-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MHkAK0ilPML/vzHuYGIwTixtT+7z3mcti1WQXviLogvMahDsfM6Z21n60OyBvZyo h61aGjuZ9joe76lLSfwo5w== 0000930661-01-000647.txt : 20010326 0000930661-01-000647.hdr.sgml : 20010326 ACCESSION NUMBER: 0000930661-01-000647 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010323 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRIGHAM EXPLORATION CO CENTRAL INDEX KEY: 0001034755 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 752692967 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-22433 FILM NUMBER: 1577116 BUSINESS ADDRESS: STREET 1: 6300 BRIDGE POINT PARKWAY STREET 2: BLDG 2 SUITE 500 CITY: AUSTIN STATE: TX ZIP: 78730 BUSINESS PHONE: 5124273300 MAIL ADDRESS: STREET 1: 6300 BRIDGE POINT PARKWAY STREET 2: BLDG 2 SUITE 500 CITY: AUSTIN STATE: TX ZIP: 78730 10-K 1 0001.txt FORM 10-K FOR THE PERIOD 12/31/2000 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------- FORM 10-K ------------------------- (Mark One) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 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) Delaware (State or other jurisdiction of 75-2692967 incorporation or organization) (I.R.S. Employer 6300 Bridge Point Parkway Identification No.) Building 2, Suite 500 Austin, Texas 78730 (Address of principal executive offices) (Zip Code) (512) 427-3300 (Registrant's telephone number, including area code) ------------------------- Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Title of Each Class Which Registered ------------------- ------------------------ None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value (Title of Class) 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 12 months (or for 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 |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |_| As of March 20, 2001, the Registrant had 15,988,118 shares of common stock outstanding. The aggregate market value of the common stock held by non-affiliates of the Registrant, based upon the closing sale price of the common stock on March 20, 2001, as reported on The Nasdaq Stock MarketSM, was $22.7 million. For purposes of determination of the foregoing amount, only directors, executive officers and 10% or greater stockholders have been deemed affiliates. DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive proxy statement for the Registrant's 2001 Annual Meeting of Stockholders to be held on May 10, 2001, are incorporated by reference in Part III of this Form 10-K. Such definitive proxy statement will be filed with the Securities and Exchange Commission not later than 120 days subsequent to December 31, 2000. ================================================================================ TABLE OF CONTENTS Page ---- PART I ITEM 1. BUSINESS ....................................................... 1 ITEM 2. PROPERTIES ..................................................... 9 ITEM 3. LEGAL PROCEEDINGS .............................................. 18 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS ............. 18 EXECUTIVE OFFICERS OF THE REGISTRANT ...................................... 19 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ................................ 21 ITEM 6. SELECTED FINANCIAL DATA ........................................ 22 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ............... 23 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ..... 43 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .................... 44 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ......................... 44 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ............. 45 ITEM 11. EXECUTIVE COMPENSATION ......................................... 45 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ............................... 45 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS ........... 45 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K ........................................ 46 GLOSSARY OF OIL AND GAS TERMS ............................................. 47 SIGNATURES................................................................. 49 INDEX TO FINANCIAL STATEMENTS ............................................. F-1 i BRIGHAM EXPLORATION COMPANY 2000 ANNUAL REPORT ON FORM 10-K ITEM 1. BUSINESS Overview Brigham Exploration Company ("Brigham" or the "Company") is an independent exploration and production company that applies 3-D seismic imaging and other advanced technologies to systematically explore and develop onshore oil and natural gas provinces in the United States. Brigham focuses its activity in provinces where it believes 3-D technology may be effectively applied to generate relatively large potential reserve volumes per well and per field, high potential production rates and multiple producing objectives. Brigham's exploration activities are concentrated primarily in three core provinces: o the Anadarko Basin of western Oklahoma and the Texas Panhandle; o the onshore Texas Gulf Coast; and o West Texas. Brigham pioneered the acquisition of large-scale onshore 3-D seismic surveys for exploration, obtaining extensive 3-D seismic data and experience in capturing undiscovered oil and natural gas reserves. As of December 31, 2000, Brigham has acquired 5,122 square miles (3.3 million acres) of 3-D seismic data and has drilled 498 wells in its 3-D project areas. Brigham generates most of its exploratory projects and, therefore, has the ability to retain a sizeable working interest in these projects. From inception in 1990 through 2000, Brigham has drilled 407 exploratory and 91 development wells on its 3-D generated prospects with an aggregate 66% completion rate and an average working interest of 30%. As of December 31, 2000, Brigham has added 162 Bcfe of net proved reserves to its reserve base, approximately 139 net Bcfe of which were discovered by Brigham through its systematic 3-D exploration drilling activities at an average net drilling cost of $0.75 per Mcfe. In 1999 and 2000, Brigham's average net drilling cost was $0.62 per Mcfe and its all-in net finding and development cost was $0.85 per Mcfe. Brigham's estimated net proved reserves as of December 31, 2000 were 95 Bcfe having an aggregate Present Value of Future Net Revenues of $498 million, compared to estimated net proved reserves as of December 31, 1996 of 22 Bcfe having an aggregate Present Value of Future Net Revenues of $45 million. Brigham's net proved reserve volumes at December 31, 2000 are 82% natural gas and 52% proved developed. Business Strategy Brigham's principal objective and business strategy is to achieve superior growth in shareholder value through the application of its systematic exploration approach, which emphasizes the integrated use of 3-D seismic imaging and other advanced technologies to reduce drilling risks and finding costs. From its inception in 1990 through 1998, Brigham achieved rapid growth in its acquisition of 3-D seismic data, identification of potential drilling locations, discovery of proved reserves and production of oil and natural gas volumes. Having acquired in excess of 5,100 square miles of 3-D seismic data in proven producing trends during this period, Brigham has been focusing its activities since 1999 on generating tangible value from its high quality inventory of 3-D delineated prospect locations through disciplined exploration and development drilling activities and selective non-producing asset sales. - 1 - Brigham completed its initial public offering of common stock in May 1997, raising approximately $24 million to fund its accelerated 3-D seismic acquisition and exploration drilling activities. Key elements of Brigham's long-term growth strategy at its initial public offering included: o acquiring 3-D seismic data in proven producing trends to identify and capture potential drilling locations; o retaining significant working interests in its exploration projects to capture a greater share of the reserves discovered; o identifying higher potential, higher impact prospects; and o monetizing the value of its 3-D seismic investments by drilling its inventory of identified prospect locations. During 1997 and 1998, Brigham acquired 2,360 square miles of 3-D seismic data at an average working interest of 73%, which nearly doubled its inventory of onshore 3-D seismic data to 5,122 square miles as compared to year-end 1996. Brigham's overall level of 3-D seismic acquisition during 1997 and 1998 was the most active in its history, in which Brigham generated 3-D projects where it retained higher working interests. The vast majority of this newly acquired data was located in Brigham's higher potential Anadarko Basin and Gulf Coast provinces where it has historically achieved lower average finding costs for drilling than in its West Texas province. As a result of these significant investments in 3-D seismic acquisition, processing and interpretation in proven natural gas producing trends, Brigham believes it has assembled a significant competitive knowledge base and strategic position in each of its two most active exploration provinces. Brigham further believes it has captured a high quality inventory of 3-D delineated potential drilling locations that can be monetized through the drill bit at attractive finding costs over the next several years, thereby providing opportunities for future reserve, production and cash flow growth. Brigham's current business strategy consists of the following key elements: o focus resources on drilling of its established 3-D delineated project inventory, most of which target natural gas prospects in proven producing trends; o maintain an active, high potential exploration program, yet continue to allocate an increasing percentage of drilling expenditures toward the development of previous exploration successes; o improve cash flow margins and return on invested capital by continuing efforts to reduce per unit finding and operating cost components; and o selectively monetize non-producing assets to recoup capital investments and improve project rates of return. Focus on Drilling During the first eight years of its history, Brigham directed a significant portion of its resources toward the establishment of a sizeable inventory of 3-D seismic projects within proven natural gas producing trends in the Anadarko Basin and Gulf Coast. As a result of these efforts, Brigham believes it has assembled a significant asset base within these two core exploration provinces that it has only begun to monetize through drilling efforts to date. During 1999 and 2000, Brigham focused the majority of its resources toward drilling activities within its established 3-D seismic projects to generate proved reserves, production volumes and cash flow from these investments. This capital allocation focus resulted in average drilling and all-in finding and development costs for the period 1999 - 2000 of $0.62 per Mcfe and $0.85 per Mcfe, respectively. - 2 - Continuing to exploit its existing 3-D seismic project assets, Brigham's primary objective in 2001 is to drill the highest-grade locations within its inventory of identified drilling locations to generate continued growth in proved reserves and cash flow. Approximately 85% of Brigham's planned $26 million exploration and development capital expenditure budget for 2001 is targeted for drilling activities within its Anadarko Basin, Texas Gulf Coast and West Texas 3-D seismic projects. With the significant competitive advantages afforded by Brigham's prior investments in 3-D seismic data within its core provinces, Brigham expects that drilling capital expenditures should represent at least 80% of its annual exploration and development capital expenditures for the foreseeable future. Execute Active, High-Potential Drilling Program Balanced With Development of Prior Discoveries From 1990 to 1999, the majority of Brigham's historical drilling expenditures were directed toward exploration-oriented projects. Leveraging several potentially significant new field discoveries during 1999 and 2000, Brigham's 2000 and planned 2001 drilling programs consist of a more balanced blend of exploration and development projects in trends where Brigham has achieved historical drilling success. These focus trends include the Springer Bar, Springer Channel and Hunton trends in the Anadarko Basin and the Frio and Vicksburg trends in the Texas Gulf Coast province. Of Brigham's $22 million drilling budget planned for 2001, 34% of the expenditures relate to exploration projects and 66% are for development drilling projects that are either currently planned or contingent upon drilling success during the year. In addition, over 80% of Brigham's 2001 planned drilling budget is concentrated in five project areas where it experienced significant drilling success during 2000. Improve Operating Margins and Return on Invested Capital Brigham seeks to improve its return on invested capital by achieving low finding and development costs and by reducing and controlling its per unit operating costs. Brigham has achieved average drilling costs of $0.75 per Mcfe during the past ten years. By focusing its 1999 and 2000 drilling programs within areas where it had previously experienced drilling success, Brigham achieved improved returns on its drilling investments with average drilling costs of $0.62 per Mcfe. Importantly, Brigham's all-in finding and development costs during 1999 and 2000 were $0.85 per Mcfe, a substantial improvement from its average finding and development costs of $1.59 per Mcfe from inception through 1998 due to: o Brigham's considerable prior investments in 3-D seismic and land, principally during 1997 and 1998; o significantly lower non-drilling capital expenditures in 1999 and 2000; o improved drilling returns achieved during 1999 and 2000; and o sales of interests in certain 3-D seismic projects and prospects in 1999 and 2000 that provided reimbursements of previously incurred expenditures. Brigham expects this trend toward convergence of its all-in finding and development costs and drilling costs to continue in 2001 as it continues to capitalize on its extensive inventory of 3-D delineated prospects by allocating a substantial majority of its capital expenditures to drilling within its existing 3-D seismic project areas. During the past few years, Brigham's low per unit lease operating expenses can be attributed to: o the relatively new nature of many of its producing wells; o focused operations in three core provinces; and o operating a greater percentage of the wells that it drills. - 3 - Brigham intends to continue to maintain low per unit operating expenses by: o monitoring and controlling production efficiency from its existing producing wells; o adding new producing wells that typically cost less to operate than more mature wells; and o seeking to achieve operating cost efficiencies through increased economies of scale resulting from a greater concentration of producing assets within its core project areas. Monetize Non-Producing Assets In addition to supporting a multi-year drilling program, Brigham believes that its substantial investments in 3-D seismic data and undeveloped acreage provide a significant competitive advantage to attract participants to invest in its projects, thereby recouping a portion of its initial capital investments, typically on a promoted basis. Brigham has been effective at raising capital and attaining promoted working interests in its 3-D seismic projects throughout its history. During 1999 and 2000, Brigham raised in excess of $15 million through the sales of interests in various 3-D seismic projects or individual drilling prospects to fund a portion of its capital expenditure program and satisfy working capital requirements. Brigham expects to continue to market interests in certain 3-D seismic projects or individual prospects during 2001 to provide incremental sources of capital for reinvestment in its drilling program, to limit its risk exposure and to improve its project economics. 3-D Seismic Technology Brigham's strategy is to use 3-D seismic and other advanced technologies, including computer-aided exploration ("CAEX"), to systematically explore and develop domestic onshore oil and natural gas provinces. In general, 3-D seismic is the process of acquiring seismic data along multiple lines and grids. The primary advantage of 3-D seismic over 2-D seismic is that it provides information with respect to multiple horizontal and vertical points within a geologic formation instead of information on a single vertical line or multiple vertical lines within the formation. Acquiring larger amounts of data relating to a geologic formation allows a user to better correlate the data and, in some cases, to obtain a greater understanding and image of the formation. Although it is impossible to predict with certainty the specific configuration or composition of any underground geologic formation, the use of 3-D seismic data provides clearer and more accurate projected images of complex geologic formations, which can assist a user in evaluating whether to drill for oil and natural gas reserves. If a decision to drill is made, 3-D seismic data can also help in determining the optimal location to drill. CAEX is the process of accumulating and analyzing the various seismic, production and other data obtained relating to a geographic area. In general, CAEX involves accumulating various 2-D and 3-D seismic data with respect to a potential drilling location, correlating that data with historical well control and production data from similar properties and analyzing the available data through computer programs and modeling techniques to project the likely geologic composition of a potential drilling location and potential locations of undiscovered oil and natural gas reserves. This process relies on a comparison of data with respect to the potential drilling location and historical data with respect to the density and sonic characteristics of different types of rock formations, hydrocarbons and other subsurface minerals, resulting in a projected three dimensional image of the subsurface. This modeling is performed through the use of advanced interactive computer workstations and various combinations of available computer programs that have been developed solely for this application. Exploration and Operating Approach Brigham has acquired 3-D seismic data covering 5,122 square miles (3.3 million acres) in over 20 geologic trends in seven basins and seven states. Through this activity, Brigham has developed expertise in the selection of geologic trends that are suitable for 3-D seismic exploration. Brigham uses experience that it gains within a trend to enhance the quality of subsequent projects in the same trend and other analogous trends, contributing to lower finding and - 4 - development costs, compressed project cycle times and increased project rates of return. Brigham typically acquires 3-D seismic data in and around existing producing fields where it can benefit from the imaging of producing analogs. These 3-D defined analogs, combined with Brigham's experience in drilling nearly 500 wells in its 3-D project areas, provide Brigham with a knowledge base to evaluate other potential geologic trends, 3-D seismic projects within trends and prospective 3-D delineated drilling locations. Brigham's knowledge base assists in identifying geologic trends where Brigham believes it can find and develop economic volumes of oil and natural gas. Brigham has experience exploring with 3-D seismic in a wide range of reservoir types and geologic trapping styles, both stratigraphic and structural (including reefs, salt domes, channel sands, complex faulted and fractured reservoirs and pinchout plays). Occasionally, Brigham seeks to supplement its knowledge base with the best local geologic expertise available for a particular geologic trend. In addition, Brigham typically acquires digital data bases for integration on its CAEX workstations, including digital land grids, well information, log curves, production information, geologic studies, geologic top data bases and existing 2-D seismic data. Brigham uses its knowledge base, local geological expertise and digital data bases integrated with 3-D seismic data to create maps of producing and potentially productive reservoirs. Brigham believes its 3-D generated maps are more accurate than previous reservoir maps (which generally were based on subsurface geological information and 2-D seismic surveys), enabling it to more precisely evaluate recoverable reserves and the economic feasibility of projects and drilling locations. Brigham has acquired most of its raw 3-D seismic data using seismic acquisition vendors on either a proprietary basis or through alliances affording the alliance members the exclusive right to interpret and use data for extended periods of time. In addition, Brigham has participated in non-proprietary group shoots of 3-D seismic data (commonly referred to as "spec data") when it believes the expected full cycle project economics are justified. In most of its proprietary 3-D data acquisitions and alliances, Brigham has selected the sites of projects, primarily guided by its knowledge and experience in the core provinces it explores; established and monitored the seismic parameters of each project for which data was shot; and typically selected the equipment that was used. The acquisition of 3-D seismic data has generally been priced on the basis of the number of square miles shot. Brigham's operations personnel (including management) includes five petroleum engineers that have reservoir and operations engineering experience primarily within Brigham's three core areas of operations. These engineers work closely with Brigham's explorationists and are integrally involved in all phases of the exploration and development process, including preparation of pre- and post-drill reserve estimates, analysis of full cycle risked drilling economics, well design and production management. Brigham conducts field operations for its operated oil and natural gas properties through third party contract personnel. In an effort to retain better control of its project timing, drilling and operational costs and production volumes, Brigham has significantly increased the percentage of the wells that it operates during the past several years. Brigham operated 55% of the gross and 82% of the net wells it participated in during 2000, as compared with 10% and 17%, respectively, of its wells drilled during 1996. As a result of its increased operational control in recent years, Brigham-operated wells constituted 73% of the PV10% value of its proved developed producing reserves at year-end 2000, as compared with only 8% at year-end 1996. Technical Staff Brigham's experienced technical staff (excluding management) includes five geophysicists, six geologists, four petroleum engineers, four computer applications specialists, four geophysical/geological/engineering technicians, three landmen and two lease and division order analysts. Brigham's geophysicists have different but complementary backgrounds, and their diversity of experience in varied geological and geophysical settings, combined with various technical specializations (from hardware and systems to software and seismic data processing), provide Brigham with valuable technical intellectual resources. Brigham's team of explorationists has over 210 years of exploration experience, or an average of more than 19 years per person, most of which was acquired at Brigham and various major and large independent oil companies. Brigham's team of technical specialists was assembled according to the expertise that these - 5 - individuals have within producing basins where Brigham focuses its exploration and development activities. By integrating both geologic and geophysical expertise within its project teams, Brigham believes it possesses a competitive advantage in its exploration approach. Occasionally, Brigham will complement and leverage its exploration staff by seeking out alliances or retainer relationships with geologists and other technical professionals who have extensive experience in a particular area of interest. Oil and Natural Gas Marketing and Major Customers Most of Brigham's oil and natural gas production is sold under price sensitive or spot market contracts. The revenues generated by Brigham's operations are highly dependent upon the prices of and demand for oil and natural gas. The price received by Brigham for its oil and natural gas production depends on numerous factors beyond Brigham's control, including seasonality, competition, the condition of the United States economy, foreign imports, political conditions in other oil-producing and natural gas-producing countries, the actions of the Organization of Petroleum Exporting Countries, and domestic government regulation, legislation and policies. Decreases in the prices of oil and natural gas could have an adverse effect on the carrying value of Brigham's proved reserves and its revenues, profitability and cash flow. Although Brigham is not currently experiencing any significant involuntary curtailment of its oil or natural gas production, market, economic and regulatory factors may in the future materially affect Brigham's ability to sell its oil or natural gas production. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations", "-- Risk Factors -- Volatility Of Oil And Gas Markets Affects Us; Oil And Natural Gas Prices Are Volatile" and "-- Risk Factors -- The Marketability Of Our Production Is Dependent On Facilities That We Typically Do Not Own Or Control." For the year ended December 31, 2000, sales to Highland Energy Company and Lantern Petroleum Corporation were approximately 36% and 20%, respectively, of Brigham's oil and natural gas revenues. Due to the availability of other markets and pipeline connections, Brigham does not believe that the loss of any single oil or natural gas customer would have a material adverse effect on its results of operations. Competition The oil and gas industry is highly competitive in all of its phases. Brigham encounters competition from other oil and gas companies in all areas of its operations, including the acquisition of seismic and leasing options and oil and natural gas leases on properties. Brigham's competitors include major integrated oil and natural gas companies and numerous independent oil and natural gas companies, individuals and drilling and income programs. Many of its competitors are large, well established companies with substantially larger operating staffs and greater capital resources than Brigham. Such companies may be able to pay more for seismic and lease options on oil and natural gas properties and exploratory prospects and to define, evaluate, bid for and purchase a greater number of properties and prospects than Brigham's financial or human resources permit. Brigham's ability to acquire additional properties and to discover reserves in the future will be dependent upon its ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Risk Factors -- We Face Significant Competition" and "-- Risk Factors -- We Have Substantial Capital Requirements." Operating Hazards and Uninsured Risks Drilling activities are subject to many risks, including the risk that no commercially productive reservoirs will be encountered. There can be no assurance that new wells drilled by Brigham will be productive or that Brigham will recover all or any portion of its investment. Drilling for oil and natural gas may involve unprofitable efforts, not only from dry wells, but also from wells that are productive but do not produce sufficient net revenues to return a profit after drilling, operating and other costs. The cost and timing of drilling, completing and operating wells is often uncertain. Brigham's drilling operations may be curtailed, delayed or canceled as a result of numerous factors, many of which are beyond Brigham's control, including title problems, weather conditions, delays by project participants, compliance with governmental requirements and shortages or delays in the delivery of equipment and services. Brigham's future drilling activities may not be successful and, if unsuccessful, such failure may have a material adverse effect on its business, financial condition or results of operations. See "Item 7. Management's Discussion and Analysis of Financial Condition - 6 - and Results of Operations -- Risk Factors -- Exploratory Drilling Is A Speculative Activity Involving Numerous Risks And Uncertain Costs; We Are Dependent On Exploratory Drilling Activities." In addition, use of 3-D seismic technology requires greater pre-drilling expenditures than traditional drilling strategies. Although Brigham believes that its use of 3-D seismic technology will increase the probability of drilling success, some unsuccessful wells are likely, and there can be no assurance that unsuccessful drilling efforts will not have a material adverse effect on Brigham's business, financial condition or results of operations. Brigham's operations are subject to hazards and risks inherent in drilling for and producing and transporting oil and natural gas, such as fires, natural disasters, explosions, encountering formations with abnormal pressures, blowouts, cratering, pipeline ruptures and spills, any of which can result in the loss of hydrocarbons, environmental pollution, personal injury claims and other damage to properties of Brigham and others. Brigham maintains insurance against some but not all of the risks described above. In particular, the insurance maintained by Brigham does not cover claims relating to failure of title to oil and natural gas leases, trespass during 3-D survey acquisition or surface change attributable to seismic operations, business interruption or loss of revenues due to well failure. Furthermore, in certain circumstances in which insurance is available, Brigham may not purchase it. The occurrence of an event that is not covered, or not fully covered, by insurance could have a material adverse effect on Brigham's business, financial condition and results of operations. Employees On March 20, 2001, Brigham had 49 full-time employees. None is represented by any labor union. Brigham believes its relations with its employees are good. In addition, Brigham relies on several regional consulting service companies to provide field landmen to support Brigham on a project-by-project basis. One of these companies, Brigham Land Management, is owned by Vincent M. Brigham, who is the brother of Ben M. Brigham, the Company's Chief Executive Officer, President and Chairman of the Board. Facilities Brigham's principal executive offices are located in Austin, Texas, where it leases approximately 34,330 square feet of office space at 6300 Bridge Point Parkway, Building 2, Suite 500, Austin, Texas 78730. In an effort to reduce corporate overhead expenses, Brigham has subleased approximately 5,300 square feet of excess office space at its principal executive offices to a third party for a two-year term beginning in November 1999. Title to Properties Brigham believes it has satisfactory title, in all material respects, to substantially all of its producing properties in accordance with standards generally accepted in the oil and gas industry. Brigham's properties are subject to royalty interests, standard liens incident to operating agreements, liens for current taxes and other inchoate burdens which Brigham believes do not materially interfere with the use of or affect the value of such properties. Brigham's Senior Credit Facility (as defined) is secured by a first lien against substantially all of Brigham's oil and natural gas properties and other tangible assets, and Brigham's Subordinated Notes Facility (as defined) is secured by a second lien against all collateral pledged by Brigham as security under its Senior Credit Facility. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." Governmental Regulation Brigham's oil and natural gas exploration, production and marketing activities are subject to extensive laws, rules and regulations promulgated by federal and state legislatures and agencies. Failure to comply with such laws, rules and regulations can result in substantial penalties. The legislative and regulatory burden on the oil and gas industry increases Brigham's cost of doing business and affects its profitability. Although Brigham believes it is in substantial compliance with all applicable laws and regulations, Brigham is unable to predict the future cost or impact of complying with such laws and regulations because they are frequently amended, interpreted and reinterpreted. - 7 - The State of Texas and many other states require permits for drilling operations, drilling bonds and reports concerning operations and impose other requirements relating to the exploration and production of oil and natural gas. These states also have statutes or regulations addressing conservation matters, including provisions for the unitization or pooling of oil and natural gas properties, the establishment of maximum rates of production from wells and the regulation of spacing, plugging and abandonment of such wells. Environmental Matters Brigham's operations and properties are, like the oil and gas industry in general, subject to extensive and changing federal, state and local laws and regulations relating to environmental protection, including the generation, storage, handling, emission, transportation and discharge of materials into the environment, and relating to safety and health. The recent trend in environmental legislation and regulation generally is toward stricter standards, and this trend will likely continue. These laws and regulations may require the acquisition of a permit or other authorization before construction or drilling commences and for certain other activities; limit or prohibit seismic acquisition, construction, drilling and other activities on certain lands lying within wilderness and other protected areas; and impose substantial liabilities for pollution resulting from Brigham's operations. The permits required for various of Brigham's operations are subject to revocation, modification and renewal by issuing authorities. Governmental authorities have the power to enforce compliance with their regulations, and violations are subject to fines or injunction, or both. In the opinion of management, Brigham is in substantial compliance with current applicable environmental laws and regulations, and Brigham has no material commitments for capital expenditures to comply with existing environmental requirements. Nevertheless, changes in existing environmental laws and regulations or in interpretations thereof could have a significant impact on Brigham, as well as the oil and gas industry in general. The Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and comparable state statutes impose strict and arguably joint and several liability on owners and operators of certain sites and on persons who disposed of or arranged for the disposal of "hazardous substances" found at such sites. It is not uncommon for the neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment. The Resource Conservation and Recovery Act ("RCRA") and comparable state statutes govern the disposal of "solid waste" and "hazardous waste" and authorize imposition of substantial fines and penalties for noncompliance. Although CERCLA currently excludes petroleum from its definition of "hazardous substance," state laws affecting Brigham's operations impose clean-up liability relating to petroleum and petroleum related products. In addition, although RCRA classifies certain oil field wastes as "non-hazardous," such exploration and production wastes could be reclassified as hazardous wastes thereby making such wastes subject to more stringent handling and disposal requirements. Federal regulations require certain owners or operators of facilities that store or otherwise handle oil, such as the Company, to prepare and implement spill prevention, control countermeasure and response plans relating to the possible discharge of oil into surface waters. The Oil Pollution Act of 1990 ("OPA") contains numerous requirements relating to the prevention of and response to oil spills into waters of the United States. For onshore and offshore facilities that may affect waters of the United States, the OPA requires an operator to demonstrate financial responsibility. Regulations are currently being developed under federal and state laws concerning oil pollution prevention and other matters that may impose additional regulatory burdens on Brigham. In addition, the Clean Water Act and analogous state laws require permits to be obtained to authorize discharge into surface waters or to construct facilities in wetland areas. With respect to certain of its operations, Brigham is required to maintain such permits or meet general permit requirements. The Environmental Protection Agency ("EPA") has in place regulations concerning discharges of storm water runoff. This program requires covered facilities to obtain individual permits, participate in a group or seek coverage under an EPA general permit. Brigham believes that it will be able to obtain, or be included under, such permits, where necessary, and to make minor modifications to existing facilities and operations that would not have a material effect on Brigham. Brigham has acquired leasehold interests in numerous properties that for many years have produced oil and natural gas. Although Brigham believes that the previous owners of these interests have used operating and disposal practices that were standard in the industry at the time, hydrocarbons or other wastes may have been disposed of or released on - 8 - or under the properties. In addition, some of Brigham's properties are operated by third parties over whom it has little control. