correct as though made on and as of the date
hereof, and further, the Borrower represents that,
(i) as of the date hereof, no Default or Material Adverse
Effect has occurred and is continuing except as previously disclosed to the
Agent in writing;
(ii) the execution, delivery and performance by the
Borrower or the Guarantors of this Amendment and the other Loan Documents and
all instruments and documents to be delivered by the Borrower or the Guarantors,
to the extent a party thereto, hereunder and thereunder and the creation of all
Liens provided for herein and therein: (a) are within the Borrower's or such
Guarantor's corporate power; (b) have been duly authorized by all necessary or
proper corporate action, including the consent of stockholders, members and/or
partners therein or thereof; (c) are not in contravention of any provision of
the Borrower's or such Guarantor's certificate of incorporation, bylaws or
similar organizational and/or governing documents; (d) will not violate (1) any
law or regulation or (2) any order or decree of any court or governmental
instrumentality; (e) will not conflict with or result in the breach or
termination of, constitute a default under or accelerate any performance
required by, any indenture, mortgage, deed of trust, lease, agreement or other
instrument to which the Borrower or any of the Guarantors is a party or by which
the Borrower or any of the Guarantors or any of their respective property is
bound; (f) will not result in the creation or imposition of any Lien upon any of
the property of the Borrower or the Guarantors other than those in favor of the
Agent pursuant to the terms of this Amendment and the other Loan Documents to be
delivered in connection herewith; and (g) do not require the consent or approval
of any governmental body, agency, authority or any other Person that has not
been duly obtained, made or complied with prior to the date hereof. At or prior
to the date hereof, each of this Amendment and the other Loan Documents to be
delivered in connection herewith shall have been duly executed and delivered for
the benefit of or on behalf of the Borrower or the Guarantors, in each case to
the extent a party thereto, and each shall then constitute a legal, valid and
binding obligation of the Borrower or such Guarantor, enforceable against it in
accordance with its terms; and
6
<PAGE> 7
(iii) notwithstanding the foregoing, the representations
and warranties contained in the last sentence of Section 7.10(a) of the Credit
Agreement (and not those contained in the first two sentences) are reaffirmed
with respect to the Mortgaged Property covered by or described in the New
Mortgage.
B. Each of the Borrower and the Guarantors further represents
and warrants, for itself only that he or it (i) is executing this Amendment
after consultation with counsel of his or its own choosing, (ii) has read and
understands the release granted by Section 6 hereof, (iii) desires to execute
this Amendment and (iv) has the requisite authority to enter into and be bound
by this Amendment, including the release granted by Section 6 hereof.
Section 6. Release.
A. Each of the Releasing Parties desires and intends fully to
compromise, release and settle any and all of the Released Claims; and each of
the Releasing Parties hereby covenants, warrants and represents unto each of the
Released Parties that such Releasing Party does hereby FOREVER RELEASE, ACQUIT,
WAIVE AND DISCHARGE each of the Released Parties of and from the Released Claims
and each of the Releasing Parties hereby declares the same FOREVER RELEASED,
ACQUITTED, WAIVED, SETTLED AND DISCHARGED. This release is effective without
regard to whether (i) such Released Claims are known or unknown, (ii) damages
arising out of such Released Claims have yet accrued, (iii) such Released Claims
arose collaterally, directly, derivatively, or otherwise between the parties
hereto or (iv) an ordinary person in the same or similar circumstances would or
would not, through the exercise of due care, have discovered such claims by the
date of this Amendment. In connection with the foregoing release:
B. Borrower and each of the Guarantors represents and warrants
that it has the full power and authority to perform the release granted in this
Section 6 and that it has not in any manner made any assignment of any Released
Claim to any third party.
C. The release granted in this Section 6 will be effective
upon execution of this Amendment by all of the parties hereto.
D. Each party executing this Amendment understands and agrees
that the release granted in this Section 6 is a full, final and complete release
of the Released Claims and that such release may be pleaded as an absolute and
final bar to any or all suits which may hereafter be filed or prosecuted by any
one or more of the Releasing Parties or anyone claiming by, through or under any
one or more of the Releasing Parties in respect of any of the matters released
hereby, and that no recovery on account of the Released Claims may hereafter be
had from any of the Released Parties; and that the consideration given for such
release is not an admission of liability or fault on the part of any of the
Released Parties (it being the express intent of the parties hereto to obtain
peace of mind and avoid the expense and uncertainty of potential litigation),
and that
7
<PAGE> 8
none of the Releasing Parties or those claiming by, through or under any of them
will ever claim that it is.