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Other Matters" and "-- Risk Factors -- We Are Subject To Various Governmental Regulations And Environmental Risks." ITEM 2. PROPERTIES Primary Exploration Provinces Brigham focuses its 3-D seismic exploration efforts in oil and natural gas producing provinces where it believes 3-D technology may be effectively applied to generate relatively large potential reserve volumes per well and per field, high potential production rates and multiple producing objectives. Brigham's exploration activities are concentrated primarily in three core provinces: the Anadarko Basin of western Oklahoma and the Texas Panhandle; the onshore Texas Gulf Coast; and West Texas. During the past four years, Brigham has concentrated the majority of its 3-D seismic and drilling activities on natural gas projects in the Anadarko Basin and Gulf Coast provinces primarily due to the higher expected rates of return provided by these opportunities relative to its more mature West Texas oil projects. However, in response to strong crude oil prices in late 2000 and to date in 2001, Brigham has recently begun to selectively drill certain of its higher grade, 3-D delineated West Texas prospects. In 1997 and 1998, Brigham made significant investments in the acquisition of 3-D seismic and prospective acreage in its Anadarko Basin and Gulf Coast provinces. Through these investments, Brigham believes it has assembled an inventory of potential drilling locations that will support a multi-year drilling program, thereby providing attractive opportunities for long-term growth. From inception in 1990 through 2000, Brigham achieved net drilling costs of $0.75 per Mcfe added through its 3-D seismic exploration efforts. In addition, the vast majority of Brigham's estimated potential drilling locations are in its currently most active Anadarko Basin and Gulf Coast provinces where Brigham has achieved inception-to-date average net drilling costs of $0.53 and $0.91 per Mcfe, respectively. Continuing its strategic focus implemented during 1999 and 2000, Brigham intends to direct substantially all of its efforts and available capital resources in 2001 to the drilling and monetization of the highest grade prospects within its over 5,000 square mile inventory of 3-D seismic data. Employing this emphasis during the past two years, Brigham achieved average drilling and all-in finding and development costs of $0.62 per Mcfe and $0.85 per Mcfe, respectively, in 1999 - 2000. Brigham's planned 2001 exploration and development capital expenditure budget is estimated to be approximately $26 million, which includes $22 million to drill 25 planned wells with an average working interest of approximately 40%. Brigham's planned 2001 drilling program represents a balanced blend of capital investments consisting of both development projects to recent discoveries and high potential exploration prospects. Approximately 66% of budgeted drilling expenditures are allocated to development activities with the remaining 34% targeted for exploratory drilling of its highest-grade prospects. In addition, over 80% of Brigham's budgeted drilling expenditures are focused in five project areas in the Springer and Hunton trends of the Anadarko Basin and the Vicksburg and Frio trends of the Texas Gulf Coast. Each of these five 3-D projects are in areas that Brigham has experienced its most significant recent exploration and development drilling successes. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." Brigham's actual capital expenditures in 2001 may differ from the estimates discussed herein based upon cash flow and capital availability during the year. There can be no assurance that any potential drilling locations identified by Brigham will be drilled at all or within the expected time frame. The final determination with respect to the drilling of any well, including those currently budgeted, will depend on a number of factors, including: o the results of exploration and development efforts and the continuing review and analysis of the seismic data; - 9 - o the availability of sufficient capital resources by Brigham and other participants for drilling prospects; o economic and industry conditions at the time of drilling, including prevailing and anticipated prices for oil and natural gas and the availability of drilling rigs and crews; o Brigham's future financial results; and o the availability of leases on reasonable terms and permitting for the potential drilling location. In addition, there can be no assurance that the budgeted wells will, if drilled, encounter reservoirs of commercial quantities of oil or natural gas. Anadarko Basin The Anadarko Basin is a prolific natural gas province that Brigham believes offers a combination of lower risk exploration and development opportunities in shallower horizons and deeper, higher potential objectives that have been relatively under explored. This province has produced in excess of 90 Tcfe to date from numerous, historically elusive stratigraphic targets, such as the Red Fork, Upper Morrow and Springer channel sands, as well as from deeper, higher potential structural objectives, such the Lower Morrow sandstones and the Hunton and Arbuckle carbonates. In some cases, these objectives have produced in excess of 50 Bcf of natural gas from a single well at rates of up to 30 MMcf of natural gas per day. In addition, drilling economics in the Anadarko Basin are enhanced by the multi-pay nature of many of the prospects in this province, with secondary or tertiary targets serving as either incremental value or bailout potential relative to the primary target zone. Each of the stratigraphic and structural objectives in the Anadarko Basin can provide excellent targets for 3-D seismic imaging. Brigham has assembled an extensive digital data base in this province, including geologic studies, basin wide geologic tops, production data, well data, geographic data and over 8,400 miles of 2-D seismic data. Brigham's explorationists integrate this data with their extensive expertise and knowledge base to generate 3-D projects in the Anadarko Basin. As of December 31, 2000, Brigham had acquired 2,062 square miles (1.3 million acres) of 3-D seismic data in the Anadarko Basin. Through its drilling efforts in this region from 1994 through 2000, Brigham had completed 92 wells in 119 attempts (77% completion rate) in the Anadarko Basin and had found cumulative net proved reserves of 79 Bcfe at an average net drilling cost of $0.53 per Mcfe. In its Anadarko Basin drilling program in 1999 and 2000, Brigham completed 21 wells in 24 attempts (88% completion rate) with an average working interest of 42% that contributed to the addition of 32 net Bcfe of proved reserves (including revisions to previous estimates) at an average net drilling cost of $0.30 per Mcfe. Brigham intends to focus the majority of its exploration and development drilling expenditures in its Anadarko Basin province in the following key project areas during 2001: Huskie and Boilermaker Projects Brigham's Huskie and Boilermaker Projects consist of 103 and 96 square miles, respectively, of continuous 3-D seismic data covering approximately 127,000 acres in Blaine County, Oklahoma. These projects target stratigraphic fluvial sand channels in the Springer-aged Old Woman and Britt intervals. Brigham initiated acquisition of data in its Huskie Project in 1996 where it retained a 37.5% working interest and, based upon the prospect density and reserve potential interpreted from this initial data set, Brigham subsequently acquired data in its adjacent Boilermaker Project in 1998 where it retained a 100% working interest. Brigham completed three Springer wells in three attempts in its Huskie Project during 2000. The first of these Springer channel sand tests was drilled to a depth of approximately 10,300 feet and encountered 41 feet of net pay. This - 10 - discovery well began producing in May 2000 at a pipeline-curtailed daily rate of 3.5 MMcf of natural gas and 350 barrels of condensate, or 3.1 MMcfe net to Brigham's revenue interest. Upon completion of a pipeline expansion in December 2000, daily production from this well was increased to 6.5 MMcf of natural gas and 250 barrels of condensate, or 3.8 MMcfe net to Brigham. Its most recent discovery in this project was drilled to a total depth of approximately 9,750 feet in December 2000 to test an analogous 3-D delineated Springer channel objective. Brigham completed this well in February 2001 at an initial test rate of 7.4 MMcf of natural gas and 90 barrels of condensate per day, or 1.6 MMcfe per day net to Brigham's 20% revenue interest. Brigham operates this discovery and began producing the well in mid-March 2001 at a pipeline-curtailed rate of approximately 2.2 MMcf of natural gas and 75 barrels of oil per day, or 0.5 MMcfe net to Brigham. Based on the success of its 2000 drilling activity in this project area, Brigham plans to drill four to six Springer channel tests in its Huskie Project in 2001. These wells target similar objectives as its three 2000 producers, and Brigham expects to retain an working interest of approximately 50% in these planned wells. Wildcat and Panther Projects Brigham's Wildcat and Panther Projects consist of 47 and 99 square miles, respectively, of continuous 3-D seismic data covering approximately 93,440 acres in the southern portion of the Texas Panhandle in Wheeler County, Texas and Beckham County, Oklahoma. The primary exploration targets within these projects are high potential, structural features at depths ranging from 7,500 to 25,000 feet. Brigham initiated acquisition of data in its Wildcat Project in 1997 where it retained a 37.5% working interest. Based upon the interpretation of this initial data set, Brigham subsequently acquired data in its adjacent Panther Project in 1998 where it retained a 100% working interest. In July 2000, Brigham spud a high potential Hunton test (64% working interest) that offsets a currently producing Hunton well that has produced over 15 Bcfe to date in its Wildcat Project. Drilled to a total depth of over 25,000 feet, Brigham completed the well in the targeted Hunton formation in late December 2000. The well encountered approximately 1,200 feet of gross pay and 340 feet of measured depth net pay (240 feet of calculated true vertical net pay) in three Hunton intervals. The well began producing to sales from one Hunton interval in early January 2001 at rates of approximately 9.5 MMcf of natural gas and 90 barrels of condensate per day, or 5.1 MMcfe per day net to Brigham's 51% revenue interest. Current plans include stimulation of the two remaining Hunton pay intervals in the discovery well, and the drilling of at least one development well during 2001. Brigham has booked estimated proved reserves of approximately 21 gross Bcfe (or 10.7 net Bcfe) attributable to this Hunton producer at December 31, 2000. While ultimate recoverable reserves from this field discovery will be determined by the productivity of this initial well and future offset locations, Brigham believes this Hunton field could ultimately produce up to 250 Bcfe of gross unrisked reserves. In addition to this discovery, Brigham has also assembled a significant acreage position along trend and may drill another high potential exploratory Hunton test in early 2002. Bearcat Project Brigham's Bearcat Project consists of approximately 59 square miles of 3-D seismic data covering approximately 37,760 acres in the prolific Carter-Knox anticline in Grady County, Oklahoma. This project targets 3-D seismic amplitude-related shallow Pennsylvanian-aged channel sands and deep marine bar sands in the Springer section. During its 2000 drilling program, Brigham participated in three wells that have confirmed the discovery of a potentially significant Springer Bar field that is estimated to be approximately nine miles long and two miles wide. The initial exploratory test of this 3-D delineated Springer Bar objective, the Nix #1-20 (20% working interest), encountered approximately 90 feet of Springer-aged sand that confirmed Brigham's seismic interpretation of this feature. Subsequent to this initial discovery, Brigham participated in two development wells in this new field. The Pitchford #1 (32% working interest) reached a total depth of 15,140 feet and logged approximately 31 feet of pay (greater than 8% density porosity) in the targeted Britt section with significant porosity improvement relative to the Nix #1-20. After fracture stimulation of this Britt interval, the well began producing to sales at a rate of approximately 2.2 MMcf of natural gas and 140 barrels of condensate per day, or approximately 3 MMcfe per day, in December 2000. The second development - 11 - well, the McCasland Farms #1 (23% working interest) was spud in late October 2000 and is currently being completed and fracture stimulated prior to commencement of production expected by the end of March 2001. This well logged 32 feet of porosity density greater than 8%, which is comparable to that logged in the producing Pitchford #1 well. Brigham currently owns over 2,500 net acres in nine sections over this Springer Bar feature, and anticipates participating in up to ten additional wells to fully develop the field. In its 2001 drilling program, Brigham plans to participate in the drilling of up to five development wells in this Springer Bar field with working interests generally ranging from 20% to 25%. Texas Gulf Coast The onshore Texas Gulf Coast region is a high potential, multi-pay province that lends itself to 3-D seismic exploration due to its substantial structural and stratigraphic complexity. Brigham was attracted to the Gulf Coast province because of the opportunity to apply its established 3-D seismic exploration approach and its exploration staff's extensive Gulf Coast experience to a prolific, structurally complex province with the potential to discover significant natural gas reserves and high rate production. Brigham has assembled a digital data base including geographical, production, geophysical and geological information that it evaluates on CAEX workstations. Brigham's team of explorationists has assembled projects in the Expanded Wilcox and Expanded Vicksburg trends in South Texas, and the Miocene and Upper, Middle, and Lower Frio trends of the mid-to-southern regions of the Texas Gulf Coast, each of which are active 3-D seismic exploration trends. The majority of Brigham's recent activity in this province has been focused in the Expanded Vicksburg and Frio trends. A portion of Brigham's 3-D seismic data acquisition in the Gulf Coast has been accomplished through participation in certain non-proprietary, or speculative, seismic programs. By converting certain of Brigham's proprietary seismic projects in core exploration areas to speculative data, Brigham was able to leverage these proprietary projects for access to substantially larger non-proprietary speculative data for minimal or no additional cost. While increasing its exposure to competition in speculative seismic programs, Brigham believes this 3-D seismic acquisition strategy in the Gulf Coast, in certain circumstances, can accelerate the addition of attractive potential drilling locations in targeted trends at costs that are considerably less than those associated with proprietary 3-D seismic programs, thereby enhancing expected project rates of return. As of December 31, 2000, Brigham had acquired 1,096 square miles (701,440 acres) of 3-D seismic data in its Texas Gulf Coast province. Through its drilling efforts in this region from 1996 through 2000, Brigham had completed 46 wells in 60 attempts (77% completion rate) in the Gulf Coast and had discovered cumulative net proved reserves of approximately 37 Bcfe at an average net drilling cost of $0.91 per Mcfe. In its Gulf Coast drilling program in 1999 and 2000, Brigham completed 21 wells in 28 attempts (75% completion rate) with an average working interest of 28% that contributed to the addition of approximately 13 net Bcfe of proved reserves (including revisions to previous estimates) at an average net drilling cost of $1.49 per Mcfe. Brigham intends to focus the majority of its Texas Gulf Coast province exploration and development drilling expenditures in the following key project areas during 2001: Diablo Project Brigham's Diablo Project covers 57 square miles in Brooks County, Texas, and targets shallow Frio and deep Vicksburg producing horizons. Brigham is involved in a joint venture with a major integrated oil company in its Diablo Project. The project participants jointly control a significant acreage block and are actively exploring and developing for potential pay below 10,000 feet in the Vicksburg formation in this project area. Brigham has retained a 34% working interest in this joint exploration project in which the project participants control approximately 10,000 gross and net acres of leasehold. However, in prospective zones above 10,000 feet, primarily the Frio, Brigham has retained a 100% working interest in its original 4,000 acre lease block. - 12 - In the fourth quarter of 1999, Brigham confirmed a major Lower Vicksburg field discovery, the Home Run Field, in the Diablo Project with the completion of the Brigham-operated Palmer State #2 well. The Palmer State #2 encountered productive reservoirs in four Lower Vicksburg intervals with 210 feet of potential pay. After completion of successive operations to fracture stimulate each of these intervals during January and February 2000, the well was successfully commingled to produce simultaneously from all four Lower Vicksburg intervals. The Palmer State #2 began flowing to sales as a commingled producer in late February 2000 at average daily production rates of 10.1 MMcf of natural gas and 650 barrels of condensate, or approximately 4 MMcfe in total net to Brigham's 29% revenue interest. In mid-March 2001, this well was producing 3.1 MMcfe per day, or 0.9 MMcfe net to Brigham's revenue interest. Brigham spud three development wells in the Home Run Field during 2000. The first development well, the Palmer State #3, began producing in early August 2000 at an initial rate of 12.3 MMcf of natural gas and 450 barrels of condensate per day, or 4.4 MMcfe net to Brigham's 29% revenue interest. In late October 2000, Brigham spud the second development well in the Home Run Field, the Palmer State #4, which is an updip offset to the Palmer State #2 field confirmation well. The Palmer State #4 is currently being completed and fracture stimulated in the target Lower Vicksburg objectives and is expected to be producing through commingled completions by the end of March 2001. The third Home Run field development well, the D.J. Sullivan #C-25, was spud in late December 2000 and is currently being completed with expected commingled production to sales by April 2001. Brigham retains net revenue interests ranging from 26% to 29% in each of these three Home Run Field development wells. Brigham's 3-D interpretative mapping indicates that the Home Run Field reservoirs have over 500 feet of relief and cover approximately 1,100 acres with estimated potential gross reserves ranging from a minimum of 80 Bcfe to over 200 Bcfe (or 23 Bcfe to 58 Bcfe net). Brigham had 16.5 net Bcfe of estimated proved reserves attributable to the Home Run Field as of December 31, 2000. In addition to the expected production volume additions from the Palmer State #4 and D.J. Sullivan #C-25 wells, Brigham's planned drilling program includes two additional development wells to be drilled in the Home Run Field during 2001. The 1,100 acre Home Run Field is located upthrown from two large, untested 3-D delineated Vicksburg structures (Mariposa and Floyd) in adjacent fault blocks that cover approximately 1,200 acres. Brigham currently plans to spud an exploratory test of the estimated 1,000 acre Mariposa fault block in the second quarter of 2001. This 3-D delineated Vicksburg structure is located beneath the shallower Mariposa Field that has produced in excess of 187 Bcf of natural gas from the Frio. The estimated 200 acre Floyd fault block is an apparent four-way Lower Vicksburg closure that Brigham plans to test in early 2002. Brigham believes that its Home Run Field discovery and subsequent development efforts to date have significantly enhanced the prospectiveness of each of these large structural closures. Additional exploratory fault blocks in this project area are currently being interpreted and may be tested in 2002 and beyond. Hawkins Ranch and Millenium Projects Brigham's Hawkins Ranch and Millenium Projects consist of 344 square miles of contiguous non-proprietary 3-D seismic data in the prolific Miocene/Frio trend in Matagorda County, Texas. Identified prospects in these project areas target potential in the shallow, nonpressured Frio sands as well as the deeper, pressured Frio sands. Operators have been actively leasing and drilling within this acreage during the past three years. This activity has resulted in the completion of 24 wells in 39 attempts, including the discovery of a 3-D delineated field that is estimated to contain gross reserves of approximately 40 Bcfe from three wells that have produced at rates in excess of 30 MMcf of natural gas per day per well. Sustaining these high production rates, these three wells have produced in excess of 37 Bcfe in less than eighteen months. During the fourth quarter of 2000, Brigham participated in the drilling of a 3-D delineated Frio bright spot discovery in its Millenium Project. This well was completed in the targeted Frio objective in late December 2000 at daily rates of approximately 10 MMcf of natural gas and 200 barrels of condensate per day, or 2.1 MMcfe net to Brigham's 18.75% revenue interest. Based on the success of this recent discovery, Brigham spud an offsetting Frio bright spot test in late February 2001. This well was completed in early March 2001 and began producing at a rate of 17.5 MMcf of natural gas and 290 barrels of condensate per day, or 4.4 MMcfe net to Brigham's 23% net revenue interest. In addition - 13 - to these recent discoveries, Brigham spud an additional Frio bright spot test in March 2001 in which it retained a 34% working interest. Including the recently spud offset Frio test, Brigham's 2001 drilling program includes three 3-D seismic amplitude-supported prospects in its Hawkins Ranch and Millenium Projects that target combined gross unrisked reserve potential of 18 Bcfe. Brigham expects to retain an average working interest of approximately 40% in these three planned Frio wells. West Texas Brigham's drilling activity in its West Texas province has been focused primarily in the Horseshoe Atoll, the Midland Basin and the Eastern Shelf of the Permian Basin and in the Hardeman Basin. In response to reduced market prices for oil and comparatively higher potential natural gas projects in its Anadarko Basin and Gulf Coast provinces, Brigham substantially reduced its 3-D seismic acquisition and drilling activities in West Texas during 1998 and 1999. Based on improved oil prices during 2000 and in early 2001, Brigham has begun to selectively drill certain of its highest grade oil prospects in its West Texas 3-D seismic projects. To date, Brigham has been able to participate in the drilling of many of these wells saleby selling a portion of its working interest to industry participants on a promoted basis in which the participants pay a disproportionate share of the drilling costs. As of December 31, 2000, Brigham had acquired 1,689 square miles (1.1 million acres) in the West Texas region. Through its drilling efforts in this region from 1990 through 2000, Brigham had completed 186 wells in 300 attempts (62% completion rate) in its West Texas province with an average working interest of 24% and had found cumulative net proved reserves of 23 Bcfe at an average net drilling cost of $1.23 per Mcfe. In its substantially reduced drilling activity in this province during 1999 and 2000, Brigham completed one well in two attempts (50% completion rate) with an average working interest of 84% that contributed to the addition of 2.9 net Bcfe of proved reserves (including revisions to previous estimates) at an average net drilling cost of $0.14 per Mcfe. In December 2000, Brigham spud a Canyon Reef test that was drilled to a total depth of 9,400 feet. The well was completed as a successful oil producer in February 2001 after logging over 90 feet of oil pay. In early March 2001, this well was producing 200 barrels of oil per day, or approximately 140 barrels per day net to Brigham's 71% revenue interest. During 2001, Brigham plans to drill three to five wells in its West Texas 3-D project areas. In January 2001, Brigham spud a Fusselman test in its West Texas province in which it retained a 55% working interest. This well logged nine feet of pay and is expected to be completed as a producer by the end of March 2001. Oil and Natural Gas Reserves Brigham's estimated total net proved reserves of oil and natural gas as of December 31, 1998, 1999 and 2000 and the present values attributable to these reserves as of those dates were as follows:
As of December 31, ------------------------------------ 1998 1999 2000 -------- --------- --------- Estimated net proved reserves: Natural gas (MMcf) .................... 71,166 65,457 78,167 Oil (MBbls) ........................... 4,433 3,027 2,870 Natural gas equivalent (MMcfe) ........ 97,764 83,618 95,388 Proved developed reserves as a percentage of proved reserves .................... 57% 48% 52% Present Value of Future Net Revenues (in thousands) ........................ $ 81,741 $ 114,466 $ 497,666 Standardized Measure (in thousands) ..... $ 81,649 $ 113,546 $ 359,228
The reserve estimates reflected above were prepared by Cawley, Gillespie & Associates, Inc. ("Cawley Gillespie"), Brigham's petroleum consultants, and are part of reports on Brigham's oil and natural gas properties prepared by Cawley - 14 - Gillespie. The base sales prices for Brigham's reserves were $2.12 per Mcf for natural gas and $9.50 per Bbl for oil as of December 31, 1998, $2.35 per Mcf for natural gas and $22.75 per Bbl for oil as of December 31, 1999, and $10.42 per Mcf for natural gas and $26.83 per Bbl for oil as of December 31, 2000. These base prices were adjusted to reflect applicable transportation and quality differentials on a well-by-well basis to arrive at realized sales prices used to estimate Brigham's reserves at these dates. In accordance with applicable requirements of the SEC, estimates of Brigham's proved reserves and future net revenues are made using sales prices estimated to be in effect as of the date of such reserve estimates and are held constant throughout the life of the properties (except to the extent a contract specifically provides for escalation). Estimated quantities of proved reserves and future net revenues therefrom are affected by oil and natural gas prices, which have fluctuated widely in recent years. There are numerous uncertainties inherent in estimating oil and natural gas reserves and their estimated values, including many factors beyond Brigham's control. The reserve data set forth in this Form 10-K represent only estimates. Reservoir engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact manner. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geologic interpretation and judgment. As a result, estimates of different engineers, including those used by Brigham, may vary. In addition, estimates of reserves are subject to revision based upon actual production, results of future development and exploration activities, prevailing oil and natural gas prices, operating costs and other factors. The revisions may be material. Accordingly, reserve estimates are often different from the quantities of oil and natural gas that are ultimately recovered and are highly dependent upon the accuracy of the assumptions upon which they are based. Brigham's estimated proved reserves have not been filed with or included in reports to any federal agency. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Risk Factors -- We Are Subject To Uncertainties In Reserve Estimates And Future Net Cash Flows." Estimates with respect to proved reserves that may be developed and produced in the future are often based upon volumetric calculations and upon analogy to similar types of reserves rather than actual production history. Estimates based on these methods are generally less reliable than those based on actual production history. Subsequent evaluation of the same reserves based upon production history will result in variations in the estimated reserves that may be substantial. - 15 - Drilling Activities Brigham drilled, or participated in the drilling of, the following number of wells during the periods indicated: Year Ended December 31, -------------------------------------------- 1998 1999 2000 (1) ------------- ------------- ------------- Gross Net Gross Net Gross Net ----- --- ----- --- ----- --- Exploratory Wells (2): Natural gas ..................... 30 15.6 8 3.4 6 1.9 Oil ............................. 7 2.5 2 0.1 3 0.9 Non-productive .................. 17 8.0 7 2.4 2 1.0 -- ---- -- --- -- --- Total ....................... 54 26.1 17 5.9 11 3.8 == ==== == === == === Development Wells (3): Natural gas ..................... 10 6.6 8 2.3 14 5.7 Oil ............................. 3 1.5 1 0.5 1 0.7 Non-productive .................. 5 3.4 1 0.6 1 0.8 -- ---- -- --- -- --- Total ....................... 18 11.5 10 3.4 16 7.2 == ==== == === == === - ---------- (1) Excludes one gross (1.0 net) exploratory well that was temporarily abandoned during drilling due to operational difficulties encountered prior to reaching total depth, and one gross (0.1 net) development well that was in the process of drilling at March 20, 2001. Brigham plans to re-enter the temporarily abandoned well to test the target natural gas objective during 2001. (2) From January 1, 2001 through March 20, 2001, Brigham drilled, or participated in the drilling of, five gross (2.4 net) exploratory wells, of which two gross (1.3 net) were completed as oil wells, two gross net) were non-productive, and one gross (0.3 net) was in the process of drilling at March 20, 2001. (3) From January 1, 2001 through March 20, 2001, Brigham drilled, or participated in the drilling of, five gross net) development wells, of which one gross (0.3 net) was completed as a natural gas well, one gross (0.04 net) was non-productive, and three gross (1.5 net) were in the process of drilling at March 20, 2001. Brigham does not own any drilling rigs, and the majority of its drilling activities have been conducted by industry participant operators or independent contractors under standard drilling contracts. Consistent with its business strategy, Brigham has continued to retain operations of an increasing number of the wells it drills. Brigham operated 55% of the gross and 82% of the net wells it participated in during 2000. - 16 - Productive Wells and Acreage Productive Wells The following table sets forth Brigham's ownership interest as of December 31, 2000 in productive oil and natural gas wells in the areas indicated.
Natural Gas Oil Total ------------- ------------ ----------- Gross Net Gross Net Gross Net ----- --- ----- --- ----- --- Province: Anadarko Basin ......................... 63 21.3 10 2.8 73 24.1 Texas Gulf Coast ....................... 23 7.9 12 2.0 35 9.9 West Texas ............................. 12 1.7 76 22.4 88 24.1 Other .................................. -- -- 2 0.7 2 0.7 -- ---- --- ---- --- ---- Total .............................. 98 30.9 100 27.9 198 58.8 == ==== === ==== === ====
Productive wells consist of producing wells and wells capable of production, including wells waiting on pipeline connection. Wells that are completed in more than one producing horizon are counted as one well. Of the gross wells reported above, none had multiple completions. Acreage Undeveloped acreage includes leased acres on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and natural gas, regardless of whether or not such acreage contains proved reserves. The following table sets forth the approximate developed and undeveloped acreage in which Brigham held a leasehold, mineral or other interest at December 31, 2000:
Developed Undeveloped Total ---------------- ----------------- ----------------- Gross Net Gross Net Gross Net ------- ------ ------- ------ ------- ------ Province: Anadarko Basin ........................ 29,387 11,269 55,601 36,850 84,988 48,119 Gulf Coast ............................ 2,484 1,050 24,335 13,925 26,819 14,975 West Texas ............................ 6,089 1,784 13,372 4,735 19,461 6,519 Other ................................. 480 148 7,350 2,576 7,830 2,724 ------ ------ ------- ------ ------- ------ Total ............................. 38,440 14,251 100,658 58,086 139,098 72,337 ====== ====== ======= ====== ======= ======
All the leases for the undeveloped acreage summarized in the preceding table will expire at the end of their respective primary terms unless the existing leases are renewed, production has been obtained from the acreage subject to the lease prior to that date, or some other "savings clause" is implicated. The following table sets forth the minimum remaining terms of leases for the gross and net undeveloped acreage: Acres Expiring ----------------- Gross Net ------- ------ Twelve Months Ending: December 31, 2001 ................................... 52,860 31,645 December 31, 2002 ................................... 10,831 5,366 December 31, 2003 ................................... 3,534 1,689 Thereafter .......................................... 33,433 19,386 ------- ------ Total ........................................... 100,658 58,086 ======= ====== - 17 - In addition, Brigham had lease options as of December 31, 2000 to acquire an additional 622 gross and net acres, all of which expire in April 2001. Volumes, Prices and Production Costs The following table sets forth the production volumes, average prices received and average production costs associated with Brigham's sale of oil and natural gas for the periods indicated.
Year Ended December 31, ----------------------------------- 1998 1999 2000 --------- --------- --------- Production: Natural gas (MMcf) .................................. 4,269 4,197 4,431 Oil (MBbls) ......................................... 396 346 362 Natural gas equivalent (MMcfe) ...................... 6,644 6,270 6,600 Average sales price: Natural gas (per Mcf) ............................... $ 2.04 $ 2.11 $ 1.94 Oil (per Bbl) ....................................... $ 12.85 $ 17.79 $ 29.17 Average production costs: Lease operating expenses (per Mcfe) ................. $ 0.33 $ 0.36 $ 0.32 Production taxes (per Mcfe) ......................... $ 0.13 $ 0.15 $ 0.27
Costs Incurred The costs incurred in oil and natural gas acquisition, exploration and development activities are as follows (in thousands):
Year Ended December 31, ---------------------------------- 1998 1999 (1) 2000 (2) -------- -------- -------- Exploration ............................................. $ 68,214 $ 19,224 $ 14,238 Property acquisition .................................... 16,245 3,462 2,540 Development ............................................. 10,475 4,632 12,555 Proceeds from participants .............................. (10,502) (2,439) (40) -------- -------- -------- Costs incurred .................................... $ 84,432 $ 24,879 $ 29,293 ======== ======== ========
- ---------- (1) Excludes $27.1 million of proceeds from the sale of interests in properties, projects and prospects in 1999. (2) Excludes $3.9 million of proceeds from the sale of interests in properties, projects and prospects in 2000. Costs incurred represent amounts incurred by Brigham for exploration, property acquisition and development activities. Periodically, Brigham will receive reimbursement of certain costs from participants in its projects subsequent to project initiation in return for an interest in the project. These payments are described as "Proceeds from participants" in the table above. ITEM 3. LEGAL PROCEEDINGS Brigham is not a party to any material legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS No matter was submitted to a vote of Brigham's securityholders during the fourth quarter of 2000. - 18 - EXECUTIVE OFFICERS OF THE REGISTRANT Pursuant to Instruction 3 to Item 401(b) of the Regulation S-K and General Instruction G(3) to Form 10-K, the following information is included in Part I of this report. The following table sets forth certain information concerning Brigham's executive officers as of March 20, 2001:
Name Age Position -------------------- ------ ----------------------------------------------------- Ben M. Brigham 41 Chief Executive Officer, President and Chairman Curtis F. Harrell 37 Executive Vice President, Chief Financial Officer and Director David T. Brigham 40 Senior Vice President - Land and Administration, Corporate Secretary A. Lance Langford 38 Senior Vice President - Operations Jeffery E. Larson 42 Senior Vice President - Exploration Karen E. Lynch 39 Vice President - Legal and General Counsel Christopher A. Phelps 30 Vice President - Finance and Strategic Planning
Set forth below is a description of the backgrounds of Brigham's executive officers. Ben M. "Bud" Brigham has served as Chief Executive Officer, President and Chairman of the Board since founding the Company in 1990. From 1984 to 1990, Mr. Brigham served as an exploration geophysicist with Rosewood Resources, an independent oil and gas exploration and production company. Mr. Brigham began his career in Houston as a seismic data processing geophysicist for Western Geophysical, a provider of 3-D seismic services, after earning his B.S. in Geophysics from the University of Texas. Mr. Brigham is the husband of Anne L. Brigham, Director, and the brother of David T. Brigham, Vice President -- Land and Administration and Corporate Secretary. Curtis F. Harrell has served as Chief Financial Officer and Director of Brigham since August 1999, and as Executive Vice President since March 2001. From 1997 to August 1999, he was Executive Vice President and Partner at R. Chaney & Company, Inc., an equity investment firm focused on the energy industry, where he managed the firm's investment origination efforts in the U.S., focusing on investments in corporate equity securities of energy companies in the exploration and production and oilfield service industry segments. From 1995 to 1997, Mr. Harrell was a Director of Domestic Corporate Finance for Enron Capital & Trade Resources, Inc., where he was responsible for initiating and executing a variety of debt and equity financing transactions for independent exploration and production companies. Before joining Enron Capital & Trade Resources, Mr. Harrell spent eight years working in corporate finance and reservoir engineering positions for two public independent exploration and production companies, Kelley Oil & Gas Corporation and Pacific Enterprises Oil Company, Inc. He has a B.S. in Petroleum Engineering from the University of Texas at Austin and an M.B.A. from Southern Methodist University. David T. Brigham joined the Company in 1992 and has served as Senior Vice President -- Land and Administration and Corporate Secretary since March 2001. Mr. Brigham served as Vice President -- Land and Administration and Corporate Secretary from February 1998 to March 2001, and as Vice President -- Land and Legal of the Company from 1994 until February 1998. From 1987 to 1992, Mr. Brigham was an oil and gas attorney with Worsham, Forsythe, Sampels & Wooldridge. Before attending law school, Mr. Brigham was a landman for Wagner & Brown Oil and Gas Producers, an independent oil and gas exploration and production company. Mr. Brigham holds a B.B.A. in Petroleum Land Management from the University of Texas and a J.D. from Texas Tech School of Law. Mr. Brigham is the brother of Ben M. Brigham, Chief Executive Officer, President and Chairman of the Board. A. Lance Langford joined Brigham as Manager of Operations in 1995 and has served as Vice President -- Operations from January 1997 to March 2001, and as Senior Vice President - Operations since March 2001. From 1987 to 1995, Mr. Langford served in various engineering capacities with Meridian Oil Inc., handling a variety of reservoir, production and drilling responsibilities. Mr. Langford holds a B.S. in Petroleum Engineering from Texas Tech University. - 19 - Jeffery E. Larson joined Brigham in 1997 and has served as Vice President - -- Exploration from August 1999 to March 2001, and as Senior Vice President -- Exploration since March 2001. Mr. Larson joined Brigham in October 1997 as Gulf Coast Exploration Manager in its Houston office where he co-managed Brigham's expansion into the onshore Gulf Coast province through the initiation and assemblage of 3-D seismic projects and drilling opportunities. In November 1998, Mr. Larson relocated to Brigham's corporate office in Austin where he assumed an expanded role in directing Brigham's exploration activities in the Anadarko Basin, in addition to the further advancement of its Gulf Coast activities. Prior to joining Brigham, Mr. Larson was an explorationist in the Offshore Department of Burlington Resources, a large independent exploration company, where he was responsible for generating exploration and development drilling opportunities. Mr. Larson worked at Burlington for seven years in various roles of increasing responsibility within its exploration department. Prior to Burlington, Mr. Larson spent five years at Exxon as a Production Geologist and Research Scientist. He has a B.S. in Earth Science from St. Cloud State University in Minnesota and a M.S. in Geology from the University of Montana. Karen E. Lynch joined Brigham in October 1997 as General Counsel and has served as Vice President -- Legal and General Counsel since February 1998. Prior to joining Brigham, Ms. Lynch was a shareholder in the Dallas-based law firm of Thompson & Knight, P.C., where she practiced in the energy area since joining the firm in 1987. Ms. Lynch holds a B.B.A. in Petroleum Land Management from the University of Texas and a J.D. from the University of Oklahoma. Christopher A. Phelps joined Brigham as Manager of Finance and Investor Relations in January 1998 and has served as Vice President -- Finance and Strategic Planning since August 1999. Prior to joining Brigham, Mr. Phelps was a Vice President in the Investment Banking Department of Bear, Stearns & Co. Inc., a major international securities brokerage and investment banking firm, where he spent over five years executing a variety of capital raising and mergers and acquisition transactions principally for independent exploration and production companies. He holds a B.B.A. in Finance from the University of Texas at Austin. - 20 - PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Brigham's common stock has been publicly traded on The Nasdaq Stock Market(SM) under the symbol "BEXP" since Brigham's initial public offering effective May 8, 1997. The following table summarizes the high and low last reported sales prices of Brigham's common stock on Nasdaq for each quarterly period during the past two fiscal years:
1999 2000 ----------------- ----------------- High Low High Low ----- ----- ----- ----- First Quarter................................... $6.00 $2.75 $2.88 $1.47 Second Quarter.................................. $3.25 $0.88 $2.88 $1.88 Third Quarter................................... $3.31 $1.94 $3.50 $2.00 Fourth Quarter.................................. $2.72 $1.00 $6.00 $2.00
The closing market price of Brigham's common stock on March 20, 2001 was $4.00 per share. As of March 20, 2001, there were an estimated 118 record owners of Brigham's common stock. No dividends have been declared or paid on Brigham's common stock to date. Brigham intends to retain all future earnings for the development of its business. In addition, the Senior Credit Facility (as defined) and the Subordinated Notes Facility (as defined) restrict Brigham's ability to pay dividends on its common stock. On November 2, 2000, Brigham announced that it had entered into a series of financing agreements to provide funding (i) to repurchase all the debt and equity securities in Brigham held by affiliates of Enron North America at a substantial discount and (ii) to continue and expand Brigham's planned drilling program into 2001. These transactions included the issuance of the securities described below. No underwriters were involved, and therefore no underwriting commissions or discounts were paid in connection with the privately placed notes, preferred stock and warrants. The sales of these securities were made in reliance upon the exemption from the registration provisions of the Securities Act of 1933, as amended, provided by Section 4(2) thereof for transactions not involving a public offering. Subordinated Notes Facility and Warrants. On October 31, 2000, Brigham entered into a new subordinated notes facility with Shell Capital Inc. that provided for $20 million in borrowings. In connection with this new credit facility, Brigham issued to Shell Capital warrants to purchase an aggregate of 1,250,000 shares of Brigham common stock at an exercise price of $3.00 per share. Terms of the warrants are described below under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources -- Refinancing Transactions." Series A Preferred Stock and Warrants. On November 1, 2000, Brigham issued to affiliates of Credit Suisse First Boston (USA), Inc. an aggregate of 1,000,000 shares of its Series A Preferred Stock and warrants to purchase an aggregate of 6,666,667 shares of Brigham common stock at an exercise price of $3.00 per share, for a cash purchase price of $20 million. Terms of the warrants are described below under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources - -- Refinancing Transactions." - 21 - ITEM 6. SELECTED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and Brigham's consolidated financial statements and related notes included in "Item 8. Financial Statements and Supplementary Data."
(in thousands, except per share data) Year Ended December 31, ------------------------------------------------------------ 1996 1997 1998 1999 2000 -------- -------- -------- -------- -------- Statement of Operations Data: Revenues: Oil and natural gas sales ......................................... $ 6,141 $ 9,184 $ 13,799 $ 14,992 $ 19,143 Workstation revenue ............................................... 627 637 390 285 53 -------- -------- -------- -------- -------- Total revenues ............................................... 6,768 9,821 14,189 15,277 19,196 Costs and expenses: Lease operating ................................................... 726 1,151 2,172 2,259 2,139 Production taxes .................................................. 362 549 850 968 1,786 General and administrative ........................................ 2,199 3,570 4,672 3,481 3,100 Depletion of oil and natural gas properties ....................... 2,323 2,743 8,483 7,792 7,920 Depreciation and amortization ..................................... 487 306 413 525 507 Capitalized ceiling impairment .................................... -- -- 25,926 -- -- Amortization of stock compensation ................................ -- 388 372 1 113 -------- -------- -------- -------- -------- Total costs and expenses ..................................... 6,097 8,707 42,888 15,026 15,565 -------- -------- -------- -------- -------- Operating income (loss) ...................................... 671 1,114 (28,699) 251 3,631 Other income (expense): Interest expense, net ............................................. (1,173) (1,190) (5,968) (9,697) (9,906) Interest income ................................................... 52 145 136 176 108 Other expense ..................................................... -- -- -- (163) (9,488) Loss on sale of oil and natural gas properties .................... -- -- -- (12,195) -- -------- -------- -------- -------- -------- Total other income (expense) ................................. (1,121) (1,045) (5,832) (21,879) (19,286) -------- -------- -------- -------- -------- Income (loss) before income taxes and extraordinary item .......... (450) 69 (34,531) (21,628) (15,655) Income tax benefit (expense) ...................................... -- (1,186) 1,186 -- -- -------- -------- -------- -------- -------- Loss before extraordinary item ............................... (450) (1,117) (33,345) (21,628) (15,655) Extraordinary item - gain on refinancing of debt, net of tax ...... -- -- -- -- 32,267 -------- -------- -------- -------- -------- Net income (loss) ............................................ (450) (1,117) (33,345) (21,628) 16,612 Preferred dividend and accretion .................................. -- -- -- -- 275 -------- -------- -------- -------- -------- Net income (loss) attributable to common stockholders ........ $ (450) $ (1,117) $(33,345) $(21,628) $ 16,337 ======== ======== ======== ======== ======== Net income (loss) per share - basic and diluted ................... $ (0.05) $ (0.10) $ (2.64) $ (1.53) $ 1.01 Weighted average shares outstanding - basic and diluted ........... 8,929 11,081 12,626 14,152 16,241 Statement of Cash Flows Data: Net cash provided (used) by operating activities .................. $ 3,710 $ 9,806 $ 14,774 $ 2,578 $ (4,635) Net cash provided (used) by investing activities .................. (11,796) (57,300) (86,227) 1,644 (26,071) Net cash provided (used) by financing activities .................. 7,731 47,748 72,321 (4,049) 28,801 Other Financial Data: Oil and natural gas capital expenditures .......................... $ 13,612 $ 57,170 $ 85,207 $ 25,560 $ 28,910 As of December 31, ------------------------------------------------------------ 1996 1997 1998 1999 2000 -------- -------- -------- -------- -------- Balance Sheet Data: Cash and cash equivalents ......................................... $ 1,447 $ 1,701 $ 2,569 $ 2,742 $ 837 Oil and natural gas properties, net ............................... 28,005 84,294 134,317 112,066 129,490 Total assets ...................................................... 33,614 92,519 150,516 125,683 146,911 Long-term debt, net ............................................... 24,000 32,000 94,786 97,341 82,000 Total stockholders' equity ........................................ 3,244 43,313 24,681 8,998 34,757
- 22 - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Brigham is an independent exploration and production company that applies 3-D seismic imaging and other advanced technologies to systematically explore and develop onshore oil and natural gas provinces in the United States. From inception in 1990 through December 31, 2000, Brigham acquired 5,122 square miles of 3-D seismic data and drilled 498 wells delineated by 3-D seismic analysis. Through its 3-D seismic-based drilling efforts, Brigham has discovered an aggregate of 139 Bcfe of net proved reserves as of December 31, 2000, at an average net drilling cost of $0.75 per Mcfe. Combining its geologic and geophysical expertise with a sophisticated land effort, Brigham manages the majority of its projects from conception through 3-D acquisition, processing and interpretation and leasing. In addition, Brigham manages the negotiation and drafting of most of its geophysical exploration agreements, resulting in reduced contract risk and more consistent deal terms. Because it generates most of its projects, Brigham can often control the size of the working interest that it retains as well as the selection of the operator and the non-operating participants. Consistent with its business strategy, Brigham has increased the working interest it retained in its projects, based on capital availability and perceived risk. Brigham's average working interest in its 3-D seismic projects acquired during 1996, 1997 and 1998 was 37%, 66% and 81%, respectively, while its average working interest in its wells drilled during this period was 24%, 39% and 52%, respectively. Brigham did not acquire any new 3-D seismic in 1999 and 2000, and its average working interest in its wells drilled during these periods was 34% and 42%, respectively. Beginning in 1995, Brigham has managed operations through the drilling and production phases on an increasing portion of its 3-D seismic projects. Brigham operated 55% of its gross wells and 82% of its net wells drilled in 2000 as compared with 10% of its gross wells and 17% of its net wells drilled in 1996. Expenditures made in oil and natural gas exploration vary from project to project depending primarily on the costs related to seismic acquisition, land and drilling, and the working interest retained by Brigham. Prior to 1997, Brigham's participants typically bore a disproportionate share of the costs of optioning available acreage and acquiring, processing and interpreting the 3-D seismic data, and Brigham and its participants each typically incurred leasing, drilling and completion costs in proportion to their ownership interests. In 1997 and 1998, Brigham retained majority working interests in its new 3-D seismic projects, and thereby reduced the financial leverage it historically received on the costs of optioning available acreage and acquiring, processing and interpreting the 3-D seismic data on its projects. From inception through 1996, Brigham acquired 2,762 gross (781 net) square miles of 3-D seismic data. Initially, Brigham focused its exploration efforts in West Texas. Since 1996, Brigham has devoted the majority of its resources to the Anadarko Basin and Gulf Coast. With this shift in regional focus, the majority of Brigham's production volumes have shifted from oil to natural gas. To finance these project generation and drilling activities, Brigham supplemented cash flow from operations with private placements of debt and equity, commercial bank credit facilities and placements of working interests in projects with industry participants. As Brigham's cash flows from operations and other sources of capital have increased during this period, it retained larger average working interests in its projects. In 1997 and 1998, Brigham acquired 2,360 gross (1,727 net) square miles of 3-D seismic and continued to focus the majority of its 3-D exploration efforts in the Anadarko Basin and the Gulf Coast. During these two years, Brigham acquired 1,196 square miles (51%) of 3-D seismic in the Anadarko Basin, making this basin its most active 3-D seismic acquisition province. Brigham also significantly increased its Gulf Coast activity, acquiring 942 square miles (40%) of 3-D seismic during this period. During 1997 and 1998, Brigham drilled 145 gross (65.9 net) wells based on its 3-D seismic data analysis. In addition to its drilling activities, Brigham acquired 21.3 net Bcfe of proved reserves and an interest in undeveloped acreage (the "Chitwood Acquisition") at the northern end of the Carter-Knox anticline in Grady County, Oklahoma for $13.4 million in November 1997. As a result of these activities, Brigham's net oil and natural gas production increased from 2.1 Bcfe in 1996 to 6.6 Bcfe in 1998. Brigham's net production volumes consisted of 79% natural gas on an equivalent basis during the fourth quarter 1998 as compared with 36% during the fourth quarter 1996. - 23 - Brigham supplemented cash flow from operations in 1997 and 1998 with borrowings under commercial bank credit facilities, $24 million raised in its initial public offering of common stock in May 1997, $47.5 million raised through the placement of debt and equity securities in August 1998 and the placement of working interests in projects to industry participants to finance its project generation, property acquisition and drilling activities. Brigham implemented a number of strategic initiatives during 1999 and 2000 to generate capital resources to fund its continuing exploration program while reducing its level of indebtedness. These objectives and results accomplished for each include: o Focusing All Planned Exploration Efforts to the Drilling of Highest-Grade 3-D Prospects in its Anadarko Basin and Gulf Coast Projects. During 1999 and 2000, Brigham directed the vast majority of its resources to the drilling of identified prospects within natural gas trends where it had achieved historical drilling success. In addition, Brigham's drilling program during this time period consisted of a more balanced mix of exploration and development drilling projects as compared with prior drilling activity that was predominately exploratory in nature. This focused drilling emphasis contributed to substantially improved returns on Brigham's drilling investments during 1999 and 2000, with average drilling costs of $0.62 per Mcfe and average all-in finding costs of $0.85 per Mcfe in this two-year period. o Eliminating Substantially All Seismic and Land Expenditures for New Projects. In an effort to devote the majority of its capital resources to the drilling of its identified prospect locations, Brigham did not acquire any new 3-D seismic data in 1999 and 2000. In addition to executing a high-graded drilling program, Brigham's staff of explorationists continued to interpret previously acquired 3-D seismic data within existing projects to further delineate and refine pre-drill analysis of potential drilling locations in its focus project areas. o Divesting Certain Producing Oil and Natural Gas Properties. In June 1999, Brigham sold interests in certain non-operated properties in two project areas (the Chitwood Field and the Red Deer Creek Field) in its Anadarko Basin province for a total of $17.1 million. These properties had estimated net proved reserves of 36 Bcfe as of June 1, 1999, of which approximately 67% were non-producing, and were producing an estimated 2.8 net MMcfe per day at the time of the sales. After application of the net proceeds received from these sales to the repayment of a portion of its outstanding borrowings under its bank credit facility, Brigham was able to increase its available borrowings under its bank credit facility by $8 million. The increase in bank borrowing capacity resulting primarily from these property sales was utilized to fund a substantial portion of Brigham's capital expenditures during the second half of 1999. o Restructuring its Senior and Subordinated Debt Agreements. Working closely with its senior and subordinated lenders in 1999 and early 2000, Brigham was able to amend its senior credit facility and the indenture for its then outstanding subordinated notes due 2003 to provide for increased borrowing availability and financial flexibility to preserve cash flow to fund its exploration activities. During 2000, Brigham completed several financing transactions, including the refinancing of its subordinated notes due 2003 at a substantial discount, that resulted in lower debt levels while providing funding for its 2000 and 2001 capital expenditure programs. See "-- Liquidity and Capital Resources." o Implementing an Overhead Reduction Plan. Brigham implemented several initiatives during 1999 that were designed to reduce general and administrative expenses and thereby increase cash flow from operations. These cost reduction initiatives included a company-wide salary reduction effective in May 1999, the elimination of employee bonuses for 1999, subleasing a portion of Brigham's office space, certain personnel reductions and the elimination or reduction of various other discretionary expenses. As a result of these actions, Brigham's total general and administrative expenses (including amounts capitalized) were reduced 33% from the fourth quarter 1998 to the fourth quarter 1999, while per unit net general and administrative expenses decreased 43% from $0.92 per Mcfe to $0.52 per Mcfe during these same periods. Brigham continued its focus on minimizing discretionary overhead expenses during 2000. These continuing efforts resulted in a 6% reduction in total general and administrative expenses (including amounts capitalized) in 2000 as compared with 1999, while per unit net general and - 24 - administrative expenses were further reduced by 16% from $0.56 per Mcfe to $0.47 per Mcfe during these same periods. o Raising Equity Capital. During 1999 and 2000, Brigham raised in excess of $15 million through the sale of interests in non-producing assets, primarily project and prospect equity sales to industry participants. In addition, Brigham issued $4.2 million of common stock to Veritas DGC Land, Inc. ("Veritas") to satisfy payment obligations due to Veritas for seismic acquisition and processing services performed prior to 1999 and certain seismic processing services performed during 1999. In connection with its series of financing transactions effected in 2000 to fund its exploration and development program and to refinance its subordinated notes due 2003, Brigham raised $24.5 million through private placements of common and preferred stock. See "-- Liquidity and Capital Resources." Brigham uses the full cost method of accounting for oil and natural gas properties. Under this method, all acquisition, exploration and development costs, including payroll, interest, and other internal costs, incurred for the purpose of finding oil and natural gas reserves are capitalized. Internal costs capitalized are directly attributable to acquisition, exploration and development activities and do not include costs related to production, general corporate overhead or similar activities. Costs associated with production and general corporate activities are expensed in the period incurred. Proceeds from the sale of oil and natural gas properties are applied to reduce the capitalized costs of oil and natural gas properties unless the sale would significantly alter the relationship between capitalized cost and proved reserves, in which case a gain or loss is recognized. To the extent that the costs capitalized in the full-cost pool (net of depreciation, depletion and amortization and related deferred taxes) exceed the present value (using a 10% discount rate and based on period-end oil and natural gas prices) of estimated future net after-tax cash flows from proved oil and natural gas reserves plus the capitalized cost of unproved properties, such costs are charged to operations as a writedown of the carrying value of oil and natural gas properties, or a "capitalized ceiling impairment" charge. The risk that Brigham will be required to write down the carrying value of its oil and gas properties increases when oil and gas prices are depressed, even if such prices are temporary. In addition, capitalized ceiling impairment charges may occur if Brigham experiences poor drilling results or has substantial downward revisions in its estimated proved reserves. A capitalized ceiling impairment is a charge to earnings that does not impact cash flows, but does impact operating income and stockholders' equity. Once incurred, a capitalized ceiling impairment charge to oil and natural gas properties cannot be reversed at a later date. Primarily as a result of the significant declines in both oil and natural gas prices at December 31, 1998 and disappointing drilling results on several high working interest wells in 1998, Brigham recorded a capitalized ceiling impairment charge at December 31, 1998 of $25.9 million. No assurance can be given that Brigham will not experience a capitalized ceiling impairment charge in future periods. See "-- Risk Factors -- Exploratory Drilling Is A Speculative Activity Involving Numerous Risks And Uncertain Costs; We Are Dependent On Exploratory Drilling Activities"; "-- Risk Factors -- Volatility Of Oil And Gas Markets Affects Us; Oil And Natural Gas Prices Are Volatile"; and "-- Risk Factors -- We Are Subject To Uncertainties In Reserve Estimates And Future Net Cash Flows." - 25 - Results of Operations The following table sets forth certain operating data for the periods presented.