E. The parties hereto acknowledge that the release granted by
this Section 6 does not have any effect with respect to relationships between
the Borrower and each of the Guarantors and the Lenders and the Agent other than
in connection with the Lending Relationship.
Section 7. Events of Default and Remedies.
A. The occurrence of any one or more of the following events
(regardless of the reason therefor) shall constitute an "Event of Default"
hereunder:
(i) Brigham Exploration shall fail to deliver within 30
days after closing a Warrant Agreement in form and substance satisfactory to the
Lenders executed by Brigham Exploration in favor of each of Bank of Montreal and
Societe Generale;
(ii) Brigham Exploration shall fail to deliver within 30
days after closing a legal opinion of Brigham Exploration's in-house counsel in
form and substance satisfactory to the Agent with respect to the Warrant
Agreements, any Loan Documents executed by Brigham Holdings I, LLC or Brigham
Holdings II, LLC in connection with this Third Amendment and consummation of the
transactions contemplated by the Warrant Agreements and such other Loan
Documents;
(iii) the Borrower shall fail to deliver within 30 days
after closing a Consent and Acknowledgement executed by Brigham Holdings I, LLC
in favor of the Agent;
(iv) the Borrower shall fail to deliver within 30 days
after closing a Consent and Acknowledgement executed by Brigham Holdings II, LLC
in favor of the Agent; and
(v) the Borrower shall fail to deliver certificates of the
Secretary or an Assistant Secretary of Brigham Exploration, Brigham Holdings I,
LLC and Brigham Holdings II, LLC setting forth for each of them (i) the
resolutions of its board of directors or managers (or if such entity is a
partnership, resolutions of the general partner of such partnership), as
applicable, with respect to the authorization to execute and deliver the Warrant
Agreements and the Loan Documents to be executed in connection with this Third
Amendment and to consummate the transactions contemplated hereby and thereby, in
each case, to the extent a party thereto; (ii) the Responsible Officer of such
entity authorized to execute such documents, and (iii) the signature of such
authorized Responsible Officer of such entity.
8
<PAGE> 9
B. The occurrence and continuation of an Event of Default
hereunder shall constitute an Event of Default under the Credit Agreement as
amended hereby.
Section 8. Payment of Fees and Expenses; Form of Payment.
A. Brigham Exploration, as Guarantor of Borrower's obligations
to Lenders under the Loan Documents, agrees, in consideration of the Lenders'
agreement to enter into this Third Amendment, to issue to each Lender its
ratable share, based on its Percentage Share of the Aggregate Commitments, of
warrants to purchase 1,000,000 shares of the common stock of Brigham Exploration
exercisable in accordance with the terms and conditions of the Warrant
Agreements.
B. The Borrower agrees, whether or not the transactions
contemplated hereby are consummated, to pay all reasonable expenses of the Agent
and the Lenders (including, without limitation, all reasonable fees and
disbursements of counsel and other outside consultants for the Agent and/or the
Lenders) in connection with the negotiation, investigation, preparation,
execution and delivery of, recording and filing of, preservation of rights under
and enforcement of this Amendment and the other Loan Documents to be delivered
in connection herewith.
C. All payments to be made by the Borrower under this
Amendment shall be made in Dollars, in immediately available funds, to the Agent
at such account as the Agent shall specify by notice in accordance with Section
4.01 of the Credit Agreement.
Section 9. Limitations. The amendments set forth herein are
limited precisely as written and shall not be deemed to (a) be a consent to, or
waiver or modification of, any other term or condition of the Credit Agreement
or any of the other Loan Documents, or (b) prejudice any right or rights which
the Lenders or the Agent may now have or may have in the future under or in
connection with the Credit Agreement or any of the other Loan Documents. Except
as expressly supplemented, amended or modified hereby, the terms and provisions
of the Credit Agreement or any other Loan Documents are and shall remain in full
force and effect. In the event of a conflict between this Amendment and any of
the foregoing documents, the terms of this Amendment shall be controlling.