Year Ended December 31, ----------------------------------------------- 1998 1999 2000 --------- --------- --------- Production: Natural gas (MMcf) ....................................... 4,269 4,197 4,431 Oil (MBbls) .............................................. 396 346 362 Natural gas equivalent (MMcfe) ........................... 6,644 6,270 6,600 % Natural gas ............................................ 64% 67% 67% Average sales prices per unit (1): Natural gas (per Mcf) .................................... $ 2.04 $ 2.11 $ 1.94 Oil (per Bbl) ............................................ 12.85 17.79 29.17 Natural gas equivalent (per Mcfe) ........................ 2.08 2.39 2.90 Costs and expenses per Mcfe: Lease operating .......................................... $ 0.33 $ 0.36 $ 0.32 Production taxes ......................................... 0.13 0.15 0.27 General and administrative ............................... 0.70 0.56 0.47 Depletion of oil and natural gas properties .............. 1.28 1.24 1.20
- ---------- (1) Reflects the effects of Brigham's hedging activities. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Other Matters -- Derivative Instruments." Year Ended December 31, 2000 Compared to Year Ended December 31, 1999 Oil and natural gas sales. Oil and natural gas sales increased 28% from $15.0 million in 1999 to $19.1 million in 2000. An increase in the average equivalent sales price received for oil and natural gas sales accounted for $3.4 million of this increase and the remaining $780,000 of this increase was the result of higher net equivalent production volumes. Natural gas production volumes increased 6% from 4,197 MMcf in 1999 to 4,431 MMcf in 2000, while the average price received for natural gas decreased 8% from $2.11 per Mcf in 1999 to $1.94 per Mcf in 2000. Natural gas production volumes during 1999 included 442 MMcf attributable to properties sold by Brigham in June 1999. Excluding production attributable to these divested properties, natural gas production volumes increased 18% in 2000 as compared with adjusted production volumes in 1999. Oil production volumes increased 5% from 346 MBbls in 1999 to 362 MBbls in 2000, while the average price received for oil increased 64% from $17.79 per Bbl in 1999 to $29.17 per Bbl in 2000. Oil production volumes during 1999 included 22 MBbls attributable to properties sold by Brigham in June 1999. Excluding production attributable to these divested properties, oil production volumes increased 12% in 2000 as compared with adjusted production volumes in 1999. Oil and natural gas sales in 2000 were increased by higher realized equivalent oil and natural gas prices and production from wells completed during 2000, offset partially by the natural decline of existing production and losses from oil and natural gas hedges. See "-- Overview." As a result of hedging activities, natural gas revenues were reduced by $9.4 million ($2.12 per Mcf) in 2000, compared to a decrease in natural gas revenues of $486,000 ($0.12 per Mcf) in 1999. Oil revenues were reduced by $107,000 ($0.30 per Bbl) due to hedging losses in 2000. There were no gains or losses on crude oil hedges during 1999. See "-- Other Matters -- Derivative Instruments." Workstation revenue. Workstation revenue decreased 81% from $285,000 in 1999 to $53,000 in 2000. Brigham recognizes workstation revenue as industry participants in its seismic programs are charged an hourly rate for the work Brigham performs on its 3-D seismic interpretation workstations. This decrease in 2000 is primarily attributable a - 26 - reduction in the volume of 3-D seismic interpretation activity billable to industry participants as compared with 1999. Lease operating expenses. Lease operating expenses decreased 5% from $2.3 million ($0.36 per Mcfe) in 1999 to $2.1 million ($0.32 per Mcfe) in 2000. This decrease was primarily due to a decrease in the number of producing wells in 2000 as compared with 1999 that was attributable to Brigham's June 1999 property divestitures and the plugging and abandonment of certain uneconomic wells. See "-- Overview." Production taxes. Production taxes increased 85% from $968,000 ($0.15 per Mcfe) in 1999 to $1.8 million ($0.27 per Mcfe) in 2000 primarily due to higher average oil and natural gas sales prices and revenues before the effects of hedging gains or losses. The effective average production tax rate decreased from 6.3% of pre-hedge oil and natural gas sales in 1999 to 6.2% in 2000 resulting primarily from changes in the geographic distribution of Brigham's producing wells. General and administrative expenses. Net general and administrative expenses decreased 11% from $3.5 million ($0.56 per Mcfe) in 1999 to $3.1 million ($0.47 per Mcfe) in 2000. This decrease was primarily attributable to the reduction of various administrative costs, including lower office rent due to the subleasing of a portion of Brigham's headquarters space, reduced equipment rental and maintenance expenses, and lower employee payroll and benefits expenses. See "-- Overview." Depletion of oil and natural gas properties. Depletion of oil and natural gas properties increased 2% from $7.8 million ($1.24 per Mcfe) in 1999 to $7.9 million ($1.20 per Mcfe) in 2000. Of this increase, $396,000 was attributable to higher production volumes, partially offset by $268,000 due to the reduction in the depletion rate per unit of production. The decrease in depletion rate per unit of production was primarily the result of the addition of oil and natural gas reserves at lower average capital costs due to improved average finding costs during 2000. Interest expense. Interest expense increased from $9.7 million in 1999 to $9.9 million in 2000 due to higher effective interest rates that were partly offset by lower outstanding debt balances. Brigham's weighted average outstanding debt balance decreased 2% from $99.5 million in 1999 to $97.4 million in 2000. This reduction in debt was primarily attributable to Brigham's refinancing of its senior subordinated notes due 2003 in November 2000. The effective annual interest rate on Brigham's outstanding indebtedness increased slightly from 12.6% in 1999 to 12.7% in 2000. In addition, interest expense in 2000 included (i) $4.6 million of interest expenses that were paid in kind through the issuance of additional debt in lieu of cash, and (ii) $2.0 million of non-cash charges related to the amortization of deferred loan fees and the amortization of discount on senior subordinated notes. Borrowings under Brigham's senior credit facility had an effective annual interest rate of 9.68% at December 31, 2000. In November 2000, Brigham refinanced its senior subordinated notes due 2003 at a substantial discount to the principal amount then outstanding. This refinancing reduced Brigham's outstanding debt borrowings and is expected to result in lower average interest rates during 2001. See "-- Liquidity and Capital Resources -- Refinancing Transactions." Other expense. Other expense increased from $163,000 in 1999 to $9.5 million in 2000. Brigham recognizes other income or expense primarily related to the changes in the fair market values and the related cash flows of certain oil and natural gas derivative contracts that do not qualify for hedge accounting treatment. Other expense in 1999 included (i) $115,000 of non-cash expenses related to the changes in the fair market values of these derivative contracts during the period, and (ii) $48,000 of expenses related to cash settlements incurred during the period pursuant to these derivative contracts. Other expense in 2000 included (i) $8.9 million of non-cash expenses related to the changes in the fair market values of these derivative contracts during the period, and (ii) $603,000 of expenses related to cash settlements incurred during the period pursuant to these derivative contracts. Extraordinary gain on refinancing of senior subordinated notes. In November 2000, Brigham repurchased all of the debt and equity securities in Brigham held by affiliates of Enron North America (the "Enron Affiliates") at a substantial discount. With a portion of the proceeds from two new financing transactions, Brigham repurchased all of the Enron Affiliates' interests in Brigham, which included (i) $51.2 million of senior subordinated notes due 2003 (which bore interest at annual rates of 12% to 14%) and associated accrued interest obligations, (ii) warrants to purchase an - 27 - aggregate of one million shares of common stock at $2.43 per share, and (iii) 1,052,632 shares of common stock (collectively, the "Enron Securities"), for total cash consideration of $20 million. As a result of the repurchase of the senior subordinated notes due 2003 at a discount to the principal amount outstanding, Brigham recorded an extraordinary gain of $32.3 million in the fourth quarter of 2000. Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 Oil and natural gas sales. Oil and natural gas sales increased 9% from $13.8 million in 1998 to $15 million in 1999. An increase in the average sales price received for oil and natural gas sales accounted for $2 million of this increase and was offset by $797,000 from a decrease in net production volumes. Production volumes for natural gas decreased 2% from 4,269 MMcf in 1998 to 4,197 MMcf in 1999, while the average price received for natural gas increased 3% from $2.04 per Mcf in 1998 to $2.11 per Mcf in 1999. Production volumes for oil decreased 13% from 396 MBbls in 1998 to 346 MBbls in 1999, while the average price received for oil increased 38% from $12.85 per Bbl in 1998 to $17.79 per Bbl in 1999. Oil and natural gas sales in 1999 were increased by higher realized oil and natural gas prices and production from wells completed during 1999, offset partially by the natural decline of existing production and from the sale of certain producing wells in the Company's mid-1999 property divestitures. See "-- Overview." As a result of hedging activities, natural gas revenues were reduced by $486,000 ($0.12 per Mcf) in 1999, compared to an increase in natural gas revenues of $555,000 ($0.13 per Mcf) in 1998. See "-- Other Matters -- Derivative Instruments." Workstation revenue. Workstation revenue decreased 27% from $390,000 in 1998 to $285,000 in 1999. This decrease is primarily attributable to Brigham's increased working interests in its 3-D seismic projects in 1997 and 1998, which reduced the amount of workstation interpretation costs billable to Brigham's project participants. Lease operating expenses. Lease operating expenses increased 4% from $2.2 million ($0.33 per Mcfe) in 1998 to $2.3 million ($0.36 per Mcfe) in 1999. This increase was primarily due to higher average working interests in its producing wells and increased well repair and workover activity in 1999 as compared with 1998, offset in part by the elimination of lease operating expenses related to wells sold by Brigham in its mid-1999 property divestitures. See "-- Overview." Production taxes. Production taxes increased 14% from $850,000 ($0.13 per Mcfe) in 1998 to $968,000 ($0.15 per Mcfe) in 1999 primarily due to higher average oil and natural gas sales prices and revenues. The effective average production tax rate increased from 6.2% of oil and natural gas sales revenues in 1998 to 6.5% in 1999 resulting from changes in the geographic distribution of Brigham's producing wells. General and administrative expenses. Net general and administrative expenses decreased 25% from $4.7 million ($0.70 per Mcfe) in 1998 to $3.5 million ($0.56 per Mcfe) in 1999. This decrease was primarily attributable to a series of cost reduction initiatives implemented by Brigham during 1999 to reduce overhead expense levels. These initiatives included a company-wide salary reduction effective in May 1999, the elimination of employee bonuses for 1999, a sublease of a portion of Brigham's headquarters space effective in November 1999, certain personnel reductions and the elimination or reduction of various other discretionary expenses. Depletion of oil and natural gas properties. Depletion of oil and natural gas properties decreased 8% from $8.5 million ($1.28 per Mcfe) in 1998 to $7.8 million ($1.24 per Mcfe) in 1999. Of this decrease, $464,000 was attributable to the lower production volumes during the period and $227,000 was due to the reduction in the depletion rate per unit of production. The decrease in depletion rate per unit of production was primarily the result of the addition of oil and natural gas reserves at lower average capital costs due to improved average finding costs during 1999, partially offset by an increase in the percentage of Brigham's total full cost pool subject to depletion attributable to an increase in the estimate of the evaluated portion of Brigham's oil and natural gas properties. Interest expense. Interest expense increased from $6 million in 1998 to $9.7 million in 1999 due to higher outstanding debt balances in 1999 at higher effective interest rates. Brigham's weighted average outstanding debt balance increased 51% from $66 million in 1998 to $99.5 million in 1999. This increase in debt was incurred primarily to fund - 28 - Brigham's increased capital expenditures and working capital needs, net of operating cash flow, during 1998 and 1999. The effective annual interest rate on Brigham's outstanding indebtedness increased from 10.6% in 1998 to 12.6% in 1999, primarily due to Brigham's issuance of $40 million of senior subordinated notes due 2003 in August 1998, which bore interest at an annual rate of 12% when paid in cash and 13% when paid "in kind" through the issuance of additional subordinated notes. In addition, interest expense in 1999 included (i) $5.5 million of interest expenses related to the subordinated notes due 2003 that was paid in kind through the issuance of additional subordinated notes in lieu of cash, and (ii) $2.3 million of non-cash charges related to the amortization of deferred loan fees and the amortization of discount on the subordinated notes. Borrowings under Brigham's senior credit facility had an effective annual interest rate of 9.5% at December 31, 1999. See "-- Liquidity and Capital Resources." Loss on sale of oil and natural gas properties. In June 1999, Brigham sold all of its interests in certain producing and non-producing oil and natural gas 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 Brigham's remaining net reserve volumes, Brigham recognized a $12.2 million non-cash loss to reflect 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 1998 for which recognition of gain or loss was appropriate. Liquidity and Capital Resources Brigham's primary sources of capital have been credit facility and other debt borrowings, public and private equity financings, the sale of interests in projects and properties and funds generated by operations. Brigham's primary capital requirements are 3-D seismic acquisition, processing and interpretation costs, land acquisition costs and drilling expenditures. Credit Facility In January 1998, Brigham entered into a revolving credit agreement (as amended, the "Senior Credit Facility"), which provided for an initial borrowing availability of $75 million. The Senior 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 restrictions on Brigham'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 Brigham's strategic initiatives to improve its capital resources, including its June 1999 property divestitures and the application of the net sales proceeds to reduce borrowings outstanding under the Senior Credit Facility, Brigham and its senior lenders entered into an amendment to the Senior Credit Facility in July 1999. This amendment provided Brigham with borrowing availability of $56 million. As consideration for this amendment, in July 1999 Brigham issued to its senior lenders warrants to purchase an aggregate of 1,000,000 shares of Brigham 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. An estimated value of $1.2 million was attributed to these warrants by Brigham and was recognized as additional deferred loan fees that will be amortized and included in interest expense over the remaining period to maturity of the Senior Credit Facility. In February 2000, Brigham entered into an amended and restated Senior Credit Facility with its existing senior lenders and a new senior lender. The Senior Credit Facility was further amended in October 2000. The amended and restated Senior Credit Facility provides Brigham with $75 million in borrowing availability for a three-year term. As a result of the February 2000 amendments, $30 million of the Senior Credit Facility held by one of the lenders is convertible into shares of Brigham common stock (the "Convertible Notes") in the following amounts and prices: (i) $10 million is convertible at $3.90 per share, (ii) $10 million is convertible at $6.00 per share and (iii) $10 million is convertible at $8.00 per share. As of December 31, 2000, Brigham had $75 million in borrowings outstanding under the Senior Credit Facility, of which the Convertible Notes are $30 million. - 29 - In connection with Brigham's refinancing of its subordinated notes due 2003 (see "-- Subordinated Notes" and "-- Refinancing Transactions") in October 2000, Brigham entered into an amendment to the Senior Credit Facility that, among other things, permitted the issuance of new subordinated notes and new preferred stock to provide funding for the repurchase of the subordinated notes due 2003 and equity interests in Brigham held by the Enron Affiliates. In addition, the minimum interest coverage ratio (as defined) tests of the Senior Credit Facility were amended to reflect Brigham's expected cash flow and interest expense beginning in the fourth quarter of 2000 subsequent to the Refinancing Transactions (as defined), and Brigham conditionally waived certain rights to force conversion of the portion of the borrowings under the Senior Credit Facility that are convertible at $3.90 per share. If the Senior Credit Facility is repaid at maturity or is prepaid prior to maturity without payment of cash premiums, the warrants to purchase Brigham common stock issued to the new participant in the Senior Credit Facility become exercisable. Further, to the extent Brigham chooses to prepay any of the Convertible Notes without the warrants becoming exercisable, and also assuming the lender chooses not to convert to equity upon notice of such prepayment, Brigham will be required to a pay a premium above the face value of the Convertible Notes to the lender. Such premium amounts would range from 150% to 110%, depending upon the timing of the prepayment. Such prepayment, however, would require prior approval of the original lenders to the Senior Credit Facility. In addition, certain financial covenants of the Senior Credit Facility were amended or added in the July 1999, February 2000 and October 2000 amendments. In connection with the February 2000 amendment, Brigham reset the price of the warrants previously issued to its existing senior lenders to purchase one million shares of Brigham common stock from the then current exercise price of $2.25 per share to $2.02 per share. Principal outstanding under the Senior Credit Facility is due at maturity on December 31, 2002, with interest due monthly for base rate tranches or periodically as LIBOR tranches mature. The annual interest rate for borrowings under the Senior Credit Facility is either the lender's base rate or LIBOR plus 3.00%, at Brigham's option. Obligations under the Senior Credit Facility are secured by substantially all of Brigham's oil and natural gas properties and other tangible assets. At March 20, 2001, Brigham had $75 million in borrowings outstanding under the Senior Credit Facility, which bear interest at an annual rate of approximately 8.35%. The Senior Credit Facility has certain financial covenants, including current and interest coverage ratios, as defined. Brigham and its senior lenders effected the amendments to the Senior Credit Facility described above in part to enable Brigham to comply with certain financial covenants of the Senior Credit Facility, including the minimum current ratio (as defined), minimum interest coverage ratio (as defined), and the limitation on capital expenditures related to seismic and land activities. Should Brigham be unable to comply with certain of the financial or other covenants, its senior lenders may be unwilling to waive compliance or amend the covenants in the future. In such instance, Brigham's liquidity may be adversely affected, which could in turn have an adverse impact on its future financial position and results of operations. Subordinated Notes In August 1998, Brigham issued $50 million of debt and equity securities to affiliates of Enron Corp. The securities issued by Brigham in connection with this financing transaction included: (i) $40 million of subordinated notes due 2003, (ii) warrants to purchase an aggregate of one million shares of Brigham common stock at a price of $10.45 per share, and (iii) 1,052,632 shares of Brigham common stock at a price of $9.50 per share. As described below, Brigham repurchased the subordinated notes due 2003, together with all equity interests in Brigham held by the Enron Affiliates, for $20 million in cash in November 2000 (see "-- Refinancing Transactions"). Refinancing Transactions On October 31, 2000 and November 1, 2000, Brigham entered into a series of financing agreements to provide funding (i) to repurchase all the debt and equity securities in Brigham held by affiliates of Enron North America at a - 30 - substantial discount, and (ii) to continue and expand Brigham's planned drilling program into 2001. Financing and Repurchase Transactions. Brigham raised an aggregate of $40 million in these financing transactions through the issuance of (i) $20 million in new subordinated notes and warrants to purchase Brigham common stock to Shell Capital Inc., and (ii) $20 million in new mandatorily redeemable preferred stock and warrants to purchase Brigham common stock to affiliates of Credit Suisse First Boston (USA), Inc. (the "CSFB Affiliates"). With a portion of the proceeds from these two financing transactions, Brigham purchased all of the Enron Affiliates' interests in Brigham, which included (i) $51.2 million of outstanding subordinated notes due 2003 and associated accrued interest obligations, (ii) warrants to purchase one million shares of common stock at $2.43 per share, and (iii) 1,052,632 shares of common stock (collectively, the "Enron Securities"), for total cash consideration of $20 million. The remaining approximate $17.5 million in net capital availability raised from these financing transactions, after the repurchase of the Enron Securities and the payment of fees and expenses, was available for Brigham to fund its planned drilling program into 2001. Subordinated Notes Facility. The $20 million of new subordinated notes issued to Shell Capital Inc. (the "SCI Notes") bear interest at 10.75% per annum and have no principal repayment obligations until maturity in 2005. The SCI Notes will be issued pursuant a multi-draw facility (the "Subordinated Notes Facility") at borrowing increments of at least $1 million, and such funds cannot be redrawn once they have been repaid. At Brigham's option, up to 50% of the interest payments on the SCI Notes during the first two years can be satisfied by payment-in-kind ("PIK") through the issuance of additional SCI Notes in lieu of cash. The SCI Notes are secured obligations ranking junior to Brigham's existing $75 million Senior Credit Facility. The SCI Notes have a five-year maturity, are redeemable at Brigham's option for face value at anytime, and have certain financial and other covenants. The warrants to purchase an aggregate of 1,250,000 shares of Brigham common stock issued to Shell Capital Inc. (the "SCI Warrants") have a term of seven years, an exercise price of $3.00 per share and a cashless exercise feature. For financial reporting purposes, the SCI Warrants were valued using the Black-Scholes valuation model and the estimated value of $2.9 million was recorded as deferred loan costs that will be amortized over the five year term of the SCI Notes. As of December 31, 2000 and March 20, 2001, Brigham had $7 million and $16 million, respectively, of borrowings outstanding under the Subordinated Notes Facility. Series A Preferred Stock. The $20 million of mandatorily redeemable preferred stock (the "Series A Preferred Stock") issued to the CSFB Affiliates bears dividends at a rate of 6% per annum if paid in cash and 8% per annum if paid-in-kind through the issuance of additional Series A Preferred Stock in lieu of cash. At Brigham's option, up to 100% of the dividend payments on the Series A Preferred Stock during the first five years can be satisfied through the issuance of PIK dividends. The Series A Preferred Stock has a ten-year maturity and is redeemable at Brigham's option at 100% or 101% of par value (depending upon certain conditions) at anytime prior to maturity. The warrants to purchase an aggregate of 6,666,667 shares of Brigham common stock issued to the CSFB Affiliates (the "Series A Warrants") have a term of ten years, an exercise price of $3.00 per share and must be exercised, if Brigham so requires, in the event that Brigham common stock trades at or above $5.00 per share for 60 consecutive trading days. The exercise price of the Series A Warrants is payable either in cash or in shares of Series A Preferred Stock, valued at liquidation value plus accrued dividends. If Brigham requires exercise of the Series A Warrants, proceeds from the exercise of the Series A Warrants will be used to fund the redemption of a similar value of then outstanding Series A Preferred Stock. For financial reporting purposes, the Series A Warrants were valued at $11.5 million using the Black-Scholes valuation model and were recorded as additional paid-in capital in the year ended December 31, 2000. Pursuant to the terms of the securities purchase agreement related to the Series A Preferred Stock, Brigham agreed to nominate one representative of one of the CSFB Affiliates to serve as a member of Brigham's board of directors so long as the CSFB Affiliates or their affiliates own at least 10% of the Series A Preferred Stock issued in November 2000, or at least 5% of the outstanding shares of Brigham common stock. In March 2001, Brigham sold an additional $10 million of Series A Preferred Stock to affiliates of CSFB (see "-- Equity Placements -- Private Placement of Preferred Stock"). As of December 31, 2000 and March 20, 2001, Brigham had $20.3 million and $30.3 million (liquidation value), respectively, of Series A Preferred Stock outstanding. - 31 - Sales of Interests in Projects and Oil and Natural Gas Properties Duke Project Financing. In February 1999, Brigham entered into a project financing arrangement with Duke Energy Financial Services, Inc. ("Duke") to fund the continued exploration of five Anadarko Basin projects covered by approximately 200 square miles of 3-D seismic data acquired in 1998. In this transaction, Brigham conveyed 100% of its working interest (land and seismic) in these project areas to a newly formed limited liability company (the "Brigham-Duke LLC") for total consideration of $10 million. Brigham entered into this project financing arrangement to enable it to recoup substantially all of its pre-seismic land and seismic data acquisition costs incurred in these project areas and to provide the capital to fund the drilling of the first six wells within these projects. Brigham served as the managing member of the Brigham-Duke LLC with a 1% interest, and Duke was the sole remaining member with a 99% interest. Pursuant to the terms of the Brigham-Duke LLC agreement, Brigham paid 100% of the drilling and completion costs for all wells drilled by the Brigham-Duke LLC within the designated project areas in exchange for a 70% working interest in the wells (and their allocable drilling and spacing units), with the remaining 30% working interest remaining in the Brigham-Duke LLC, subject in each instance to proportionate reduction by any ownership rights held by third parties. Upon 100% project payout, Brigham had the right to back-in for 80% of the Brigham-Duke LLC's working interest in all of the then producing wells (and their allocable drilling and spacing units) and a 94% working interest in any wells (and their allocable drilling and spacing units) drilled after payout within the designated project areas governed by the Brigham-Duke LLC agreement, thereby increasing Brigham's effective working interest in the Brigham-Duke LLC wells from 70% to 94%. In February 2001, Duke, as majority member of the Brigham-Duke LLC, elected to dissolve the Brigham-Duke LLC. As a result, any ownership of remaining undeveloped land and/or seismic data within the Brigham-Duke LLC project areas will be transferred to Duke following the dissolution of the Brigham-Duke LLC. Mid-1999 Property Sales. In June 1999, Brigham sold certain producing and non-producing oil and natural gas properties located in its Anadarko Basin province to two separate parties for a total of $17.1 million. The divested properties were located in two fields operated by third parties - the Chitwood Field in Grady County, Oklahoma (originally acquired by Brigham for $13.4 million in the Chitwood Acquisition in November 1997), and the Red Deer Creek Field in Roberts County, Texas. Brigham's independent reservoir engineers estimated net proved reserve volumes attributable to the properties as of June 1, 1999 of approximately 36 Bcfe, of which 33% were classified as proved developed producing reserves and 59% were natural gas. Brigham estimated that net production volumes from the divested properties were 2.8 MMcfe per day at the time of the sales. Brigham used the proceeds from these transactions to reduce borrowings under its credit facility, which contributed to provide $8 million in borrowing availability under Brigham's then existing credit facility that was used to fund working capital needs and capital expenditures during the second half of 1999. The effective date of each transaction was June 30, 1999. Equity Placements Veritas Equity Issuances. On March 30, 1999, Brigham entered into an agreement with Veritas DGC Land, Inc. 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 provided 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 Brigham did not elect to pay for such services in cash. The settlement of these future seismic processing services was determined on a quarterly basis through September7 30, 1999. Pursuant to this agreement, Brigham issued a total of 1,211,580 shares of common stock to Veritas to satisfy $4.2 million in aggregate payment obligations due to Veritas for seismic acquisition and processing services performed prior to 1999 and certain seismic processing services performed during 1999. Private Placement of Common Stock. On February 22, 2000, Brigham entered into an agreement to issue 2,195,122 shares of common stock and 731,707 warrants to purchase common stock for total consideration of $4.5 million in a private placement to a group of institutional investors led by affiliates of two members of Brigham's board of directors. The equity sale consisted of units that include one share of common stock priced at $2.0525 per share and one-third of - 32 - a warrant to purchase Brigham common stock at an exercise price of $2.5625 per share with a three-year term. Pricing of this private equity placement was based on the average market price of Brigham common stock during a twenty trading day period prior to issuance. Net proceeds from this equity placement were used to fund a portion of Brigham's capital expenditures and working capital obligations during 2000. Private Placement of Preferred Stock. On March 5, 2001, Brigham sold $10 million of additional Series A Preferred Stock and warrants (the "New CSFB Warrants") to affiliates of CSFB in a private placement transaction. The conditions to Brigham's receipt of the process from this transaction were fulfilled on March 22, 2001. The New CSFB Warrants to purchase an aggregate of 2,105,263 shares of Brigham common stock have a term of ten years, an exercise price of $4.75 per share and must be exercised, if Brigham so requires, in the event that Brigham common stock trades at an average of at least 150% of the exercise price (currently, $7.125 per share) for 60 consecutive trading days. The exercise price of the New CSFB Warrants is payable either in cash or in shares of Series A Preferred Stock, valued at liquidation value plus accrued dividends. If Brigham requires exercise of the New CSFB Warrants, proceeds from the exercise of the New CSFB Warrants will be used to fund the redemption of a similar value of then outstanding Series A Preferred Stock. For financial reporting purposes, the New CSFB Warrants were valued at approximately $4.5 million using the Black-Scholes valuation model and were recorded as additional paid-in capital in March 2001. Cash Flow Analysis Cash Flows from Operating Activities. Cash flows provided (used) by operating activities were ($4.6) million in 2000, $2.6 million in 1999, and $14.8 million in 1998. The decrease in cash flows for 2000 as compared to 1999 was primarily attributable to changes in working capital (a $13.2 million reduction in cash flow from working capital items in 2000 compared to a $5 million reduction in cash flow from working capital items in 1999), offset in part by a $1.1 million increase in cash flow from operations before working capital. Cash flow from operations before working capital changes were $8.6 million in 2000 as compared to $7.5 million in 1999. The decrease in cash flows for 1999 compared to 1998 was primarily attributable to changes in working capital (a $5 million reduction in cash flow from working capital items in 1999 compared to an $11.9 million increase in cash flow from working capital items in 1998). Cash Flows from Investing Activities. Cash flows provided (used) by investing activities were ($26.1) million in 2000, $1.6 million in 1999 and ($86.2) million in 1998. The decrease in cash flow from investing activities in 2000 were primarily attributable to (i) an increase in Brigham's capital expenditures related to exploration and development activities, and (ii) a reduction in proceeds received from the sale of oil and natural gas properties, as compared with those in 1999. The increase in net cash flow from investing activities in 1999 was due to the combined effects of significantly reduced net capital expenditures and a total of $27.1 million of proceeds received from the sales of oil and natural gas properties, which consisted principally of Brigham's mid-1999 producing property divestitures and its sales of promoted interests in certain 3-D seismic projects and drilling prospects in its Anadarko Basin and Texas Gulf Coast regions. Capital expenditures (before the application of net proceeds received from the sales of interests in projects) were $28.9 million in 2000, $25.6 million in 1999 and $85.2 million in 1998. After acquiring 2,361 gross (1,727 net) square miles of 3-D seismic data in 1997 and 1998, Brigham did not acquire any new 3-D seismic data during 1999 and 2000. Brigham's drilling efforts during the past three years resulted in the completion of 24 ([9.2] net) wells in 2000, 19 (6.3 net) wells in 1999, and 50 (26.3 net) wells in 1998, which contributed to aggregate net increases in proved reserve volumes (net of revisions to previous estimates) of 18.4 Bcfe in 2000, 28.7 Bcfe in 1999 and 31.2 Bcfe in 1998. In addition, Brigham sold interests in certain 3-D seismic data for $3.9 million in 2000, sold interests in certain producing and non-producing properties in 1999 for a total of $27.1 million, and acquired certain producing properties and related interests for $1 million in 1998. Cash Flows from Financing Activities. Cash flows provided by financing activities in 2000 were $28.8 million, principally due to the combined effects of increased borrowings under its Senior Credit Facility and Subordinated Notes Facility, the repurchase of its senior subordinated notes due 2003, the issuance of $20 million of mandatorily redeemable preferred stock and warrants, and the placement of common stock that provided $4.2 million. Cash flows used by financing activities in 1999 were $4.1 million, principally due to the net repayment of borrowings outstanding under Brigham's Senior Credit Facility and the payment of deferred loan fees. Cash flows provided by financing activities in - 33 - 1998 were $72.3 million, primarily as a result of borrowings under the Brigham's Senior Credit Facility, the issuance of the senior subordinated notes due 2003 and the sale of $10 million of common stock. Capital Expenditures Continuing its strategy initiated in 1999 to harvest its prior 3-D seismic project investments, Brigham intends to focus substantially all of its efforts and available capital resources in 2001 to the drilling and monetization of its highest grade prospects within its over 5,000 square mile inventory of 3-D seismic data. Brigham's planned 2001 capital expenditure budget is estimated to be $32 million, which includes approximately $22 million for drilling projects, $4 million for acreage leasing and G&G activities, and $6 million for capitalized overhead and interest costs. Brigham's planned 2001 drilling program consists of a balanced blend of higher potential exploration tests and lower risk development drilling projects, driven to a large extent by the development of several significant exploratory discoveries completed during 2000. Approximately 34% of budgeted 2001 drilling expenditures are targeted for exploratory prospects, 52% for development locations and the remaining 14% for development locations that are contingent upon drilling success during the year. In addition, over 80% of Brigham's budgeted drilling expenditures are focused in five project areas in the Springer and Hunton trends of the Anadarko Basin and the Vicksburg and Frio trends of the Texas Gulf Coast. Brigham intends to fund its budgeted capital expenditures through a combination of cash flow from operations, available borrowings under its Subordinated Notes Facility and the net proceeds from its private placements of Series A Preferred Stock in November 2000 and March 2001. Additionally, Brigham will continue to seek opportunities to supplement its available capital resources through selective sales of interests in non-producing assets, including interests in its 3-D seismic projects and promoted interests in future drilling prospects or locations. See "Item 2. Properties -- Primary Exploration Provinces." Due to its active exploration and development activities, Brigham has experienced and expects to continue to experience substantial working capital requirements. While Brigham believes that cash flow from operations and borrowings under its Subordinated Notes Facility should allow it to finance its planned operations through 2001 based on current conditions and expectations, additional financing will be required in the future to fund Brigham's exploration and development activities. In the event additional financing is not available, Brigham may be required to curtail or delay its planned activities. Other Matters Derivative Instruments Brigham believes that hedging, although not free of risk, allows it to reduce its exposure to oil and natural gas sales price fluctuations and thereby to achieve more predictable cash flows. However, hedging arrangements, when utilized, may limit the benefit to Brigham of increases in the prices of the hedged commodity. Moreover, Brigham's hedging arrangements generally do not apply to all of its production and thus provide only partial price protection against declines in commodity prices. Brigham expects that the amount of its hedges will vary from time to time. See "-- Risk Factors -- Our Hedging Transactions May Not Prevent Losses" and "Item 7A. Quantitative and Qualitative Disclosures About Market Risk." In 1998, Brigham began using natural gas swap arrangements in an attempt to reduce its sensitivity to volatile commodity prices as its production base became increasingly weighted toward natural gas. Pursuant to these arrangements, Brigham exchanges a floating market price for a fixed contract price. Brigham makes payments when the floating price exceeds the fixed price for a contract month, and Brigham receives payments when the fixed price exceeds the floating price. Settlements of these swaps are based on the difference between regional market index prices for a contract month and the fixed contract price for the same month. Total natural gas purchased and sold subject to swap arrangements entered into by Brigham was 2,750,000 MMBtu in 1998, 5,025,000 MMBtu in 1999, and 5,490,000 MMBtu in 2000. Brigham accounted for these transactions as hedging activities and, accordingly, adjusted the price received for oil and natural gas production during the period the - 34 - hedged transactions occurred. Adjustments to the price received for natural gas under these swap arrangements resulted in an increase in natural gas revenues of $555,000 in 1998 and decreases in natural gas revenues of $486,000 in 1999 and $9.4 million in 2000. In addition, Brigham's oil revenues were reduced by $107,000 in 2000 as a result of its crude oil collar hedging arrangements outstanding during the year. Brigham did not have any outstanding crude oil hedging contracts during 1998 and 1999. In September 1999, Brigham sold call options on a portion of its future oil and natural gas production. Brigham applied the proceeds from the sale of these call options to increase the effective fixed swap price on its then existing natural gas hedging contracts during the months of October 1999 through January 2000 by an average of $0.57 per MMBtu. For accounting purposes, the improvement in Brigham's fixed natural gas swap price attributable to these transactions was not reflected in reported revenues. Rather, it was reflected in (i) other income (expense) on the income statement, and (ii) amortization of deferred loss on derivatives instruments and market value adjustment for derivatives instruments on the cash flow statement. The following tables summarize Brigham's outstanding oil and natural gas derivative contracts as of December 31, 2000:
Natural Gas Derivative Contracts 2001 2002 ----------------------- ---------------------- Average Average Volumes Contract Volumes Contract Monthly Hedged Price Hedged Price Pricing Basis Contract Term (MMBtu) ($/MMBtu) (MMBtu) ($/MMBtu) ------------- ------------- ---------- --------- --------- --------- Fixed Price Swaps: Contract #1 ANR January 2001 - 600,000 $2.0650 -- -- Oklahoma April 2001 Houston January 2001 - Contract #2 Ship Channel April 2001 600,000 $2.1500 -- -- Contract #3 TETCO January 2001 - 600,000 $2.0575 -- -- South Texas April 2001 Fixed Price Cap ANR May 2001 - 2,450,000 $2.5498 1,810,000 $2.6326 Oklahoma June 2002 Fixed Price Floor ANR May 2001 - 765,000 $1.8000 -- -- Oklahoma December 2001 Crude Oil Derivative Contracts 2001 2002 ------------------------ -------------------- Average Volumes Average Volumes Contract Monthly Hedged Contract Hedged Price Pricing Basis Contract Term (Bbls) Price ($/Bbl) (Bbls) ($/Bbl) ------------- ------------- -------- ------------- -------- ------- Fixed Price Cap NYMEX January 2001 - 109,200 $26.15 -- -- December 2001 Fixed Price Floor NYMEX January 2001 - 109,200 $17.36 -- -- December 2001
- 35 - Effects of Inflation and Changes in Prices Brigham's results of operations and cash flows are affected by changing oil and natural gas prices. If the price of oil and natural gas increases (decreases), there could be a corresponding increase (decrease) in revenues as well as the operating costs that Brigham is required to bear for operations. Inflation has had a minimal effect on Brigham. Environmental and Other Regulatory Matters Brigham's business is subject to certain federal, state and local laws and regulations relating to the exploration for and the development, production and marketing of oil and natural gas, as well as environmental and safety matters. Many of these laws and regulations have become more stringent in recent years, often imposing greater liability on a larger number of potentially responsible parties. Although Brigham believes it is in substantial compliance with all applicable laws and regulations, the requirements imposed by laws and regulations are frequently changed and subject to interpretation, and Brigham is unable to predict the ultimate cost of compliance with these requirements or their effect on its operations. Any suspensions, terminations or inability to meet applicable bonding requirements could materially adversely affect Brigham's financial condition and operations. Although significant expenditures may be required to comply with governmental laws and regulations applicable to Brigham, compliance has not had a material adverse effect on the earnings or competitive position of Brigham. Future regulations may add to the cost of, or significantly limit, drilling activity. See "-- Risk Factors -- We Are Subject To Various Governmental Regulations And Environmental Risks," "Item 1. Business -- Governmental Regulation" and "Item 1. Business -- Environmental Matters." Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"). The FASB has subsequently issued Statements of Financial Accounting Standards No. 137 and 138, which are amendments to FAS 133. FAS 133, as amended, is effective for fiscal years beginning after June 15, 2000. Brigham adopted FAS 133 on January 1, 2001. FAS 133, as amended, establishes accounting and reporting standards for derivative instruments and for hedging activities. All derivative instruments will be recorded on the balance sheet at fair value and 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. Brigham's derivative contracts consist primarily of cash flow hedge transactions in which Brigham is hedging the variability of cash flows related to a forecasted transaction. Changes in the fair value of these derivative instruments will be reported in other comprehensive income and 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. In January 2001, Brigham recorded a net of tax cumulative effect adjustment of $11.8 million to other comprehensive income to recognize the fair value (liability) of all derivative instruments which qualify for hedge accounting treatment in accordance with FAS 133. Forward Looking Information Brigham or its representatives may make forward looking statements, oral or written, including statements in this report, press releases and filings with the SEC, regarding estimated future net revenues from oil and natural gas reserves and the present value thereof, planned capital expenditures (including the amount and nature thereof), increases in oil and gas production, the number of wells it anticipates drilling during 2001 and Brigham's financial position, business strategy and other plans and objectives for future operations. Although Brigham believes that the expectations reflected in these forward looking statements are reasonable, there can be no assurance that the actual results or developments anticipated by Brigham will be realized or, even if substantially realized, that they will have the expected effects on its - 36 - business or operations. Among the factors that could cause actual results to differ materially from Brigham's expectations are general economic conditions, inherent uncertainties in interpreting engineering data, operating hazards, delays or cancellations of drilling operations for a variety of reasons, competition, fluctuations in oil and gas prices, availability of sufficient capital resources to Brigham and its project participants, government regulations and other factors set forth among the risk factors noted below or in the description of Brigham's business in Item 1 of this report. All subsequent oral and written forward looking statements attributable to Brigham or persons acting on its behalf are expressly qualified in their entirety by these factors. Brigham assumes no obligation to update any of these statements. Risk Factors We Are Substantially Leveraged Our outstanding long-term debt was $82 million as of December 31, 2000, and $91 million as of March 20, 2001. The credit agreements related to our Senior Credit Facility and Subordinated Notes Facility limit the amount of additional debt borrowings, including borrowings under these facilities or other senior or subordinated indebtedness. As of March 20, 2001, we had no additional borrowing availability under our Senior Credit Facility and $4 million in additional permitted borrowing availability under our Subordinated Notes Facility. In addition, Brigham held as cash $9.9 million in net proceeds from the March 2001 private placement of Series A Preferred Stock. Our level of indebtedness will have several important effects on our operations, including those listed below. o We will dedicate a substantial portion of our cash flow from operations to the payment of interest on our indebtedness and to the payment of our other current obligations, and will not have these cash flows available for other purposes. o The covenants in our credit facilities limit our ability to borrow additional funds or dispose of assets and may affect our flexibility in planning for, and reacting to, changes in business conditions. o Our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes may be impaired. We may also be required to alter our capitalization significantly to accommodate future exploration, development or acquisition activities. These changes in capitalization may significantly alter our leverage and dilute the equity interests of existing stockholders. Our ability to meet our debt service obligations and to reduce our total indebtedness will be dependent upon our future performance, which will be subject to general economic conditions and to financial, business and other factors affecting our operations, many of which are beyond our control. We cannot assure you that our future performance will not be harmed by such economic conditions and financial, business and other factors. See "-- Liquidity and Capital Resources." We Have Substantial Capital Requirements We make and will continue to make substantial capital expenditures in our exploration and development projects. While we believe that our cash flow from operations and borrowings under our Subordinated Notes Facility should allow us to finance our planned operations through 2001 based on current conditions and expectations, additional financing will be required in the future to fund our exploration and development activities. We cannot assure you that we will be able to secure additional financing on reasonable terms or at all, or that financing will continue to be available to us under our existing or new financing arrangements. Without additional capital resources, our drilling and other activities may be limited and our business, financial condition and results of operations may suffer. See "-- Liquidity and Capital Resources." - 37 - Volatility Of Oil And Gas Markets Affects Us; Oil And Natural Gas Prices Are Volatile Our revenues, operating results and future rate of growth depend highly upon the prices we receive for our oil and natural gas production. Historically, the markets for oil and natural gas have been volatile and are likely to continue to be volatile in the future. Market prices of oil and natural gas depend on many factors beyond our control, including: o worldwide and domestic supplies of oil and natural gas; o the ability of the members of the Organization of Petroleum Exporting Countries to agree to and maintain oil price and production controls; o political instability or armed conflict in oil-producing regions; o the price and level of foreign imports; o the level of consumer demand; o the price and availability of alternative fuels; o the availability of pipeline capacity; o weather conditions; o domestic and foreign governmental regulations and taxes; and o the overall economic environment. We cannot predict future oil and natural gas price movements with certainty. During 2000, the high and low settlement prices for oil on the NYMEX were $37.20 per Bbl and $23.85 per Bbl, and the high and low settlement prices for natural gas on the NYMEX were $9.98 per MMBtu and $2.17 per MMBtu. Significant declines in oil and natural gas prices for an extended period may have the following effects on our business: o limit our financial condition, liquidity, ability to finance planned capital expenditures and results of operations; o reduce the amount of oil and natural gas that we can produce economically; o cause us to delay or postpone some of our capital projects; o reduce our revenues, operating income and cash flow; and o reduce the carrying value of our oil and natural gas properties. Our Hedging Transactions May Not Prevent Losses In an attempt to reduce our sensitivity to energy price volatility, we use swap and collar hedging arrangements that generally result in a fixed price or a range of minimum and maximum price limits over a specified monthly time period. If we do not produce our oil and natural gas reserves at rates equivalent to our hedged position, we would be required to satisfy our obligations under hedging contracts on potentially unfavorable terms without the ability to hedge that risk through sales of comparable quantities of our own production. This situation occurred during a portion of 1999 and again during portions of 2000, due in part to our sale of certain producing reserves in mid-1999. As a result, our cash flow was significantly reduced, particularly during 2000. Because the terms of our hedging contracts are based on - 38 - assumptions and estimates of numerous factors such as cost of production and pipeline and other transportation and marketing costs to delivery points, substantial differences between the hedged prices and actual results could harm our anticipated profit margins and our ability to manage the risk associated with fluctuations in oil and natural gas prices. Hedging contracts limit the benefits we will realize if actual prices rise above the contract prices. We could be financially harmed if the other party to the hedging contracts proves unable or unwilling to perform its obligations under such contracts. See "-- Other Matters -- Derivative Instruments" and "Item 7A. Quantitative and Qualitative Disclosures About Market Risk." Exploratory Drilling Is A Speculative Activity Involving Numerous Risks And Uncertain Costs; We Are Dependent On Exploratory Drilling Activities Our revenues, operating results and future rate of growth depend highly upon the success of our exploratory drilling program. Exploratory drilling involves numerous risks, including the risk that we will not encounter commercially productive natural gas or oil reservoirs. We cannot always predict the cost of drilling, and we may be forced to limit, delay or cancel drilling operations as a result of a variety of factors, including: o unexpected drilling conditions; o pressure or irregularities in formations; o equipment failures or accidents; o adverse weather conditions; o compliance with governmental requirements; and o shortages or delays in the availability of drilling rigs and the delivery of equipment. We may not be successful in our future drilling activities because even with the use of 3-D seismic and other advanced technologies, exploratory drilling is a speculative activity. We could incur losses because our use of 3-D seismic data and other advanced technologies requires greater predrilling expenditures than traditional drilling strategies. Even when fully utilized and properly interpreted, our 3-D seismic data and other advanced technologies only assist us in identifying subsurface structures and do not indicate whether hydrocarbons are in fact present in those structures. Because we interpret the areas desirable for drilling from 3-D seismic data gathered over large areas, we may not acquire option and lease rights until after the seismic data is available and, in some cases, until the drilling locations are also identified. Although we have identified numerous potential drilling locations, we cannot assure you that we will ever lease, drill or produce oil or natural gas oil from these or any other potential drilling locations. We cannot assure you that we will be successful in our drilling activities, that our overall drilling success rate for activity within a particular province will not decline, or that our completed wells will ultimately produce our estimated economically recoverable reserves. Unsuccessful drilling activities could materially harm our operations and financial condition. We Are Subject To Various Casualty Risks Our operations are subject to hazards and risks inherent in drilling for and producing and transporting oil and natural gas, such as: o fires; o natural disasters; o formations with abnormal pressures; - 39 - o blowouts, cratering and explosions; and o pipeline ruptures and spills. Any of these hazards and risks can result in the loss of hydrocarbons, environmental pollution, personal injury claims and other damage to our properties and the property of others. See "Item 1. Business -- Operating Hazards and Uninsured Risks." We May Not Have Enough Insurance To Cover Some Operating Risks We maintain insurance coverage against some, but not all, potential losses in order to protect against operating hazards. We may elect to self-insure if our management believes that the cost of insurance, although available, is excessive relative to the risks presented. We generally maintain insurance for the hazards and risks inherent in drilling for and producing and transporting oil and natural gas and believe this insurance is adequate. If an event occurs that is not covered, or not fully covered, by insurance, it could harm our financial condition and results of operations. In addition, we cannot fully insure against pollution and environmental risks. The Marketability Of Our Production Is Dependent On Facilities That We Typically Do Not Own Or Control The marketability of our production depends in part upon the availability, proximity and capacity of natural gas gathering systems, pipelines and processing facilities. We generally deliver natural gas through gas gathering systems and gas pipelines that we do not own. Our ability to produce and market oil and natural gas could be harmed by any dramatic change in market factors or by: o federal and state regulation of oil and natural gas production and transportation; o tax and energy policies; o changes in supply and demand; and o general economic conditions. We Have Historical Operating Losses And Our Future Results May Vary; We Have Incurred Net Losses In Each Year Of Operation We cannot assure you that we will be profitable in the future. At December 31, 2000, we had an accumulated deficit of $38.4 million and total stockholders' equity of $34.8 million. We have recognized the following annual net losses before extraordinary items since 1995: $1.6 million in 1995, $450,000 in 1996, $1.1 million (including a net $1.2 million non-cash deferred income tax charge incurred in connection with our conversion from a partnership to a corporation) in 1997, $33.3 million (including a $25.9 million non-cash writedown in the carrying value of our oil and natural gas properties) in 1998, $21.6 million (including a $12.2 million non-cash loss on the sale of oil and natural gas properties) in 1999, and $15.7 million in 2000. See "Item 6. Selected Financial Data." Our Future Operating Results May Fluctuate Our future operating results may fluctuate significantly depending upon a number of factors, including: o industry conditions; o prices of oil and natural gas; o rates of drilling success; - 40 - o capital availability; o rates of production from completed wells; and o the timing and amount of capital expenditures. This variability could cause our business, financial condition and results of operations to suffer. In addition, any failure or delay in the realization of expected cash flows from operating activities could limit our ability to invest and participate in economically attractive projects. Maintaining Reserves And Revenues In The Future Depends On Successful Exploration And Development In general, production from oil and natural gas properties declines as reserves are depleted, with the rate of decline depending on reservoir characteristics. Except to the extent we conduct successful exploration and development activities or acquire properties containing proved reserves, or both, our proved reserves will decline as reserves are produced. Our future oil and natural gas production depends highly upon our ability to economically find, develop or acquire reserves in commercial quantities. The business of exploring for or developing reserves is capital intensive. Reductions in our cash flow from operations and limitations on or unavailability of external sources of capital may impair our ability to make the necessary capital investment to maintain or expand our asset base of oil and natural gas reserves. In addition, we cannot be certain that our future exploration and development activities will result in additional proved reserves or that we will be able to drill productive wells at acceptable costs. Furthermore, although significant increases in prevailing prices for oil and natural gas could cause increases in our revenues, our finding and development costs could also increase. Finally, we participate in a percentage of our wells as a non-operator. The failure of an operator of our wells to adequately perform operations, or an operator's breach of the applicable agreements, could harm us. We Are Subject To Uncertainties In Reserve Estimates And Future Net Cash Flows There is substantial uncertainty in estimating quantities of proved reserves and projecting future production rates and the timing of development expenditures. No one can measure underground accumulations of oil and natural gas in an exact way. Accordingly, oil and natural gas reserve engineering requires subjective estimations of those accumulations. Estimates of other engineers might differ widely from those of our independent petroleum engineers. Accuracy of reserve estimates depends on the quality of available data and on engineering and geological interpretation and judgment. Our independent petroleum engineers may make material changes to reserve estimates based on the results of actual drilling, testing, and production. As a result, our reserve estimates often differ from the quantities of oil and natural gas we ultimately recover. Also, we make certain assumptions regarding future oil and natural gas prices, production levels, and operating and development costs that may prove incorrect. Any significant variance from these assumptions could greatly affect our estimates of reserves, the economically recoverable quantities of oil and natural gas attributable to any particular group of properties, the classifications of reserves based on risk of recovery and estimates of the future net cash flows. See "Item 2. Properties -- Oil and Natural Gas Reserves." Actual future net cash flows from our oil and natural gas properties also will be affected by factors such as: o the amount and timing of actual production; o supply and demand for oil and natural gas; o limits or increases in consumption by gas purchasers; and o changes in governmental regulations or taxation. - 41 - The timing of both our production and our incurrence of expenses in connection with the development and production of oil and natural gas properties will affect the timing of actual future net cash flows from proved reserves, and thus their actual present value. In addition, the 10% discount factor we use when calculating discounted future net cash flows in compliance with the SEC reporting requirements may not necessarily be the most appropriate discount factor based on interest rates in effect from time to time and risks associated with us or the oil and gas industry in general. We Face Significant Competition We operate in the highly competitive areas of oil and natural gas exploration, exploitation, acquisition and production with other companies. We face intense competition from a large number of independent, technology-driven companies as well as both major and other independent oil and natural gas companies in a number of areas such as: o seeking to acquire desirable producing properties or new leases for future exploration; o marketing our oil and natural gas production; and o seeking to acquire the equipment and expertise necessary to operate and develop those properties. Many of our competitors have financial and other resources substantially in excess of those available to us. This highly competitive environment could harm our business. See "Item 1. Business -- Competition." We Are Subject To Various Governmental Regulations And Environmental Risks Our business is subject to federal, state and local laws and regulations relating to the exploration for, and the development, production and marketing of, oil and natural gas, as well as safety matters. Although we believe we are in substantial compliance with all applicable laws and regulations, legal requirements are frequently changed and subject to interpretation, and we are unable to predict the ultimate cost of compliance with these requirements or their effect on our operations. We may be required to make significant expenditures to comply with governmental laws and regulations. Our operations are subject to complex environmental laws and regulations adopted by federal, state and local governmental authorities. Environmental laws and regulations change frequently, and the implementation of new, or the modification of existing, laws or regulations could harm us. The discharge of natural gas, oil, or other pollutants into the air, soil or water may give rise to significant liabilities on our part to the government and third parties and may require us to incur substantial costs of remediation. We cannot be certain that existing environmental laws or regulations, as currently interpreted or reinterpreted in the future, or future laws or regulations will not harm our results of operations and financial condition. See "Item 1. Business -- Governmental Regulation; and -- Environmental Matters." Our Business May Suffer If We Lose Key Personnel We have assembled a team of geologists, geophysicists and engineers who have considerable experience in applying 3-D imaging technology to explore for and to develop oil and natural gas. We depend upon the knowledge, skills and experience of these experts to provide 3-D imaging and to assist us in reducing the risks associated with our participation in oil and natural gas exploration and development projects. In addition, the success of our business depends, to a significant extent, upon the abilities and continued efforts of our management, particularly Ben M. Brigham, our Chief Executive Officer, President and Chairman of the Board. We have an employment agreement with Ben M. Brigham, but do not have an employment agreement with any of our other employees. We have key man life insurance on Mr. Brigham in the amount of $2 million. If we lose the services of our key management personnel or technical experts, or are unable to attract additional qualified personnel, our business, financial condition, results of operations, development efforts and ability to grow could suffer. We cannot assure you that we will be successful in attracting and retaining such executives, geophysicists, geologists and engineers. See "Item 1. Business -- Technical Staff" and "Executive Officers of the Registrant." - 42 - Control By Certain Stockholders And Certain Anti-Takeover Provisions May Affect You; Certain Of Our Affiliates Control A Majority Of The Outstanding Common Stock As of March 20, 2001, our directors, executive officers and principal stockholders, and certain of their affiliates, beneficially owned approximately 77% of our outstanding common stock. Accordingly, these stockholders, as a group, will be able to control the outcome of stockholder votes, including votes concerning the election of directors, the adoption or amendment of provisions in our certificate of incorporation or bylaws, and the approval of mergers and other significant corporate transactions. The existence of these levels of ownership concentrated in a few persons makes it unlikely that any other holder of common stock will be able to affect our management or direction. These factors may also have the effect of delaying or preventing a change in our management or voting control. Certain Anti-Takeover Provisions May Affect Your Rights As A Stockholder Our certificate of incorporation authorizes our Board of Directors to issue up to 10 million shares of preferred stock without stockholder approval and to set the rights, preferences and other designations, including voting rights, of those shares as the Board of Directors may determine. These provisions, alone or in combination with the other matters described in the preceding paragraph may discourage transactions involving actual or potential changes in our control, including transactions that otherwise could involve payment of a premium over prevailing market prices to holders of our common stock. We are also subject to provisions of the Delaware General Corporation Law that may make some business combinations more difficult. The Market Price Of Our Stock Price Is Volatile The trading price of our common stock and the price at which we may sell securities in the future is subject to large fluctuations in response to any of the following: limited trading volume in our stock, changes in government regulations, quarterly variations in operating results, our involvement in litigation, general market conditions, the prices of oil and natural gas, announcements by us and our competitors, our liquidity, our ability to raise additional funds and other events. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Management Opinion Concerning Derivative Instruments Brigham limits its use of derivative instruments principally to commodity price hedging activities, whereby gains and losses are generally offset by price changes in the underlying commodity. Brigham's use of derivative instruments for hedging activities could materially affect its results of operations in particular quarterly or annual periods since such instruments can limit Brigham's ability to benefit from favorable oil and natural gas price movements. Commodity Price Risk Brigham's primary commodity market risk exposure is to changes in the prices related to the sale of its oil and natural gas production. The market prices for oil and natural gas have been volatile and are likely to continue to be volatile in the future. As such, Brigham employs established policies and procedures to manage its exposure to fluctuations in the sales prices it receives for its oil and natural gas production through hedging activities. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Other Matters -- Derivative Instruments." Brigham believes that hedging, although not free of risk, allows it to reduce its exposure to oil and natural gas sales price fluctuations and thereby to achieve more predictable cash flows. However, hedging arrangements, when utilized, may limit the benefit to Brigham of increases in the prices of the hedged commodity. Moreover, Brigham's hedging arrangements generally do not apply to all of its production and thus provide only partial price protection against declines in commodity prices. Brigham expects that the amount of its hedges will vary from time to time. - 43 - Interest Rate Risk Brigham is subject to interest rate risk as borrowings under its Senior Credit Facility ($75 million outstanding as of December 31, 2000) accrue interest at floating rates based on the lender's base rate or LIBOR. Brigham does not utilize derivative instruments to protect against changes in interest rates on debt borrowings. Based on Brigham's $75 million of outstanding borrowings under its Senior Credit Facility at December 31, 2000, an adverse change (defined as a hypothetical 1% and 2% increase in interest rates on such borrowings) would reduce cash flow by approximately $750,000 and $1.5 million, respectively, from currently projected levels. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Brigham's Consolidated Financial Statements required by this item are included on the pages immediately following the Index to Financial Statements appearing on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. - 44 - PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is incorporated by reference to information under the caption "Proposal One -- Election of Directors" and to the information under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in Brigham's definitive Proxy Statement (the "2001 Proxy Statement") for its annual meeting of stockholders to be held on May 10, 2001. The 2001 Proxy Statement will be filed with the Securities and Exchange Commission (the "Commission") not later than 120 days subsequent to December 31, 2000. Pursuant to Item 401(b) of Regulation S-K, the information required by this item with respect to Brigham's executive officers is set forth in Part I of this report. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated herein by reference to the 2001 Proxy Statement, which will be filed with the Commission not later than 120 days subsequent to December 31, 2000. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated herein by reference to the 2001 Proxy Statement, which will be filed with the Commission not later than 120 days subsequent to December 31, 2000. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS The information required by this item is incorporated herein by reference to the 2001 Proxy Statement, which will be filed with the Commission not later than 120 days subsequent to December 31, 2000. - 45 - PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Consolidated Financial Statements: See Index to Financial Statements on page F-1. 2. Financial Statement Schedules: See Index to Financial Statements on page F-1. 3. Exhibits: The exhibits listed in the accompanying Index to Exhibits are filed or incorporated by reference as part of the annual report. (b) The following reports on Form 8-K were filed by Brigham during the last quarter of the period covered by this Annual Report on Form 10-K: Brigham filed a report on Form 8-K on November 3, 2000 (and a subsequent amendment thereto on November 8, 2000) to report a series of financing agreements. - 46 - GLOSSARY OF OIL AND GAS TERMS The following are abbreviations and definitions of certain terms commonly used in the oil and gas industry and in this report. Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein in reference to oil or other liquid hydrocarbons. Bcf. One billion cubic feet. Bcfe. One billion cubic feet of natural gas equivalent. In reference to natural gas, natural gas equivalents are determined using the ratio of 6 Mcf of natural gas to 1 Bbl of oil, condensate of natural liquids. CAEX. Computer-aided exploration. Completion. The installation of permanent equipment for the production of oil or natural gas. Completion Rate. The number of wells on which production casing has been run for a completion attempt as a percentage of the number of wells drilled. Developed Acreage. The number of acres which are allocated or assignable to producing wells or wells capable of production. Development Well. A well drilled within the proved area of an oil or natural gas reservoir to the depth of a stratigraphic horizon known to be productive. Drilling Costs. The costs associated with the drilling and completing a well (exclusive of seismic and land acquisition costs for that well and future development costs associated with proved undeveloped reserves added by the well) divided by total proved reserve additions. Dry Well. A well found to be incapable of producing either oil or natural gas in sufficient quantities to justify completion of an oil or gas well. Exploratory Well. A well drilled to find and produce oil or natural gas in an unproved area, to find a new reservoir in a field previously found to be productive of oil or gas in another reservoir, or to extend a known reservoir. Finding and Development Costs. Capital costs incurred in the acquisition, exploration and development of proved oil and natural gas reserves divided by total proved reserve additions. Gross Acres or Gross Wells. The total acres or wells, as the case may be, in which the Company has a working interest. MBbl. One thousand barrels of oil or other liquid hydrocarbons. Mcf. One thousand cubic feet of natural gas. Mcfe. One thousand cubic feet of natural gas equivalents. MMBbl. One million barrels of oil or other liquid hydrocarbons. MMBtu. One million Btu, or British Thermal Units. One British Thermal Unit is the quantity of heat required to raise the temperature of one pound of water by one degree Fahrenheit. MMcf. One million cubic feet of natural gas. MMcfe. One million cubic feet of natural gas equivalents. -47- Net Acres or Net Wells. Gross acres or wells multiplied, in each case, by the percentage working interest owned by the Company. Net Production. Production that is owned by the Company less royalties and production due others. Oil. Crude oil, condensate or other liquid hydrocarbons. Operator. The individual or company responsible for the exploration, development, and production of an oil or gas well or lease. Present Value of Future Net Revenues or PV10%. The pretax present value of estimated future revenues to be generated from the production of proved reserves calculated in accordance with SEC guidelines, net of estimated production and future development costs, using prices and costs as of the date of estimation without future escalation, without giving effect to non-property related expenses such as general and administrative expenses, debt service and depreciation, depletion and amortization, and discounted using an annual discount rate of 10%. Proved Development Reserves. Reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Proved Reserves. The estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved Undeveloped Reserves. Reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required for recompletion. Royalty. An interest in an oil and gas lease that gives the owner of the interest the right to receive a portion of the production from the leased acreage (or of the proceeds of the sale thereof), but generally does not require the owner to pay any portion of the costs of drilling or operating the wells on the leased acreage. Royalties may be either landowner's royalties, which are reserved by the owner of the leased acreage at the time the lease is granted, or overriding royalties, which are usually reserved by an owner of the leasehold in connection with a transfer to a subsequent owner. Spud. Start drilling a new well (or restart). Standardized Measure. The aftertax present value of estimated future revenues to be generated from the production of proved reserves calculated in accordance with SEC guidelines, net of estimated production and future development costs, using prices and costs as of the date of estimation without future escalation, without giving effect to non-property related expenses such as general and administrative expenses, debt service and depreciation, depletion and amortization, and discounted using an annual discount rate of 10%. 2-D Seismic. The method by which a cross-section of the earth's subsurface is created through the interpretation of reflecting seismic data collected along a single source profile. 3-D Seismic. The method by which a three dimensional image of the earth's subsurface is created through the interpretation of reflection seismic data collected over surface grid. 3-D seismic surveys allow for a more detailed understanding of the subsurface than do conventional surveys and contribute significantly to field appraisal, development and production. Working Interest. An interest in an oil and gas lease that gives the owner of the interest the right to drill for and produce oil and natural gas on the leased acreage and requires the owner to pay a share of the costs of drilling and production operations. -48- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunder duly authorized, as of March 22, 2001. BRIGHAM EXPLORATION COMPANY By: /s/ Ben M. Brigham ---------------------------------- Ben M. Brigham Chief Executive Officer and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below as of March 22, 2001, by the following persons on behalf of the Registrant and in the capacity indicated. /s/ Ben M. Brigham - ---------------------------------------------------------- Ben M. Brigham Chief Executive Officer, President and Chairman of the Board /s/ Curtis F. Harrell - ---------------------------------------------------------- Curtis F. Harrell Chief Financial Officer and Director (principal financial and accounting officer) /s/ Anne L. Brigham - ---------------------------------------------------------- Anne L. Brigham Director /s/ Harold D. Carter - ---------------------------------------------------------- Harold D. Carter Director /s/ Alexis M. Cranberg - ---------------------------------------------------------- Alexis M. Cranberg Director /s/ Stephen P. Reynolds - ---------------------------------------------------------- Stephen P. Reynolds Director /s/ Steven A. Webster - ---------------------------------------------------------- Steven A. Webster Director -49- BRIGHAM EXPLORATION COMPANY INDEX TO FINANCIAL STATEMENTS Page ---- Report of Independent Accountants ....................................... F-2 Consolidated Balance Sheets as of December 31, 2000 and 1999 ............ F-3 Consolidated Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998 ..................................... F-4 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2000, 1999 and 1998 ..................................... F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 ..................................... F-6 Notes to the Consolidated Financial Statements .......................... F-7 F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Brigham Exploration Company In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of changes in stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Brigham Exploration Company and its subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Dallas, Texas February 23, 2001 F-2 BRIGHAM EXPLORATION COMPANY CONSOLIDATED BALANCE SHEETS (in thousands)
December 31, ----------------------- 2000 1999 --------- --------- ASSETS Current assets: Cash and cash equivalents $ 837 $ 2,742 Accounts receivable 9,277 4,945 Other current assets 559 577 --------- --------- Total current assets 10,673 8,264 --------- --------- Oil and natural gas properties, at cost Unproved 41,617 40,518 Proved 162,482 138,237 Accumulated depletion (74,609) (66,689) --------- --------- 129,490 112,066 --------- --------- Other property and equipment, at cost, net 1,341 1,686 Drilling advances paid 960 23 Deferred loan fees 4,338 3,481 Other noncurrent assets 109 163 --------- --------- $ 146,911 $ 125,683 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 9,211 14,851 Accrued drilling costs 792 541 Participant advances received 136 850 Other current liabilities 7,760 1,502 --------- --------- Total current liabilities 17,899 17,744 --------- --------- Notes payable 75,000 56,000 Senior subordinated notes 7,000 41,341 Other noncurrent liabilities 3,697 1,600 Commitments and contingencies Mandatorily redeemable preferred stock, Series A Preferred Stock, $.01 par value, $20 stated value, 1.5 million shares authorized, 1 million shares issued and outstanding at December 31, 2000, redemption value of $20 million 8,558 -- Stockholders' equity: Preferred stock, $.01 par value, 10 million shares authorized, none issued and outstanding -- -- Common stock, $.01 par value, 50 million shares authorized, 17,030,176 and 14,517,786 issued at December 31, 2000 and 1999, respectively 170 145 Additional paid-in capital 78,274 64,171 Treasury stock, at cost; 1,052,632 shares at December 31, 2000 (3,950) -- Unearned stock compensation (1,321) (290) Accumulated deficit (38,416) (55,028) --------- --------- Total stockholders' equity 34,757 8,998 --------- --------- $ 146,911 $ 125,683 ========= =========
Oil and natural gas properties are accounted for using the full cost method. See accompanying notes to the consolidated financial statements. F-3 BRIGHAM EXPLORATION COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
Year Ended December 31, ---------------------------------- 2000 1999 1998 -------- -------- -------- Revenues: Oil and natural gas sales $ 19,143 $ 14,992 $ 13,799 Workstation revenue 53 285 390 -------- -------- -------- 19,196 15,277 14,189 -------- -------- -------- Costs and expenses: Lease operating 2,139 2,259 2,172 Production taxes 1,786 968 850 General and administrative 3,100 3,481 4,672 Depletion of oil and natural gas properties 7,920 7,792 8,483 Depreciation and amortization 507 525 413 Capitalized ceiling impairment -- -- 25,926 Amortization of stock compensation 113 1 372 -------- -------- -------- 15,565 15,026 42,888 -------- -------- -------- Operating income (loss) 3,631 251 (28,699) -------- -------- -------- Other income (expense): Interest income 108 176 136 Interest expense, net (9,906) (9,697) (5,968) Loss on sale of oil and natural gas properties -- (12,195) -- Other expense (9,488) (163) -- -------- -------- -------- (19,286) (21,879) (5,832) -------- -------- -------- Loss before income taxes and extraordinary item (15,655) (21,628) (34,531) Income tax benefit -- -- 1,186 -------- -------- -------- Loss before extraordinary item (15,655) (21,628) (33,345) Extraordinary item - gain on refinancing of senior subordinated notes, net of $0 tax 32,267 -- -- -------- -------- -------- Net income (loss) 16,612 (21,628) (33,345) Less accretion and dividends on redeemable preferred stock 275 -- -- -------- -------- -------- Net income (loss) attributable to common stockholders $ 16,337 $(21,628) $(33,345) ======== ======== ======== Net income (loss) per share attributable to common stockholders: Basic/Diluted Loss before extraordinary item $ (0.98) $ (1.53) $ (2.64) Extraordinary item $ 1.99 $ -- $ -- -------- -------- -------- $ 1.01 $ (1.53) $ (2.64) ======== ======== ======== Weighted average common shares outstanding: Basic/Diluted 16,241 14,152 12,626 ======== ======== ========
See accompanying notes to the consolidated financial statements. F-4 BRIGHAM EXPLORATION COMPANY CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (in thousands)
Common Stock Additional Unearned Treasury Stock --------------- Paid-in Stock Accumulated ------------------- Shares Amounts Capital Compensation Deficit Shares Amounts Total ------ ---- -------- ------- -------- ------ ------- -------- Balance, December 31, 1997 12,253 $123 $ 44,919 $(1,674) $ (55) -- $ -- $ 43,313 Net loss -- -- -- -- (33,345) -- -- (33,345) Issuance of common stock 1,053 10 9,419 -- -- -- -- 9,429 Issuance of warrants -- -- 4,500 -- -- -- -- 4,500 Amortization of unearned stock compensation -- -- -- 784 -- -- -- 784 ------ ---- -------- ------- -------- ------ ------- -------- Balance, December 31, 1998 13,306 133 58,838 (890) (33,400) -- -- 24,681 Net loss -- -- -- -- (21,628) -- -- (21,628) Issuance of common stock 1,212 12 4,228 -- -- -- -- 4,240 Forfeiture of stock options -- -- (602) 602 -- -- -- -- Revision in terms of warrants -- -- 479 -- -- -- -- 479 Issuance of warrants -- -- 1,228 -- -- -- -- 1,228 Amortization of unearned stock compensation -- -- -- (2) -- -- -- (2) ------ ---- -------- ------- -------- ------ ------- -------- Balance, December 31, 1999 14,518 145 64,171 (290) (55,028) -- -- 8,998 Net income -- -- -- -- 16,612 -- -- 16,612 Issuance of common stock 2,203 22 4,185 -- -- -- -- 4,207 Issuance of restricted stock 309 3 1,137 (1,140) -- -- -- -- Issuance of stock options -- -- 185 (185) -- -- -- -- Forfeiture of stock options -- -- (60) 10 -- -- -- (50) Issuance of warrants -- -- 13,910 -- -- -- -- 13,910 Cancellation of warrants -- -- (4,979) -- -- -- -- (4,979) Amortization of unearned stock compensation -- -- -- 284 -- -- -- 284 Purchase of treasury stock -- -- -- -- -- (1,053) (3,950) (3,950) Dividends on Series A Preferred Stock -- -- (267) -- -- -- -- (267) Accretion on Series A Preferred Stock -- -- (8) -- -- -- -- (8) ------ ---- -------- ------- -------- ------ ------- -------- Balance, December 31, 2000 17,030 $170 $ 78,274 $(1,321) $(38,416) (1,053) $(3,950) $ 34,757 ====== ==== ======== ======= ======== ====== ======= ========
See accompanying notes to the consolidated financial statements. F-5 BRIGHAM EXPLORATION COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
December 31, ------------------------------------- 2000 1999 1998 -------- -------- --------- Cash flows from operating activities: Net income (loss) $ 16,612 $(21,628) $ (33,345) Adjustments to reconcile net income (loss) to cash provided (used) by operating activities: Depletion of oil and natural gas properties 7,920 7,792 8,483 Depreciation and amortization 507 525 413 Capitalized ceiling impairment -- -- 25,926 Amortization of stock compensation 113 1 372 Interest paid through issuance of additional senior subordinated notes 4,575 5,459 -- Amortization of deferred loan fees and debt issuance costs 1,283 1,739 726 Amortization of discount on senior subordinated notes 673 575 286 Amortization of deferred loss on derivative instruments 280 759 -- Market value adjustment for derivative instruments 8,885 115 -- Extraordinary gain on refinancing of senior subordinated notes (32,267) -- -- Loss on sale of oil and natural gas properties -- 12,195 -- Changes in working capital and other items: (Increase) decrease in accounts receivable (4,332) 2,993 (3,029) (Increase) decrease in other current assets (262) (1,046) (10) Increase (decrease) in accounts payable (7,290) (1,136) 7,991 Increase (decrease) in participant advances received (714) 86 275 Increase (decrease) in other current liabilities (640) (115) 862 Increase (decrease) in deferred tax liability -- -- (1,186) Other noncurrent assets 54 (151) 6 Other noncurrent liabilities (32) (5,585) 7,004 -------- -------- --------- Net cash provided (used) by operating activities (4,635) 2,578 14,774 -------- -------- --------- Cash flows from investing activities: Additions to oil and natural gas properties (28,910) (25,560) (85,207) Proceeds from sale of oil and natural gas properties 3,938 27,143 -- Additions to other property and equipment (162) (146) (868) (Increase) decrease in drilling advances paid (937) 207 (152) -------- -------- --------- Net cash provided (used) by investing activities (26,071) 1,644 (86,227) -------- -------- --------- Cash flows from financing activities: Proceeds from issuance of common stock 4,207 -- 9,429 Proceeds from issuance of preferred stock and warrants 20,060 -- -- Proceeds from issuance of senior subordinated notes and warrants 7,000 -- 40,000 Increase in notes payable 19,000 13,750 105,800 Repayment of notes payable -- (16,750) (78,800) Principal payments on senior subordinated notes (20,354) -- -- Principal payments on capital lease obligations (210) (253) (236) Deferred loan fees paid (902) (796) (3,872) -------- -------- --------- Net cash provided (used) by financing activities 28,801 (4,049) 72,321 -------- -------- --------- Net increase (decrease) in cash and cash equivalents (1,905) 173 868 Cash and cash equivalents, beginning of year 2,742 2,569 1,701 -------- -------- --------- Cash and cash equivalents, end of year $ 837 $ 2,742 $ 2,569 ======== ======== =========
See accompanying notes to the consolidated financial statements. F-6 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Nature of Operations Brigham Exploration Company is a Delaware corporation formed on February 25, 1997 for the purpose of exchanging its common stock for the common stock of Brigham, Inc. and the partnership interests of Brigham Oil & Gas, L.P. (the "Partnership"). Hereinafter, Brigham Exploration Company and the Partnership are collectively referred to as the "Company." Brigham, Inc. is a Nevada corporation whose only asset is its ownership interest in the Partnership. The Partnership was formed in May 1992 to explore and develop onshore domestic oil and natural gas properties using 3-D seismic imaging and other advanced technologies. Since its inception, the Partnership has focused its exploration and development of oil and natural gas 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. Summary of Significant Accounting Policies Basis of Accounting The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. Principles of Consolidation The accompanying financial statements include the accounts of the Company and its wholly-owned subsidiaries, and its proportionate share of assets, liabilities and income and expenses of the limited partnerships in which the Company, or any of its subsidiaries has a participating interest. All significant intercompany accounts and transactions have been eliminated. Cash and Cash Equivalents The Company considers all highly liquid financial instruments with an original maturity of three months or less to be cash equivalents. F-7 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Property and Equipment The Company uses the full cost method of accounting for oil and natural gas properties. Under this method, all acquisition, exploration and development costs, including payroll, interest, and other internal costs, incurred for the purpose of finding oil and natural gas reserves are capitalized. Internal costs capitalized are directly attributable to acquisition, exploration and development activities and do not include costs related to production, general corporate overhead or similar activities. Costs associated with production and general corporate activities are expensed in the period incurred. Proceeds from the sale of oil and natural gas properties are applied to reduce the capitalized costs of oil and natural gas properties unless the sale would significantly alter the relationship between capitalized cost and proved reserves, in which case a gain or loss is recognized. Capitalized costs associated with impaired properties and capitalized costs related to properties having proved reserves, plus the estimated costs of future development, dismantlement, restoration and abandonment costs, net of estimated salvage values, are amortized using the unit-of-production method based on proved reserves. Capitalized costs of oil and natural gas properties, net of accumulated amortization, are limited to the total of estimated future net cash flows from proved oil and natural gas reserves, discounted at ten percent, plus the cost of unevaluated properties. There are many factors, including global events, that may influence the production, processing, marketing and valuation of oil and natural gas. A reduction in the valuation of oil and natural gas properties resulting from declining prices or production could adversely impact depletion rates and capitalized cost limitations. Other property and equipment, which primarily consists of 3-D seismic interpretation workstations, are depreciated on a straight-line basis over the estimated useful lives of the assets after considering salvage value. Estimated useful lives are as follows: Furniture and fixtures....................................... 10 years Machinery and equipment...................................... 5 years 3-D seismic interpretation workstations and software......... 3 years Betterments and major improvements that extend the useful lives are capitalized while expenditures for repairs and maintenance of a minor nature are expensed as incurred. Revenue Recognition The Company recognizes oil and natural gas sales from its interests in producing wells under the sales method of accounting. Under the sales method, the Company recognizes revenues based on the amount of oil or natural gas sold to purchasers which may differ from the amounts to which the Company is entitled based on its interest in the properties. Gas balancing obligations as of December 31, 2000, 1999 and 1998 were not significant. Industry participants in the Company's seismic programs are charged on an hourly basis for the work performed by the Company on its 3-D seismic interpretation workstations. The Company recognizes workstation revenue as service is provided. F-8 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Financial Instruments The Company periodically enters into commodity contracts, including price swaps, caps and/or floors, which require payments to (or receipts from) counterparties based on the differential between a fixed price and a variable price for a fixed quantity of natural gas or crude oil without the exchange of underlying volumes. The notional amounts of these financial instruments are based on expected production from existing wells. The Company uses these financial instruments to manage market risks resulting from fluctuations in commodity prices. Correlation of the commodity contracts is determined by evaluating whether the contract gains and losses will substantially offset the effects of price changes on the underlying natural gas and crude oil sales volumes. To the extent that correlation exists between the contracts and the underlying natural gas and crude oil sales volumes, realized gains or losses and related cash flows arising from the contracts are recognized as a component of oil and natural gas sales in the same period as the sale of the underlying volumes. To the extent that correlation does not exist between the contracts and the underlying natural gas and crude oil sales volumes, realized gains or losses and related cash flows arising from the contracts are recognized in the period incurred as a component of other income. The fair market value of any contract that does not meet the correlation test outlined above is recorded as a deferred gain or loss on the balance sheet and is adjusted to current market value at each balance sheet date with any deferred gains or losses recognized as a component of other income. In the event that management decides to terminate a contract, generally accepted accounting principles require that any gains or losses upon termination be deferred and recognized as oil and natural gas sales in the period in which the underlying volumes are sold. Stock Based Compensation The Company accounts for employee stock-based compensation using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". Accordingly, the Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"). See Note 13 for the pro forma disclosures of compensation expense determined under the fair-value provisions of FAS 123. Income Taxes The Company follows the provisions of Financial Accounting Standard No. 109, "Accounting for Income Taxes" ("FAS 109"). Under the asset and liability method of FAS 109, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the tax rate in effect for the year in which those temporary differences are expected to be recovered or settled. Under FAS 109, the effect of a change in tax rates of deferred tax assets and liabilities is recognized in income in the year of the enacted rate change. Segment Information All of the Company's oil and natural gas properties and related operations are located in the United States and management has determined that the Company has one reportable segment. F-9 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Treasury Stock Treasury stock purchases are recorded at cost. Upon reissuance, the cost of treasury shares held is reduced by the average purchase price per share of the aggregate treasury shares held. New Pronouncements In June 1998, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"). The FASB has subsequently issued Statements of Financial Accounting Standards No. 137 and 138, which are amendments to FAS 133. FAS 133, as amended, is effective for fiscal years beginning after June 15, 2000. The Company adopted FAS 133 on January 1, 2001. FAS 133, as amended, establishes accounting and reporting standards for derivative instruments and for hedging activities. All derivative instruments will be recorded on the balance sheet at fair value and 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. The Company's derivative contracts consist primarily of cash flow hedge transactions in which the Company is hedging the variability of cash flows related to a forecasted transaction. Changes in the fair value of these derivative instruments will be reported in other comprehensive income and 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. In January 2001, the Company recorded a net of tax cumulative effect adjustment of $11.8 million to other comprehensive income to recognize the fair value (liability) of all derivative instruments which qualify for hedge accounting treatment in accordance with FAS 133. Reclassifications Certain reclassifications have been made to the prior year balances to conform to current year presentation. 3. Asset Dispositions 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. See Note 16 regarding dissolution of the Duke LLC in February 2001. In June 1999, the Company sold its entire interest in certain producing and non-producing oil and natural gas properties located in its Anadarko Basin province to two parties for a combined sales price of $17.1 million. Total F-10 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) proceeds, net of transaction costs, were $16.7 million and were used to repay a portion of the Company's notes payable. 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 a loss of $12.2 million, which was 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 natural gas properties. 4. Property and Equipment Property and equipment, at cost, are summarized as follows (in thousands):
December 31, ----------------------- 2000 1999 --------- --------- Oil and natural gas properties ..................................... $ 204,099 $ 178,755 Accumulated depletion .............................................. (74,609) (66,689) --------- --------- 129,490 112,066 --------- --------- Other property and equipment: 3-D seismic interpretation workstations and software ........... 2,277 2,248 Office furniture and equipment ................................. 2,015 1,909 Accumulated depreciation ....................................... (2,951) (2,471) --------- --------- 1,341 1,686 --------- --------- $ 130,831 $ 113,752 ========= =========
The Company capitalizes certain payroll and other internal costs directly attributable to acquisition, exploration and development activities as part of its investment in oil and natural gas properties over the periods benefited by these activities. During the years ended December 31, 2000, 1999 and 1998, these capitalized costs amounted to $3.4 million, $3.3 million and $4.6 million, respectively. Capitalized costs do not include any costs related to production, general corporate overhead, or similar activities. Interest costs of $2.8 million, $3.0 million and $1.2 million were capitalized in 2000, 1999 and 1998, respectively. 5. Notes Payable and Senior Subordinated Notes Payable Notes Payable In January 1998, the Company entered into a reserve-based revolving credit facility (the "Credit Facility") which originally provided for initial borrowing availability of $75 million. Principal outstanding under the Credit Facility was due at maturity on January 26, 2001 with interest due monthly for base rate tranches or periodically as LIBOR tranches mature. Amounts outstanding under the Credit Facility accrued interest at either the lender's Base Rate or LIBOR plus 2.25%, at the Company's option. In connection with the origination of the Credit Facility, certain bank fees and other expenses totaling approximately $1.9 million were recorded as deferred costs and are amortized over the life of the loan. 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 make certain capital expenditures, and to change the interest rate on outstanding borrowings to either the lender's Base Rate or LIBOR plus 3.0%, at the Company's option. The Company incurred a $500,000 transaction fee due to the lender over a ten-month period. F-11 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) In July 1999, the Credit Facility was amended to provide the Company with borrowing availability of $56 million. As consideration for this amendment, in July 1999 the Company issued to its senior lenders one million warrants to purchase the Company's common stock at an exercise price of $2.25 per share. An estimated value of $1.2 million was attributed to these warrants by the Company and was recognized as additional deferred loan fees to be amortized over the remaining period to maturity of the Credit Facility. The Company's obligations under the Credit Facility are secured by substantially all of the oil and natural gas properties and other tangible assets of the Company. In February 2000, the Company entered into an amended and restated Credit Facility with its existing senior lenders and a new senior lender. The Credit Facility was further amended in October 2000. The amended and restated Credit Facility provides the Company with $75 million in senior borrowing availability for a three-year term. The Credit Facility includes a provision whereby certain amounts held by one of the lenders, not to exceed $30 million of the outstanding borrowings, are convertible into shares of the Company's common stock ("Convertible Notes") to the extent total borrowings exceed $45 million. As of December 31, 2000, the outstanding balance of the Convertible Notes totaled $30 million. The Credit Facility provides that the Convertible Notes can be converted into shares of the Company's common stock at the following amounts and prices: (i) the first $10 million of borrowings is convertible at $3.90 per share, (ii) the second $10 million is convertible at $6.00 per share, and (iii) the final $10 million is convertible at $8.00 per share. The Convertible Notes could result in a beneficial conversion feature based on the relationship between the Company's stock price at the time of a borrowing and the share price at which the Company can force conversion of the relative portion of the Convertible Notes. The value assigned to the beneficial conversion feature would be recorded as a component of interest expense to the extent the Convertible Notes are immediately convertible. Due to the fact that the Company could force conversion of any portion of the Convertible Notes before February 17, 2001, and also given that the share prices at which the Company can force conversion were in excess of the market price of the Company's common stock at each draw date since the amendment of the Credit Facility, no beneficial conversion feature was recorded in 2000. If the Credit Facility is repaid at maturity or is prepaid prior to maturity without payments of cash premiums, the warrants issued to the new participant in the Credit Facility to purchase the Company's common stock become exercisable. Further, to the extent the Company prepays any of the Convertible Notes, it will be required to pay a premium above the face value of the Convertible Notes to the lender. Such premium amounts range from 150% to 110%, depending on the timing of the prepayment. Such prepayment, however, would require the prior approval of the original lenders to the Credit Facility. In addition, certain financial covenants of the Credit Facility were amended or added in February 2000 and in October 2000. In connection with the February 2000 amendment, the Company reset the price of the warrants previously issued to two of its senior lenders to purchase one million shares of the Company's common stock from an exercise price of $2.25 per share to $2.02 per share. Principal outstanding under the Credit Facility is due at maturity on December 31, 2002 with interest due monthly for base rate tranches or periodically as LIBOR tranches mature. The annual interest rate for borrowings is either the lender's base rate or LIBOR plus 3%, at the Company's option. The obligation is secured by substantially all of the Company's oil and natural gas properties and other tangible assets. At December 31, 2000, the Company had $75 million in borrowing outstanding under the Credit Facility. The Credit Facility has certain financial covenants, including current and interest coverage ratios, minimum current ratio, minimum interest coverage ratio, and the limitation on capital expenditures related to seismic and land activities. F-12 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Senior Subordinated Notes Payable In August 1998, 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 "Subordinated Notes") with warrants (the "Warrants") to purchase the Company's common stock and the sale of $10 million of the Company's common stock, or 1,052,632 shares at a price of $9.50 per share. The combined sale of the Subordinated Notes and common stock of the Company generated proceeds, net of transaction costs, of approximately $47.5 million that was used to repay a portion of the then outstanding borrowings under the Credit Facility. Principal outstanding under the Subordinated Notes was due at maturity on August 20, 2003. Interest on the Subordinated Notes was payable quarterly at rates that vary depending upon whether accrued interest was paid in cash or "in kind" through the issuance of additional Subordinated Notes. Interest was payable in cash at interest rates of 12%, 13%, and 14% during the years one through three, year four and year five, respectively, of the term of the Subordinated Notes; provided, however, that the Company was permitted to pay interest in kind for a cumulative total of seven (or potentially eight) quarterly interest payments at interest rates of 13%, 14% and 15% during the years one through three, year four and year five, respectively, of the term of the Subordinated Notes. The Company was permitted to repay the Subordinated Notes in full without premium at any time prior to maturity. The indenture governing the Subordinated Notes contained certain covenants including, but not limited to, limitations or restrictions on indebtedness, distributions, affiliate transactions, liens and sale and leaseback transactions. The indenture prohibited all dividends on the Company's stock. Warrants to purchase 1 million shares of the Company's common stock exercisable during a period of seven years at a price of $10.45 per share were issued in connection with the Subordinated Notes. Concurrent with the issuance of the Subordinated Notes, the Company recorded a discount on the Subordinated Notes of $4.5 million to reflect the estimated value of the Warrants. Also, in connection with the issuance of the Subordinated Notes, certain fees and expenses totaling approximately $1.8 million were recorded as deferred costs. The Subordinated Note discount and deferred fees were amortized over the five-year term of the Subordinated Notes. In March 1999, the indenture governing the Subordinated Notes was amended to provide the Company with the option to pay interest due on the Subordinated Notes in kind, for any reason, through the second quarter of 2000. The amendment also provided for a reduction in the exercise price per share of the Warrants from $10.45 per share to $3.50 per share. The discount on the Subordinated Notes was decreased by $479,000 to reflect the change in value attributed to the Warrants as a result of the revision in the terms of the Warrants. In February 2000, the indenture governing the Subordinated Notes was amended to, among other things, provide the Company with an extension of its right to pay interest through the issuance of additional Subordinated Notes in lieu of cash (or "in kind") through the third quarter of 2000 and potentially through the fourth quarter of 2000 if certain conditions were met. In exchange for granting these amendments, the Company (i) reset the price of the warrants previously issued to the holders of the Subordinated Notes to purchase one million shares of the Company's common stock from an exercise price of $3.50 per share to $2.43 per share and (ii) granted to the holders of the Subordinated Notes a term overriding royalty interest that provided for the limited right to receive 4%, or 3% if certain conditions were met, of the Company's net production revenue to reduce any outstanding Subordinated Notes issued as interest paid in kind. As payments were made pursuant to the term overriding royalty interest, they were recorded by the Company as a reduction of the balance payable pursuant to the Subordinated Notes. On November 1, 2000, the Subordinated Notes, the term overriding royalty interest and all of the equity securities of the Company held by the holders of the Subordinated Notes were purchased by the Company for $20 million cash F-13 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) resulting in an extraordinary gain of $32.3 million, net of transaction costs of $1.7 million. In October 2000, the Company issued $20 million of new subordinated notes to Shell Capital Inc. (the "SCI Notes") and 1,250,000 warrants to purchase the Company's common stock (the "SCI Warrants"). The SCI Notes bear interest at 10.75% per annum and have no principal repayment obligations until maturity in 2005. The SCI Notes are issued pursuant a multi-draw facility at borrowing increments of at least $1 million, and such funds cannot be redrawn once they have been repaid. Interest is payable quarterly on the last day of each January, April, July and October. At the Company's option, up to 50% of the interest payments during the first two years can be satisfied by payment-in-kind ("PIK") through the issuance of additional SCI Notes in lieu of cash. The SCI Notes are secured obligations ranking junior to the Company's existing $75 million Credit Facility, have a five-year maturity, are redeemable at the Company's option for face value at anytime and have certain financial and other covenants. The SCI Warrants have a term of seven years, an exercise price of $3.00 per share and a cashless exercise feature. The Company valued the SCI Warrants using the Black-Scholes valuation model and recorded the estimated value of $2.9 million as deferred loan costs which are amortized over the five year term of the SCI Notes. As of December 31, 2000, the outstanding balance of the SCI Notes totaled $7 million. 