Section 10. Non-Reliance on Agent and Other Lenders. Each
Lender acknowledges and agrees that it has, independently and without reliance
on the Agent or any other Lender, and based on such documents and information as
it has deemed appropriate, made its own decision to enter into this Amendment,
and that it will, independently and without reliance upon the Agent or any other
Lender, and based on such documents and information as it shall deem appropriate
at the time, continue to make its own analysis and decisions in taking or not
taking action under this Amendment or the Credit Agreement. The Agent shall not
be required to keep itself informed as to the performance or observance by the
Borrower of this Amendment or any other Loan Document or any other document
referred to or provided for herein or therein or to
9
<PAGE> 10
inspect the properties or books of the Borrower. Except for notices, reports and
other documents and information expressly required to be furnished to the
Lenders by the Agent hereunder and under the Credit Agreement, the Agent shall
not have any duty or responsibility to provide any Lender with any credit or
other information concerning the affairs, financial condition or business of the
Borrower (or any of its Affiliates) which may come into the possession of the
Agent or any of its Affiliates. In this regard, each Lender acknowledges that
Weil, Gotshal & Manges LLP is acting in this transaction as special counsel to
the Agent only. Each Lender will consult with its own legal counsel to the
extent that it deems necessary in connection with this Amendment and the matters
contemplated herein.
Section 11. 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 12. 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 13. 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.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed as of the date first written above.
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 NO
UNWRITTEN ORAL AGREEMENT BETWEEN THE PARTIES.
BORROWER: BRIGHAM OIL & GAS, L.P.
By: Brigham, Inc., its General Partner
By: /s/ CRAIG M. FLEMING
------------------------------------
Name: Craig M. Fleming
----------------------------------
Title: Vice President and CEO
---------------------------------
AGENT: BANK OF MONTREAL
By: /s/ THOMAS E. MCGRAW
------------------------------------
Thomas E. McGraw
Director
LENDER: BANK OF MONTREAL
By: /s/ THOMAS E. MCGRAW
------------------------------------
Thomas E. McGraw
Director
S
<PAGE> 12
LENDER: SOCIETE GENERALE, Southwest Agency
By: /s/ MARK A. COX
------------------------------------
Name: Mark A. Cox
--------------------------------
Title: Director
--------------------------------
S
<PAGE> 13
EXHIBIT A
ANNEX I
<TABLE>
<CAPTION>
Name of Lender Percentage Share Maximum Credit Amount
- -------------- ---------------- ---------------------
<S> <C> <C>
Bank of Montreal 66.1538 $43,000,000
Societe Generale 33.8462 $22,000,000
</TABLE>
ANNEX I-I
<PAGE> 1
EXHIBIT 10.2
FOURTH AMENDMENT TO GUARANTY AGREEMENT
THIS FOURTH AMENDMENT TO GUARANTY AGREEMENT (this "Amendment") dated as
of July 19, 1999 is between BRIGHAM EXPLORATION COMPANY, a Delaware corporation
(the "Guarantor") and BANK OF MONTREAL, as agent (the "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 as parties to that certain Credit
Agreement dated as of January 26, 1998 as amended by First Amendment to Credit
Agreement dated August 20, 1998 and Second Amendment to Credit Agreement dated
as of March 26, 1999 and that Third Amendment to Credit Agreement of even date
herewith (as so amended, the "Credit Agreement"), pursuant to which the Lenders
agreed to make certain loans and extensions of credit to the Borrower.
B. Pursuant to the terms and conditions stated in the Credit Agreement,
Guarantor executed that certain Guaranty Agreement dated January 26, 1998 by
Guarantor, as amended by First Amendment to Guaranty Agreement dated March 30,
1998, Second Amendment to Guaranty Agreement dated August 20, 1998 and Third
Amendment to Guaranty Agreement dated March 26, 1999 (as so amended, the
"Guaranty Agreement").
C. The 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. Unless otherwise defined herein, all
capitalized terms used herein are used with the meanings assigned to such terms
in the Guaranty Agreement.
Section 2. Amendments to Guaranty Agreement.