6. Series A Preferred Stock On October 31, 2000, the Company issued one million shares of mandatorily redeemable preferred stock (the "Series A Preferred Stock") and 6,666,667 warrants to purchase the Company's common stock (the "Series A Warrants") for net proceeds of $19.8 million. The proceeds from the issuance of the Series A Preferred Stock and Series A Warrants were used to purchase the Subordinated Notes, the term overriding royalty interest and all of the equity securities of the Company held by the holder of the Subordinated Notes as described in Note 5. The Company designated 1.5 million shares of preferred stock as Series A Preferred Stock, which has a par value of $.01 per share and a stated value of $20 per share, in October 2000. The Series A Preferred Stock is cumulative and pays dividends quarterly at a rate of 6% per annum of the stated value if paid in cash or 8% per annum of the stated value if paid-in-kind ("PIK") through the issuance of additional Series A Preferred Stock in lieu of cash. At the Company's option, up to 100% of the dividend payments on the Series A Preferred Stock can be paid by the issuance of PIK dividends until November 2005. The Series A Preferred Stock matures in November 2010 and is redeemable at the Company's option at 100% or 101% of par value (depending upon certain conditions) at anytime prior to maturity. As of December 31, 2000, the Company had one million shares of Series A Preferred Stock issued and outstanding with a $20 million liquidation value. The Series A Warrants have a term of ten years, an exercise price of $3.00 per share and must be exercised, if the Company so requires, in the event the Company's common stock trades at or above $5.00 per share for 60 consecutive trading days. The exercise price of the Series A Warrants is payable either in cash or in shares of the Series A Preferred Stock valued at liquidation value plus accrued dividends. If the Company requires exercise of the Series A Warrants, proceeds will be used to fund the redemption of a similar value of then outstanding Series A Preferred Stock. The Series A Warrants were valued at $11.5 million using the Black-Scholes valuation model and were recorded as additional paid-in capital in the year ended December 31, 2000. F-14 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 7. Issuance of Common Stock In February 2000, the Company issued 2,195,122 shares of common stock and 731,707 warrants to purchase the Company's common stock for total net proceeds of $4.2 million in a private placement to a group of institutional investors led by affiliates of two members of the Company's board of directors. The equity sale consisted of units that included one share of common stock and one-third of a warrant to purchase the Company's common stock at an exercise price of $2.5625 per share. 8. Capital Lease Obligations Property under capital leases consists of the following (in thousands):
December 31, ------------------------ 2000 1999 -------- -------- 3-D seismic interpretation workstations and software ............ $ 601 $ 607 Office furniture and equipment .................................. 167 167 -------- -------- 768 774 Accumulated depreciation and amortization ....................... (587) (410) -------- -------- $ 181 $ 364 ======== ========
The obligations under capital leases are at fixed interest rates ranging from 7.5% to 17.9% and are collateralized by property, plant and equipment. The future minimum lease payments under the capital leases and the present value of the net minimum lease payments at December 31, 2000 are as follows (in thousands): 2001 ......................................................... $ 115 2002 ......................................................... 27 ------- Total minimum lease payments ................................. 142 Estimated executory costs included in capital leases ..... (7) ------- Net minimum lease payments ................................... 135 Amounts representing interest ............................ (9) ------- Present value of net minimum lease payments .................. 126 Less: current portion ....................................... (102) ------- Noncurrent portion ........................................... $ 24 ======= F-15 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 9. Income Taxes The provision for income taxes consists of the following (in thousands): Year ended December 31, --------------------- 2000 1999 -------- -------- Current income taxes: Federal .............................. $ -- $ -- State ................................ -- -- Deferred income taxes: Federal .............................. -- -- State ................................ -- -- -------- -------- $ -- $ -- ======== ======== The difference in income taxes provided and the amounts determined by applying the federal statutory tax rate to income before income taxes result from the following (in thousands): Year ended December 31, --------------------- 2000 1999 -------- -------- Tax at statutory rate .................... $ 5,814 $ (7,570) Add the effect of: Nondeductible expenses ............... 12 8 Valuation allowance .................. (5,826) 7,562 -------- -------- $ -- $ -- ======== ======== The components of deferred income tax assets and liabilities are as follows (in thousands): December 31, --------------------- 2000 1999 -------- -------- Deferred tax assets: Net operating loss carryforwards ..... $ 26,329 $ 18,796 Amortization of stock compensation ... 305 266 Derivatives .......................... 3,434 -- Other ................................ 26 27 -------- -------- 30,094 19,089 Deferred tax liability: Depreciable and depletable property .. (17,578) (484) Valuation allowance .................. (12,516) (18,605) -------- -------- $ -- $ -- ======== ======== F-16 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) At December 31, 2000, the Company has regular tax net operating loss carryforwards of approximately $75.2 million of which $13.2 million expires in 2012, $26.4 million expires in 2018, $22.2 expires in 2019 and $13.4 million expires in 2020. In addition, at December 31, 2000, the Company has alternative minimum tax net operating loss carryforwards of approximately $63.3 million of which $8.6 million expires in 2012, $23.2 million expires in 2018, $21.6 million expires in 2019 and $9.9 million expires in 2020. 10. Net Income (Loss) Per Share The Company accounts for its earnings per share in accordance with Statement of Financial Accounting Standards No. 128, "Earnings per Share" which replaced the calculation of primary and fully diluted earnings per share with basic and diluted earning per share. Basic earnings per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. The computation of diluted net income (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the earnings of the Company. The number of common share equivalents outstanding is computed using the treasury stock method. At December 31, 2000, 1999, and 1998, options and warrants to purchase approximately 11.1 million, 3.5 million and 2.2 million shares of common stock, respectively, were outstanding but were not included in the computation of diluted income (loss) per share because the effect of including the options and warrants would have been anti-dilutive. 11. Contingencies, Commitments and Factors Which May Affect Future Operations Litigation The Company is, from time to time, party to certain lawsuits and claims arising in the ordinary course of business. While the outcome of lawsuits and claims cannot be predicted with certainty, management does not expect these matters to have a materially adverse effect on the financial condition, results of operations or cash flows of the Company. As of December 31, 2000, there were no known environmental or other regulatory matters related to the Company's operations which are reasonably expected to result in a material liability to the Company. Compliance with environmental laws and regulations has not had, and is not expected to have, a material adverse effect on the Company's capital expenditures, earnings or competitive position. Operating Lease Commitments The Company leases office equipment and space under operating leases expiring at various dates through 2002. The future minimum annual rental payments under the noncancelable terms of these leases at December 31, 2000 are as follows (in thousands): 2001................................................... $ 790 2002................................................... 395 ------------ $ 1,185 ============ Rental expense for the years ended December 31, 2000, 1999 and 1998 was approximately $805,000, $938,000 and $875,000, respectively. F-17 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Major Customers The following purchasers accounted for 10% or more of the Company's oil and natural gas sales for the years ended December 31, 2000, 1999 and 1998: 2000 1999 1998 ---- ---- ---- Purchaser A ............................. 36% 26% 25% Purchaser B ............................. 20% 16% 11% Purchaser C ............................. -- 11% -- Purchaser D ............................. -- -- 15% Purchaser E ............................. -- -- 11% Due to the availability of other purchasers, the Company does not believe that the loss of any one of these individual purchasers would adversely affect the Company's result of operations. Factors Which May Affect Future Operations Since the Company's major products are commodities, significant changes in the prices of oil and natural gas could have a significant impact on the Company's results of operations for any particular year. 12. Financial Instruments The Company periodically enters into commodity price swap agreements which require payments to (or receipts from) counterparties based on the differential between a fixed price and a variable price for a fixed quantity of natural gas or crude oil without the exchange of the underlying volumes. The notional amounts of these derivative financial instruments are based on planned production from existing wells. The Company uses these derivative financial instruments to manage market risks resulting from fluctuations in commodity prices. Commodity price swaps are effective in minimizing these risks by creating essentially equal and offsetting market exposures. In February 1998, the Company entered into a hedging contract whereby 10,000 MMBtu per day of natural gas was purchased and sold subject to a fixed price swap agreement for monthly periods from April 1998 through October 1999. Pursuant to these arrangements the Company exchanged a floating market price for a contract month and payments were received when the fixed price exceeded the floating price. Total natural gas subject to this hedging contract was 3,040,000 MMBtu in 1999 and 2,750,000 MMBtu in 1998. In August 1998, the Company entered into a hedging contract whereby 5,000 MMBtu per day of natural gas was purchased and sold subject to a fixed price swap agreement for monthly periods from April 1999 through October 1999. Pursuant to these arrangements the Company exchanged a floating market price for a fixed contract price of $2.015 per MMBtu. Payments were made by the Company when the floating price exceeded the fixed price for a contract month and payments were received when the fixed price exceeded the floating price. Total natural gas subject to this hedging contract was 1,070,000 MMBtu in 1999. In January 1999, the Company entered into a swap agreement with terms similar to existing agreements which related to production for monthly periods from November 1999 through March 2000. Pursuant to these arrangements, 15,000 MMBtu per day of natural gas was purchased and sold subject to a fixed price swap agreement, and the F-18 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Company exchanged a floating market price for a fixed contract price of $2.065 per MMBtu. Total natural gas volumes subject to this agreement were 1,365,000 MMBtu in 2000 and 915,000 MMBtu in 1999. As a result of these arrangements, the Company realized an increase (decrease) in oil and natural gas revenues of approximately $(482,000), $(486,000), and $555,000 for the years ending December 31, 2000, 1999, and 1998, respectively. To the extent that notional amounts covered by these arrangements exceed actual production quantities, a corresponding portion of the contracts has been recorded on the balance sheet at fair value which approximated $0 and $291,000 as of December 31, 2000 and 1999, respectively. Additionally, the mark-to-market adjustments and related cash flows associated with this portion of these contracts of approximately $291,000 and $(429,000) have been recorded as a component of other income (expense) on the 2000 and 1999 statements of operations, respectively. In September 1999, the Company amended the fixed contract price from $2.065 per MMBtu to a range from $2.509 to $2.678 per MMBtu for natural gas volumes for the months of October 1999 through January 2000 under the then outstanding swap agreement. This resulted in a deferred loss of $1.1 million to be amortized to oil and natural gas revenues and other income (expense) over the original contract period of October 1999 through January 2000. For the year ended December 31, 2000, approximately $285,000 was amortized to oil and natural gas revenues and, for the year ended December 31, 1999, approximately $645,000 was amortized to oil and natural gas revenues and approximately $129,000 was amortized to other income. In March 2000, the Company redesignated or replaced the 15,000 MMBtu per day swap of natural gas production with three swap agreements of 5,000 MMBtu per day for the period from April 1, 2000 through April 30, 2001 at fixed prices of $2.065 per MMBtu, $2.0575 per MMBtu, and $2.15 per MMBtu. The floating prices in the replacement swap agreements represent the principal geographic markets in which the Company produces and sells the natural gas which provides a better hedge of commodity price risks. Total natural gas subject to these agreements in 2000 and 2001 are 4,125,000 MMBtu and 1,800,000 MMBtu, respectively. The Company realized a decrease in oil and natural gas revenues of $9.4 million for the year ended December 31, 2000. In September 1999, the Company entered into a natural gas cap contract that provides the counterparty with a call option on 10,000 MMBtu per day of natural gas production for the monthly periods from May 2001 through June 2002. Payments are made by the Company to the counterparty when the floating price exceeds the fixed price of $2.50 per MMBtu for the periods May 2001 through October 2001 and May 2002 through June 2002, and $2.70 per MMBtu for the period November 2001 through April 2002. These instruments do not qualify for hedge accounting and, accordingly, were recorded on the date of the transaction at their fair value of $1.1 million as a deferred credit on the balance sheet. As of December 31, 2000 and 1999, the fair value of the remaining contracts approximated $10.1 million and $875,000, respectively, with the corresponding mark-to-market adjustments and related cash flows recorded as a component of other income (expense) on the statement of operations. In March 2000, the Company entered into a combination of crude oil floor and cap options on the sale of 400 barrels per day of production for the period January 1, 2001 through June 30, 2001. Under this collar arrangement, the Company will receive a minimum price of $18.00 per barrel and a maximum of $26.60 per barrel. The Company concurrently established a collar on 200 barrels per day of oil production for the period July 1, 2001 through December 31, 2001. The minimum and maximum prices for this collar are $16.10 and $25.25 per barrel, respectively. The Company's non-derivative financial instruments include cash and cash equivalents, accounts receivable, accounts payable and long-term debt. The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of their immediate or short maturities. The carrying value of the F-19 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Company's revolving credit facility approximates its fair market value since it bears interest at floating market interest rates. The Company's accounts receivable relate to oil and natural gas to various industry companies, amounts due from industry participants for expenditures made by the Company on their behalf and workstation revenues. Credit terms, typical of industry standards, are of a short-term nature and the Company does not require collateral. The Company's accounts receivable at December 31, 2000 and 1999 do not represent significant credit risks as they are dispersed across many counterparties. Counterparties to the natural gas and crude oil price swaps are investment grade financial institutions. 13. Employee Benefit Plans Retirement Savings Plan The Company has adopted a defined contribution 401(k) plan for substantially all of its employees. Eligible employees may contribute up to 25% of their compensation to this plan. The 401(k) plan provides that the Company may, at its discretion, match employee contributions. The Company has not matched employee contributions in any plan year. Stock Compensation In 1994, three employees were granted restricted interests in the Company that vested in increments through July 1999. At the date of grant, the value of these interests was immaterial. On February 26, 1997, in connection with the Exchange (see Note 1), the three employees transferred these interests to the Company in exchange for 156,250 shares of restricted common stock of the Company. The terms of the restricted stock and the restricted Company interests are substantially the same. No compensation expense resulted from this exchange. The Company adopted an incentive plan, effective upon completion of the Exchange (see Note 1), which provides for the issuance of stock options, stock appreciation rights, stock, restricted stock, cash or any combination of the foregoing. The objective of this plan is to reward key employees whose performance may have a significant effect on the success of the Company. An aggregate of 1,588,170 shares of the Company's common stock was reserved for issuance pursuant to this plan. The Compensation Committee of the Board of Directors determines the type of awards made to each participant and the terms, conditions and limitations applicable to each award. Options granted subsequent to March 4, 1997 have an exercise price equal to the fair market value of the Company's common stock on the date of grant and generally vest over three to five years. The Company also maintains a plan under which it offers stock compensation to non-employee directors. Pursuant to the terms of the plan, non-employee directors are entitled to annual grants. Options granted under this plan have an exercise price equal to the fair market value of the Company's common stock on the date of grant and generally vest over five years. F-20 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) The following table summarizes activity under the incentive plan for each of the three years ended December 31, 2000: Weighted Average Exercise Shares Price --------- -------- Options outstanding December 31, 1997 ......... 628,737 $ 5.03 Options granted ......................... 873,500 8.62 Options forfeited or cancelled .......... (307,583) (12.88) Options exercised ....................... -- -- --------- -------- Options outstanding December 31, 1998 ......... 1,194,654 5.63 Options granted ......................... 650,000 2.43 Options forfeited or cancelled .......... (324,761) (4.68) Options exercised ....................... (167) (7.46) --------- -------- Options outstanding December 31, 1999 ......... 1,519,726 4.47 Options granted ......................... 793,500 2.83 Options forfeited or cancelled .......... (898,112) (5.57) Options exercised ....................... (8,000) (5.11) --------- -------- Options outstanding December 31, 2000 ......... 1,407,114 $ 2.89 ========= ======== The Company is required to use variable accounting for 252,500 of the stock options granted during 2000. This method of accounting requires recognition of noncash compensation expense for the difference between the option exercise price and the market price of the Company's stock at the end of the accounting period of vested options. Since the market price for the Company's stock is a component of the variable cost accounting calculation, it is not possible to determine the total noncash compensation expense that will be recognized during the vesting period of these options. On December 14, 1998, the Board of Directors approved a proposal to cancel and reissue outstanding employee stock options that were granted in January 1998 with an exercise price of $12.88. A total of 305,250 options with an exercise price of $12.88 per share were cancelled and reissued with an exercise price of $6.31 per share, the fair market value of the Company's stock at the date of reissuance. Vesting schedules remained unchanged by the reissuance. Exercise prices for options outstanding at December 31, 2000 range from $1.5545 to $14.375 and have remaining contract lives of 1 to 7 years. Exercise prices for options outstanding at December 31, 1999 range from $1.5545 to $14.375 and remaining contractual lives range from 4.5 to 7 years. Exercise prices for options outstanding at December 31, 1998 range from $5.00 to $14.375 and remaining contractual lives range from 5.5 to 7 years. Exercise prices for options outstanding at December 31, 1997 range from $5.00 to $14.375 and remaining contractual lives range from 5.5 to 6 years. Options exercisable at December 31, 2000, 1999 and 1998 were 247,450, 291,242 and 145,740, respectively. The weighted average fair value per share of stock compensation issued during 2000, 1999 and 1998 was $1.92, $1.42 and $5.40, respectively. The fair value for these options was estimated using the Black-Scholes model with the following weighted average assumptions for grants made in 2000, 1999 and 1998: risk free interest rate of 6.2%, 6.0% and 4.7%; volatility of the expected market prices of the Company's common stock of 67%, 57% and 77%; expected dividend yield of zero and weighted average expected option lives of 6.6, 5.6 and 5.0 years, respectively. F-21 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) The Black-Scholes valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are transferable. Additionally, the assumptions required by the valuation model are highly subjective. Because the Company's stock options have significantly different characteristics from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion the model does not necessarily provide a reliable single measure of the fair value of the Company's stock options. Had compensation cost for the Company's stock options been determined based on the fair market value at the grant dates of the awards consistent with the methodology prescribed by FAS No. 123, the Company's net income (loss) and net income (loss) per share for 2000, 1999 and 1998 would have been the pro forma amounts indicated below:
2000 1999 1998 ---------- ---------- ---------- Net income (loss) (in thousands): As reported ....................................... $ 16,612 $ (21,628) $ (33,345) Pro forma ......................................... 17,744 (21,605) (33,591) Net income (loss) per share: As reported ....................................... 1.01 (1.53) (2.64) Pro forma ......................................... 1.09 (1.53) (2.66)
The Company granted 644,097 stock options as of March 4, 1997. These options have an exercise price of $5.00 compared to an originally determined estimated fair market value of the Company's common stock at date of grant of $8.00. This grant resulted in noncash compensation expense that is being recognized over the related vesting period of the options. In January 1998, the Company revised the fair market value of its common stock at the date these options were granted from $8.00 to $9.00. The result of this revision was an increase in the 1997 net loss of approximately $81,000, or $0.01 per share. Exchange of Certain Options for Shares of Restricted Stock On October 25, 2000, the compensation committee of the Board of Directors approved a proposal to give its employees a one-time right to elect to cancel all or half of their outstanding employee stock options which were previously granted with exercise prices of $5.00 per share (the "$5 Options") or $6.31 per share (the "$6.31 Options") and to receive in exchange shares of restricted stock under the Company's 1997 Incentive Plan. The exchange ratios were .643 shares of restricted stock for each share of common stock underlying a $5 Option and .4 shares of restricted stock for each share of common stock underlying a $6.31 Option. Pursuant to the option exchange offer, on October 27, 2000, a total of 244,794 of the $5 Options were canceled in exchange for 157,401 shares of restricted stock, and a total of 379,665 of the $6.31 Options were canceled in exchange for 151,866 shares of restricted stock. Regardless of whether the canceled options were vested or unvested, the shares of restricted stock vest 25% per year beginning October 27, 2000. The restricted stock agreements contain provisions for accelerated vesting in some circumstances, which provisions are similar to those in the agreements covering the canceled options. This exchange resulted in noncash compensation expense of approximately $1.1 million that is being recognized over the vesting period of the restricted stock. F-22 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 14. Related Party Transactions During the years ended December 31, 2000, 1999 and 1998, the Company incurred costs of approximately $138,000, $180,000 and $851,000, respectively, for fees for land acquisition services performed by a company owned by a brother of the Company's President and Chief Executive Officer. Other participants in the Company's 3-D seismic projects reimbursed the Company for a portion of these amounts. A director of the Company served as a consultant to the Company on various aspects of the Company's business and strategic issues. Fees paid for these services by the Company were $32,709, $62,874 and $100,539 for the years ended December 31, 2000, 1999 and 1998, respectively. Additional disbursements totaling approximately $12,000, $12,000 and $12,000 were made during 2000, 1999 and 1998, respectively, for the reimbursement of certain expenses. 15. Supplemental Cash Flow Information
2000 1999 1998 -------- -------- -------- Cash paid for interest .......................................................... $ 3,894 $ 1,960 $ 5,490 Noncash investing and financing activities: Capital lease asset additions ................................................. $ -- $ 51 $ 320 Decrease in accounts payable and other noncurrent liabilities in exchange for issuance of common stock ...................................... -- 4,240 -- Increase in accounts payable for deferred loan fees to be paid in future ...... -- 50 -- Increase in deferred loan fees for issuance of warrants ....................... 2,400 1,228 -- Dividends and accretion on mandatorily redeemable preferred stock ............. 275 -- --
16. Subsequent Events Duke Project In February 2001, Duke, as majority member of the Duke LLC (as described in Note 3) elected to dissolve the Duke LLC. As a result, the remaining undeveloped land and seismic data in the Duke LLC project areas will be unconditionally owned by Duke following the dissolution of the Duke LLC. Preferred Stock Placement In March 2001, the Company issued 500,000 shares of Series A Preferred Stock and 2,105,263 warrants to purchase the Company's common stock (the "Additional Series A Warrants") for $10 million. The Series A Preferred Stock, which is mandatorily redeemable, is described in Note 6. The Additional Series A Warrants have terms similar to the Series A Warrants described in Note 6 except the Additional Series A Warrants have an exercise price of $4.75 per share and must be exercised, if the Company so requires, in the event that the Company's common stock trades at an average of at least 150% of the exercise price (currently $7.125 per share) for 60 consecutive trading days. The Additional Series A Warrants are valued at approximately $4.5 million using the Black-Scholes valuation model and were recorded as additional paid-in capital in March 2001. F-23 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 17. Oil and Natural Gas Exploration and Production Activities The tables presented below provide supplemental information about oil and natural gas exploration and production activities as defined by SFAS No. 69, "Disclosures about Oil and Gas Producing Activities". Results of Operations for Oil and Natural Gas Producing Activities (in thousands)
Year ended December 31, ------------------------------------ 2000 1999 1998 --------- --------- ---------- Oil and natural gas sales............................................... $ 19,143 $ 14,992 $ 13,799 Costs and expenses: Lease operating..................................................... 2,139 2,259 2,172 Production taxes.................................................... 1,786 968 850 Depletion of oil and natural gas properties......................... 7,920 7,792 8,483 Capitalized ceiling impairment...................................... - - 25,926 Income tax expense (benefit) (a).................................... 2,554 1,391 (8,271) --------- --------- ---------- Total costs and expenses................................................ 14,399 12,410 29,160 --------- --------- ---------- $ 4,744 $ 2,582 $ (15,361) ========= ========= ========== Depletion per physical unit of production (equivalent Mcf of gas)....... $ 1.20 $ 1.24 $ 1.27 ========= ========= ==========
------------ (a) The income tax expense (benefit) is calculated at the statutory rate and determined without regard to the Company's deduction for general and administrative expenses, interest costs and other income tax deductions and credits. Oil and natural gas sales reflect the market prices of net production sold or transferred with appropriate adjustments for royalties, net profits interest and other contractual provisions. Lease operating expenses include lifting costs incurred to operate and maintain productive wells and related equipment including such costs as operating labor, repairs and maintenance, materials, supplies and fuel consumed. Production taxes include production and severance taxes. Depletion of oil and natural gas properties relates to capitalized costs incurred in acquisition, exploration and development activities. Results of operations do not include interest expense and general corporate amounts. Costs Incurred and Capitalized Costs The costs incurred in oil and natural gas acquisition, exploration and development activities follow (in thousands):
December 31, -------------------------------------- 2000 1999 1998 ---------- ---------- ---------- Costs incurred for the year: Exploration..................................................... $ 14,238 $ 19,224 $ 68,214 Property acquisition............................................ 2,540 3,462 16,245 Development..................................................... 12,555 4,632 10,475 Proceeds from participants...................................... (40) (2,439) (10,502) ---------- ---------- ---------- $ 29,293 $ 24,879 $ 84,432 ========== ========== ==========
F-24 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Costs incurred represent amounts incurred by the Company for exploration, property acquisition and development activities. Periodically, the Company will receive proceeds from participants subsequent to project initiation for an assignment of an interest in the project. These payments are represented by "Proceeds from participants" in the table above. Capitalized costs related to oil and natural gas acquisition, exploration and development activities follow (in thousands):
December 31, --------------------------- 2000 1999 ----------- ----------- Cost of oil and natural gas properties at year-end: Proved................................................... $ 162,482 $ 138,237 Unproved................................................. 41,617 40,518 ----------- ----------- Total capitalized costs.................................. 204,099 178,755 Accumulated depletion.................................... (74,609) (66,689) ----------- ----------- $ 129,490 $ 112,066 =========== ===========
Following is a summary of costs (in thousands) excluded from depletion at December 31, 2000 by year incurred. At this time, the Company is unable to predict either the timing of the inclusion of these costs and the related natural gas and oil reserves in its depletion computation or their potential future impact on depletion rates.
December 31, ----------------------------------- Prior 2000 1999 1998 Years Total --------- --------- --------- -------- --------- Property acquisition.......................... $ 1,126 $ 933 $ 4,000 $ 7,396 $ 13,455 Exploration................................... 595 1,015 13,107 8,480 23,197 Capitalized interest.......................... 2,772 1,951 242 -- 4,965 --------- --------- --------- -------- --------- Total $ 4,493 $ 3,899 $ 17,349 $ 15,876 $ 41,617 ========= ========= ========= ======== =========
F-25 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 18. Oil and Natural Gas Reserves and Related Financial Data (Unaudited) Information with respect to the Company's oil and natural gas producing activities is presented in the following tables. Reserve quantities as well as certain information regarding future production and discounted cash flows were determined by the Company's independent petroleum consultants and internal petroleum reservoir engineer. Oil and Natural Gas Reserve Data The following tables present the Company's estimates of its proved oil and natural gas reserves. The Company emphasizes that reserve estimates are approximates and are expected to change as additional information becomes available. Reservoir engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact way, and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Accordingly, there can be no assurance that the reserves set forth herein will ultimately be produced nor can there be assurance that the proved undeveloped reserves will be developed within the periods anticipated. A substantial portion of the reserve balances was estimated utilizing the volumetric method, as opposed to the production performance method.