Section 5.2. Section 5.2 is hereby amended as follows:
(a) Section 5.2(q) is hereby deleted in its entirety, and the
following substituted therefor:
"(q) Current Ratio. The Guarantor will not permit its
ratio of (i) consolidated current assets of the Guarantor and
its Consolidated Subsidiaries to (ii) their consolidated
current liabilities (excluding the Indebtedness) to be less
than (A) .75 to 1.0 for the quarters ended December 31, 1999
and March 31, 2000 or (B) 1.0 to 1.0 at any time thereafter."
(b) Section 5.2(s) is hereby deleted in its entirety, and the
following is substituted therefor:
1
<PAGE> 2
"(r) Interest Coverage Ratio. The Guarantor will not
permit its Interest Coverage Ratio as of the end of any fiscal
quarter of the Guarantor (calculated quarterly at the end of
each fiscal quarter) to be less than the ratio set forth below
for such period. Interest Coverage Ratio shall mean the ratio
of (i) EBITDA to (ii) interest payments accruing (excluding
amortizations of fee expense incurred in connection with this
Agreement and the closing of the Indenture and Securities
Purchase Agreement and any capitalized lease expense included
in interest) during the following periods (for purposes hereof
interest on the Subordinated Debt shall be deemed cash
payments, calculated at the cash interest rate applicable to
the Subordinated Debt, whether paid in cash or in kind, except
that if a payment of interest is made in kind on any interest
payment date applicable to the Subordinated Debt, an amount
equal to the cash payment of interest that would have been due
on such interest payment date if payment in kind had not been
made shall be deemed subtracted from interest expense for the
applicable test period ending on the last day of the fiscal
quarter preceding such interest payment date (but not for any
other test period):
(i) not less than 1.25 to 1.0 for the nine
(9) month period ending March 31, 2000;
(ii) not less than 1.25 to 1.0 for the twelve
(12) month period ending June 30, 2000;
(iii) not less than 1.25 to 1.0 for the twelve
(12) month period ending September 30,
2000;
(iv) not less than 1.5 to 1.0 for the twelve
(12) month period ending December 31,
2000; and
(v) thereafter, not less than 1.75 to 1.0 for
the twelve (12) month periods ending at
the end of each fiscal quarter of the
Guarantor."
Section 3. Representations and Warranties. The 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. Limitations; Ratification. The amendments set forth herein
are limited precisely as written and shall not be deemed to (a) be a consent to,
or waiver or modification of, any other term or condition of the Guaranty
Agreement or any of the other Loan Documents, or (b) prejudice any right or
rights which the Lenders or the Agent may now have or may have in the future
under or in connection with the Guaranty Agreement or any of the other Loan
Documents. Except as expressly supplemented, amended or modified hereby, the
terms and provisions of the Guaranty Agreement or any other Loan Documents are
and shall remain in full
2
<PAGE> 3
force and effect. The 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. In the event of a conflict between this Amendment and any of the
foregoing documents, the terms of this Amendment shall be controlling.
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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed, 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.
GUARANTOR: BRIGHAM EXPLORATION COMPANY
By: /s/ CRAIG M. FLEMING
-----------------------------------
Name: Craig M. Fleming
---------------------------------
Title: Vice President and CFO
--------------------------------
AGENT AND LENDER: BANK OF MONTREAL
By: /s/ THOMAS E. MCGRAW
-----------------------------------
Thomas E. McGraw
Director
S
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,752
<SECURITIES> 0
<RECEIVABLES> 3,059
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,191
<PP&E> 107,212
<DEPRECIATION> 0
<TOTAL-ASSETS> 117,174
<CURRENT-LIABILITIES> 17,034
<BONDS> 0
0
0
<COMMON> 143
<OTHER-SE> 11,060
<TOTAL-LIABILITY-AND-EQUITY> 117,174
<SALES> 6,746
<TOTAL-REVENUES> 6,907
<CGS> 0
<TOTAL-COSTS> 1,539
<OTHER-EXPENSES> 17,194
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,877
<INCOME-PRETAX> (17,703)
<INCOME-TAX> 0
<INCOME-CONTINUING> (17,703)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,703)
<EPS-BASIC> (1.28)
<EPS-DILUTED> (1.28)
</TABLE>