Natural Gas Oil (MMcf) (MBbls) ------- ------ Proved reserves at December 31, 1997........................................... 53,230 3,181 Revisions to previous estimates............................................. (26,696) (115) Extensions, discoveries and other additions................................. 48,050 1,752 Purchase of minerals-in-place............................................... 851 11 Production.................................................................. (4,269) (396) ------- ------ Proved reserves at December 31, 1998........................................... 71,166 4,433 Revisions to previous estimates............................................. (9,938) 214 Extensions, discoveries and other additions................................. 30,428 1,156 Sales of minerals-in-place.................................................. (22,002) (2,430) Production.................................................................. (4,197) (346) ------- ------ Proved reserves at December 31, 1999........................................... 65,457 3,027 Revisions of previous estimates............................................. 83 (554) Extensions, discoveries and other additions................................. 17,058 758 Production.................................................................. (4,431) (361) ------- ------ Proved reserves at December 31, 2000........................................... 78,167 2,870 ======= ====== Proved developed reserves at December 31: 1998........................................................................ 38,571 2,935 1999........................................................................ 28,594 1,873 2000........................................................................ 30,754 1,620
Proved reserves are estimated quantities of natural gas and crude oil which geological and engineering data indicate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. F-26 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Standardized Measure of Discounted Future Net Cash Inflows and Changes Therein The following table presents a standardized measure of discounted future net cash inflows (in thousands) relating to proved oil and natural gas reserves. Future cash flows were computed by applying year-end prices of oil and natural gas relating to the Company's proved reserves to the estimated year-end quantities of those reserves. Future price changes were considered only to the extent provided by contractual agreements in existence at year-end. Future production and development costs were computed by estimating those expenditures expected to occur in developing and producing the proved oil and natural gas reserves at the end of the year, based on year-end costs. Actual future cash inflows may vary considerably and the standardized measure does not necessarily represent the fair value of the Company's oil and natural gas reserves.
December 31, -------------------------------------- 2000 1999 1998 ---------- ---------- ---------- Future cash inflows................................................ $ 899,819 $ 228,429 $ 198,082 Future development and production costs............................ (154,295) (61,878) (61,064) Future income taxes................................................ (216,342) (12,406) (6,972) ---------- ---------- ---------- Future net cash inflows............................................ $ 529,182 $ 154,145 $ 130,046 Future net cash inflow before income taxes, discounted at 10% per annum............................................... $ 497,666 $ 114,466 $ 81,741 Standardized measure of future net cash inflows discounted at 10% per annum............................................... $ 359,228 $ 113,546 $ 81,649 ========== ========== ==========
The base sales prices for the Company's reserves were $10.42 per Mcf for natural gas and $26.83 per Bbl for oil as of December 31, 2000, $2.35 per Mcf for natural gas and $22.75 per Bbl for oil as of December 31, 1999, and $2.12 per Mcf for natural gas and $9.50 per Bbl for oil as of December 31, 1998. These base prices were adjusted to reflect applicable transportation and quality differentials on a well-by-well basis to arrive at realized sales prices used to estimate the Company's reserves at these dates. F-27 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Changes in the future net cash inflows discounted at 10% per annum follow (in thousands):
December 31, -------------------------------------- 2000 1999 1998 ---------- ---------- ---------- Beginning of period................................................. $ 113,546 $ 81,649 $ 64,274 Sales of oil and natural gas produced, net of production costs...................................................... (15,218) (11,765) (10,776) Development costs incurred...................................... 5,308 4,413 5,423 Extensions and discoveries...................................... 295,239 43,346 52,389 Purchases of minerals-in-place.................................. - - 687 Sales of minerals-in-place...................................... - (32,783) - Net change of prices and production costs....................... 175,018 33,226 (11,921) Change in future development costs.............................. 6,990 (555) (656) Changes in production rates and other........................... (83,322) 637 (6,109) Revisions of quantity estimates................................. (12,262) (11,969) (23,470) Accretion of discount........................................... 11,447 8,174 6,925 Change in income taxes ......................................... (137,518) (827) 4,883 ---------- ---------- ---------- End of period $ 359,228 $ 113,546 $ 81,649 ========== ========== ==========
19. Quarterly Financial Data (Unaudited)
Year Ended December 31, 2000 --------------------------------------------------------- Quarter 1 Quarter 2 Quarter 3 Quarter 4 --------- --------- --------- --------- Revenue ............................................... $ 4,538 $ 4,651 $ 5,365 $ 4,642 Operating income ...................................... 1,136 1,078 1,198 219 Net loss before extraordinary gain .................... (2,198) (4,328) (5,345) (3,784) Extraordinary gain .................................... -- -- -- 32,267 Net income (loss) ..................................... (2,198) (4,328) (5,345) 28,208 Net loss per share: Basic/Diluted Net loss before extraordinary gain ............ (0.14) (0.26) (0.32) (0.25) Extraordinary gain ............................ -- -- -- 1.99 Year Ended December 31, 1999 --------------------------------------------------------- Quarter 1 Quarter 2 Quarter 3 Quarter 4 --------- --------- --------- --------- Revenue ............................................... $ 3,281 $ 3,624 $ 4,238 $ 4,134 Operating income (loss) ............................... 113 190 (432) 380 Net loss .............................................. (1,944) (14,839) (2,651) (2,194) Net loss per share: Basic/Diluted .................................... (0.15) (1.04) (0.18) (0.15)
F-28 INDEX TO EXHIBITS The following documents are filed as exhibits to this report: Number Description 2.1 -- Exchange Agreement (filed as Exhibit 2.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 3.1 -- Certificate of Incorporation (filed as Exhibit 3.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 3.1.1 -- Certificates of Amendmnt to Certificate of Incorporation (filed as Exhibit 3.1.1 to the Company's Registration Statement on Form S-3 (Registration No. 333-37558), and incorporated herein by reference). 3.2 -- Bylaws (filed as Exhibit 3.2 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 4.1 -- Form of Common Stock Certificate (filed as Exhibit 4.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 4.2 -- Certificate of Designations of Series A Preferred Stock (Par Value $.01 Per Share) of Brigham Exploration Company filed October 31, 2000 (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K, as amended (filed November 8, 2000), and incorporated herein by reference). 4.2.1+ -- Certificate of Amendment of Certificate of Designations of Series A Preferred Stock (Par Value $.01 Per Share) of Brigham Exploration Company, filed March 2, 2001. 10.1 -- Agreement of Limited Partnership, dated May 1, 1992, between Brigham Exploration Company and General Atlantic Partners III, L.P. as general partners, and Harold D. Carter and GAP-Brigham Partners, L.P. as limited partners (filed as Exhibit 10.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.1.1 -- Amendment No. 1 to Agreement of Limited Partnership of Brigham Oil & Gas, L.P., dated May 1, 1992, by and among Brigham Exploration Company, General Atlantic Partners III, L.P., GAP-Brigham Partners, L.P. and Harold D. Carter (filed as Exhibit 10.1.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.1.2 -- Amendment No. 2 to Agreement of Limited Partnership of Brigham Oil & Gas, L.P., dated September 30, 1994, by and among Brigham Exploration Company, General Atlantic Partners III, L.P., GAP-Brigham Partners, L.P., Harold D. Carter and the additional signatories thereto (filed as Exhibit 10.1.2 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.1.3 -- Amendment No. 3 to Agreement of Limited Partnership of Brigham Oil & Gas, L.P., dated August 24, 1995, by and among Brigham Exploration Company, General Atlantic Partners III, L.P., GAP-Brigham Partners, L.P., Harold D. Carter, Craig M. Fleming, David T. Brigham and Jon L. Glass (filed as Exhibit 10.1.3 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.1.4 -- Amended and Restated Agreement of Limited Partnership of Brigham Oil & Gas, L.P., dated December 30, 1997 by and among Brigham, Inc., Brigham Holdings I, L.L.C. and Brigham Holdings II, L.L.C. (filed as Exhibit 10.1.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998, and incorporated herein by reference) 10.2 -- Agreement of Limited Partnership of Venture Acquisitions, L.P., dated September 23, 1994, by and between Quest Resources, L.L.C. and RIMCO Energy, Inc. as general partners, and RIMCO Production Company, Inc., RIMCO Exploration Partners, L.P. I and RIMCO Exploration Partners, L.P. II, as limited partners (filed as Exhibit 10.2 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.3 -- Regulations of Quest Resources, L.L.C. (filed as Exhibit 10.3 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.4 -- Management and Ownership Agreement, dated September 23, 1994, by and among Brigham Oil & Gas, L.P., Brigham Exploration Company, General Atlantic Partners III, L.P., Harold D. Carter, Ben M. Brigham and GAP-Brigham Partners, L.P. (filed as Exhibit 10.4 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.5* -- Consulting Agreement, dated May 1, 1997, by and between Brigham Oil & Gas, L.P. and Harold D. Carter (filed as Exhibit 10.4 to the Company's Registration Statement on Form S-1 (Registration No. 33-53873), and incorporated herein by reference). 10.5.1* -- Letter agreement, dated as of March 20, 2000, setting forth amendments effective January 1, 2000, to the Consulting Agreement, dated May 1, 1997, by and between Brigham Oil & Gas, L.P. and Harold D. Carter (filed as Exhibit 10.5.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated herein by reference). 10.6* -- Employment Agreement, by and between Brigham Exploration Company and Ben M. Brigham (filed as Exhibit 10.7 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.7* -- Form of Confidentiality and Noncompete Agreement between the Registrant and each of its executive officers (filed as Exhibit 10.8 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.8* -- 1997 Incentive Plan of Brigham Exploration Company as amended on February 1, 2000 (filed as an amendment to the Company's definitive proxy statement filed on Schedule 14A on April 20, 2000, and incorporated herein by reference). 10.8.1* -- Form of Option Agreement for certain executive officers (filed as Exhibit 10.9.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.8.2*+ -- Form of Restricted Stock Agreement for certain executive officers dated as of October 27, 2000. 10.9* -- Incentive Bonus Plan dated as of February 28, 1997 of Brigham, Inc. and Brigham Oil & Gas, L.P. (filed as Exhibit 10.10 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.10 -- Two Bridgepoint Lease Agreement, dated September 30, 1996, by and between Investors Life Insurance Company of North America and Brigham Oil & Gas, L.P. (filed as Exhibit 10.14 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.10.1 -- First Amendment to Two Bridge Point Lease Agreement dated April 11, 1997 between Investors Life Insurance Company of North America and Brigham Oil & Gas, L.P. (filed as Exhibit 10.9.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-53873), and incorporated herein by reference). 10.10.2 -- Second Amendment to Two Bridge Point Lease Agreement dated October 13, 1997 between Investors Life Insurance Company of North America and Brigham Oil & Gas, L.P. (filed as Exhibit 10.9.2 to the Company's Registration Statement on Form S-1 (Registration No. 333-53873), and incorporated herein by reference). 10.10.3 -- Letter dated April 17, 1998 exercising Right of First Refusal to Lease "3rd Option Space" (filed as Exhibit 10.9.3 to the Company's Registration Statement on Form S-1 (Registration No. 333-53873), and incorporated herein by reference). 10.10.4 -- Sublease agreement dated as of November 16, 1999, by and between Brigham Oil & Gas, L.P., and ShowSupport.com, Inc. (filed as Exhibit 10.10.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated herein by reference). 10.11 -- Anadarko Basin Seismic Operations Agreement, dated February 15, 1996, by and between Brigham Oil & Gas, L.P. and Veritas Geophysical, Ltd. (filed as Exhibit 10.15 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.11.1 -- Letter Amendment to Anadarko Basin Seismic Operations Agreement, dated June 10, 1996, between Brigham Oil & Gas, L.P. and Veritas Geophysical, Ltd. (filed as Exhibit 10.15.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.12 -- Expense Allocation and Participation Agreement, dated April 1, 1996, between Brigham Oil & Gas, L.P. and Gasco Limited Partnership. (filed as Exhibit 10.16 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.12.1 -- Amendment to Expense Allocation and Participation Agreement, dated October 21, 1996, between Brigham Oil & Gas, L.P. and Gasco Limited Partnership (filed as Exhibit 10.16.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.13 -- Expense Allocation and Participation Agreement, dated April 1, 1996, between Brigham Oil & Gas, L.P. and Middle Bay Oil Company, Inc. (filed as Exhibit 10.17 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.13.1 -- Amendment to Expense Allocation and Participation Agreement, dated September 26, 1996, between Brigham Oil & Gas, L.P. and Middle Bay Oil Company, Inc. (filed as Exhibit 10.17.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.13.2 -- Letter Amendment to Expense Allocation and Participation Agreement, dated May 20, 1996, between Brigham Oil & Gas, L.P. and Middle Bay Oil Company, Inc. (filed as Exhibit 10.17.2 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.14 -- Anadarko Basin Joint Participation Agreement, dated May 1, 1996, by and among Stephens Production Company and Brigham Oil & Gas, L.P. (filed as Exhibit 10.18 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.15 -- Anadarko Basin Joint Participation Agreement, dated May 1, 1996, by and between Vintage Petroleum, Inc. and Brigham Oil & Gas, L.P. (filed as Exhibit 10.19 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.16 -- Processing Alliance Agreement, dated July 20, 1993, between Veritas Seismic Ltd. and Brigham Oil & Gas, L.P. (filed as Exhibit 10.20 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.16.1 -- Letter Amendment to Processing Alliance Agreement, dated November 3, 1994, between Veritas Seismic Ltd. and Brigham Oil & Gas, L.P. (filed as Exhibit 10.20.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.17 -- Agreement and Assignment of Interest, West Bradley Project, dated September 1, 1995, by and between Aspect Resources Limited Liability Company and Brigham Oil & Gas, L.P. (filed as Exhibit 10.21 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.18 -- Agreement and Assignment of Interests in lands located in Grady County, Oklahoma, West Bradley Project, dated December 1, 1995, by and between Aspect Resources Limited Liability Company, Brigham Oil & Gas, L.P. and Venture Acquisitions, L.P. (filed as Exhibit 10.22 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.19 -- Agreement and Assignment of Interests, West Bradley Project, dated December 1, 1995, by and between Aspect Resources Limited Liability Company and Brigham Oil & Gas, L.P. (filed as Exhibit 10.23 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.20 -- Geophysical Exploration Agreement, Hardeman Project, Hardeman and Wilbarger Counties, Texas and Jackson County, Oklahoma, dated March 15, 1993 by and among General Atlantic Resources, Inc., Maynard Oil Company, Ruja Muta Corporation, Tucker Scully Interests Ltd., JHJ Exploration, Ltd., Cheyenne Petroleum Company, Antrim Resources, Inc., and Brigham Oil & Gas, L.P. (filed as Exhibit 10.24 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.21 -- Agreement and Partial Assignment of Interests in OK13-P Prospect Area, Jackson County, Oklahoma (Hardeman Project), dated August 1, 1995, by and between Brigham Oil & Gas, L.P. and Aspect Resources Limited Liability Company (filed as Exhibit 10.25 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.22 -- Agreement and Partial Assignment of Interests in Q140-E Prospect Area, Hardeman County, Texas (Hardeman Project), dated August 1, 1995, by and between Brigham Oil & Gas, L.P. and Aspect Resources Limited Liability Company (filed as Exhibit 10.26 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.23 -- Agreement and Partial Assignment of Interests in Hankins #1 Chappel Prospect Agreement, Jackson County, Oklahoma (Hardeman Project), dated March 21, 1996, by and between Brigham Oil & Gas, L.P., NGR, Ltd. and Aspect Resources Limited Liability Company (filed as Exhibit 10.27 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.24 -- Form of Indemnity Agreement between the Registrant and each of its executive officers (filed as Exhibit 10.28 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.25 -- Registration Rights Agreement dated February 26, 1997 by and among Brigham Exploration Company, General Atlantic Partners III L.P., GAP-Brigham Partners, L.P., RIMCO Partners, L.P. II, RIMCO Partners L.P. III, and RIMCO Partners, L.P. IV, Ben M. Brigham, Anne L. Brigham, Harold D. Carter, Craig M. Fleming, David T. Brigham and Jon L. Glass (filed as Exhibit 10.29 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.26 -- 1997 Director Stock Option Plan (filed as Exhibit 10.30 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.27 -- Form of Employee Stock Ownership Agreement (filed as Exhibit 10.31 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.28 -- Agreement and Assignment of Interest in Geophysical Exploration Agreement, Esperson Dome Project, dated November 1, 1994, by and between Brigham Oil & Gas, L.P. and Vaquero Gas Company (filed as Exhibit 10.33 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.29 -- Geophysical Exploration Agreement, Southwest Danbury Project, Brazoria County, Texas, dated as of July 1, 1996, by and among UNEXCO, Inc. and Brigham Oil & Gas, L.P. (filed as Exhibit 10.34 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.30 -- Geophysical Exploration Agreement, Welder Project, Duval County, Texas, dated as of October 1, 1996, by and among UNEXCO, Inc. and Brigham Oil & Gas, L.P. (filed as Exhibit 10.35 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.31 -- Proposed Trade Structure, RIMCO/Tigre Project, Vermillion Parish, Louisiana, among Brigham Oil & Gas, L.P., Tigre Energy Corporation and Resource Investors Management Company (filed as Exhibit 10.36 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.31.1 -- Letter relating to Proposed Trade Structure, RIMCO/Tigre Project, dated January 31, 1997, from Resource Investors Management Company to Brigham Oil & Gas, L.P. (filed as Exhibit 10.36 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.31.2 -- Agreement dated March 6, 2000 by and between RIMCO Production Co., Tigre Energy Corporation and Brigham Oil & Gas, L.P. regarding modifications to the Proposed Trade Structure, RIMCO/Tigre Project, dated January 31, 1997. 10.32 -- Anadarko Basin Seismic Operations Agreement II, dated as of April 1, 1997, by and between Brigham Oil & Gas, L.P. (filed as Exhibit 10.37 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.32.1 -- Letter Amendment to Anadarko Basin Seismic Operations Agreement II, dated March 20, 1997, between Brigham Oil & Gas, L.P. and Veritas DGC Land, Inc. (filed as Exhibit 10.37 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.33 -- Expense Allocation and Participation Agreement II, dated April 1, 1997, between Brigham Oil & Gas, L.P., and Gasco Limited Partnership (filed as Exhibit 10.31 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, and incorporated herein by reference). 10.36 -- Credit Agreement dated as of January 26, 1998 among Brigham Oil & Gas, L.P., Bank of Montreal, as Agent, and the lenders signatory thereto (filed as Exhibit 10.36 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997, and incorporated herein by reference). 10.36.1 -- First Amendment to Credit Agreement dated as of August 20, 1998 among Brigham Oil & Gas, L.P., Bank of Montreal, as Agent, and the lenders signatory thereto (filed as Exhibit 10.36.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998, and incorporated herein by reference). 10.36.2 -- Second Amendment to Credit Agreement dated as of March 26, 1999 among Brigham Oil & Gas, L.P., Bank of Montreal, as Agent, and the lenders signatory thereto (filed as Exhibit 10.36.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998, and incorporated herein by reference). 10.37 -- Guaranty Agreement dated January 26, 1998 by Brigham Exploration Company in favor of Bank of Montreal, as Agent, and each of the Lenders party to the Credit Agreement (filed as Exhibit 10.33.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-53873), and incorporated herein by reference). 10.37.1 -- First Amendment to Guaranty Agreement dated as of March 30, 1998 between Brigham Exploration Company and Bank of Montreal, as Agent for the Lenders party to the Credit Agreement (filed as Exhibit 10.33.2 to the Company's Registration Statement on Form S-1 (Registration No. 333-53873), and incorporated herein by reference). 10.37.2 -- Second Amendment to Guaranty Agreement dated as of August 20, 1998 between Brigham Exploration Company and Bank of Montreal, as Agent for the Lenders party to the Credit Agreement (filed as Exhibit 10.37.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998, and incorporated herein by reference). 10.37.3 -- Third Amendment to Guaranty Agreement dated as of March 26, 1999 between Brigham Exploration Company and Bank of Montreal, as Agent for the Lenders party to the Credit Agreement (filed as Exhibit 10.37.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998, and incorporated herein by reference). 10.38 -- Exchange Agreement dated as of March 30, 1999 by and between Brigham Exploration Company and Veritas DGC Land, Inc. (filed as Exhibit 10.41 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998, and incorporated herein by reference). 10.39 -- Registration Rights Agreement dated as of March 30, 1999 by and between Brigham Exploration Company and Veritas DGC Land, Inc. (filed as Exhibit 10.42 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998, and incorporated herein by reference). 10.40 -- 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 (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 1999 and incorporated by reference herein). 10.41 -- 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 (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 1999 and incorporated by reference herein). 10.42* -- Agreement dated as of August 16, 1999 between Brigham Exploration Company and Jon L. Glass for the amendment of an Employee Stock Ownership Agreement and Option Agreements (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1999 and incorporated by reference herein). 10.43* -- Agreement dated as of August 16, 1999 between Brigham Exploration Company and Craig M. Fleming for the amendment of an Employee Stock Ownership Agreement and Option Agreement (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1999 and incorporated by reference herein). 10.44 -- Form Change of Control Agreement dated as of September 20, 1999 between Brigham Exploration Company and certain Officers (filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1999 and incorporated by reference herein). 10.45 -- Warrant Agreement for the Purchase of Common Stock dated as of July 19, 1999 by and between Brigham Exploration Company and Bank of Montreal (filed as Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1999 and incorporated by reference herein). 10.46 -- Warrant Agreement for the Purchase of Common Stock dated as of July 19, 1999 by and between Brigham Exploration Company and Societe Generale, Southwest Agency (filed as Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1999 and incorporated by reference herein). 10.47 -- Amended and Restated Credit Agreement dated as of February 17, 2000 among Brigham Oil & Gas, L.P., as Borrower, Bank of Montreal, as Agent, and the Lenders signatory thereto (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed February 29, 2000, and incorporated herein by reference). 10.48 -- Amended and Restated Guaranty Agreement dated as of February 17, 2000 by Brigham Exploration Company in favor of Bank of Montreal, as Agent, and each of the Lenders party to the Amended and Restated Credit Agreement (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed February 29, 2000 and incorporated herein by reference). 10.49 -- Partial Assignment of Notes dated as of February 17, 2000 by and among (i) Bank of Montreal, (ii) Societe Generale, Southwest Agency, (iii) Shell Capital Inc,, and (iv) Brigham Oil & Gas, L.P. (filed as Exhibit 10.3 to the Company's Current Report on Form 8-K filed February 29, 2000 and incorporated herein by reference). 10.50 -- First Amendment to Warrant Agreement dated as of February 17, 2000 between Brigham Exploration Company and Bank of Montreal (filed as Exhibit 10.4 to the Company's Current Report on Form 8-K filed February 29, 2000 and incorporated herein by reference). 10.51 -- First Amendment to Warrant Agreement dated as of February 17, 2000 between Brigham Exploration Company and Societe Generale, Southwest Agency (filed as Exhibit 10.5 to the Company's Current Report on Form 8-K filed February 29, 2000 and incorporated herein by reference). 10.52 -- Equity Conversion Agreement dated as of February 17, 2000 by and among Brigham Oil & Gas, L.P., Brigham Exploration Company and Shell Capital Inc. and its successors and assigns (filed as Exhibit 10.6 to the Company's Current Report on Form 8-K filed February 29, 2000 and incorporated herein by reference). 10.53 -- Warrant Agreement dated as of February 17, 2000 by and between Brigham Exploration Company and Shell Capital Inc. (filed as Exhibit 10.7 to the Company's Current Report on Form 8-K filed February 29, 2000 and incorporated herein by reference). 10.54 -- Registration Rights Agreement dated as of February 17, 2000 by and between Brigham Exploration Company and Shell Capital Inc. (filed as Exhibit 10.8 to the Company's Current Report on Form 8-K filed February 29, 2000 and incorporated herein by reference). 10.55 -- Letter dated as of February 17, 2000 regarding certain fees pursuant to Credit Agreement dated as of February 17, 2000, among Brigham Oil & Gas, L.P., Bank of Montreal, as Agent, Shell Capital Inc. and the lenders signatory thereto (filed as Exhibit 10.9 to the Company's Current Report on Form 8-K filed February 29, 2000 and incorporated herein by reference). 10.56 -- Securities Purchase and Registration Rights Agreement dated as of February 22, 2000 by and among Brigham Exploration Company and GAP Coinvestment Partners II, L.P., Special Situations Private Equity Fund, L.P., and Aspect Resources, L.L.C. (filed as Exhibit 10.15 to the Company's Current Report on Form 8-K filed February 29, 2000 and incorporated herein by reference). 10.57 -- Joint Development Agreement, dated as of February 10, 1999, by and between Brigham Oil & Gas, L.P. and Aspect Resources LLC. (filed as Exhibit 10.65 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated herein by reference). 10.57.1 -- First Amendment, dated as of May 10, 1999, to that certain Joint Development Agreement entered into effective as of February 10, 1999, by and between Brigham Oil & Gas, L.P. and Aspect Resources LLC. (filed as Exhibit 10.65.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated herein by reference). 10.57.2 -- Acquisition and Participation Agreement, dated October 21, 1999, by and between Brigham Oil & Gas, L.P. and Aspect Resources LLC. (filed as Exhibit 10.65.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated herein by reference). 10.57.3 -- Letter agreement, dated as of December 30, 1999, regarding amendments to Joint Development Agreement, dated as of February 10, 1999, as amended, by and between Brigham Oil & Gas, L.P. and Aspect Resources LLC. (filed as Exhibit 10.65.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated herein by reference). 10.58 -- Letter agreement dated as of September 6, 1999 between Brigham Oil & Gas, L.P. and Brigham Land Management Company, Inc. regarding work to be performed within Brigham's Angelton Project. (filed as Exhibit 10.66 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated herein by reference). 10.59 -- Securities and Note Acquisition Agreement dated as of October 31, 2000 by and among Brigham Oil & Gas, L.P., Brigham, Inc., Brigham Exploration Company, Brigham Holdings I, LLC, Brigham Holdings II, LLC, ECT Merchant Investment Corp., and Joint Energy Development Investments II Limited Partnership (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K, as amended (filed November 8, 2000), and incorporated herein by reference). 10.60 -- Subordinated Credit Agreement dated as of October 31, 2000 among Brigham Oil & Gas, L.P., as Borrower, Shell Capital Inc., as Agent, and the Lenders signatory hereto (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K, as amended (filed November 8, 2000), and incorporated herein by reference). 10.60.1 -- First Amendment to Amended and Restated Guaranty Agreement dated as of October 31, 2000 between Brigham Exploration Company and Bank of Montreal (filed as Exhibit 10.8 to the Company's Current Report on Form 8-K, as amended (filed November 8, 2000) and incorporated herein by reference). 10.61 -- Subordinated Guaranty Agreement dated as of October 31, 2000 by Brigham Exploration Company in favor of Shell Capital Inc., as Agent, and each of the Lenders party to the Credit Agreement (filed as Exhibit 10.3 to the Company's Current Report on Form 8-K, as amended (filed November 8, 2000), and incorporated herein by reference). 10.61.1 -- First Amendment to Amended and Restated Credit Agreement dated as of October 31, 2000 by and among Brigham Oil & Gas, L.P., Bank of Montreal, Societe Generale, Southwest Agency, and Shell Capital Inc.(filed as Exhibit 10.7 to the Company's Current Report on Form 8-K, as amended (filed November 8, 2000) and incorporated herein by reference). 10.62 -- Ancillary Agreement dated as of October 31, 2000 by and among Brigham Oil & Gas, L.P. and Shell Capital Inc. (filed as Exhibit 10.4 to the Company's Current Report on Form 8-K, as amended (filed November 8, 2000), and incorporated herein by reference). 10.63 -- Intercreditor and Subordination Agreement dated as of October 31, 2000 by and among Bank of Montreal, as Senior Agent and a Senior Lender, Societe Generale, Southwest Agency, as a Senior Lender, Shell Capital Inc., as a Senior Lender, Shell Capital Inc., both as a Subordinated Agent and a Subordinated Lender, Brigham Exploration Company, Brigham Oil & Gas, L.P., Brigham, Inc., Brigham Holdings I, LLC, and Brigham Holdings II, LLC. (filed as Exhibit 10.5 to the Company's Current Report on Form 8-K, as amended (filed November 8, 2000), and incorporated herein by reference). 10.64 -- Warrant Agreement dated as of October 31, 2000 by and between Brigham Exploration Company and Shell Capital Inc.(filed as Exhibit 10.6 to the Company's Current Report on Form 8-K, as amended (filed November 8, 2000), and incorporated herein by reference). 10.65 -- Securities Purchase Agreement dated as of November 1, 2000 between Brigham Exploration Company, DLJ MB Funding III, Inc., and DLJ ESC II, LP., (filed as Exhibit 10.9 to the Company's Current Report on Form 8-K, as amended (filed November 8, 2000), and incorporated herein by reference). 10.66 -- Registration Rights Agreement dated November 1, 2000 by and between Brigham Exploration Company, DLJ MB Funding III, Inc., and DLJ ESC II, LP. (filed as Exhibit 10.10 to the Company's Current Report on Form 8-K, as amended (filed November 8, 2000), and incorporated herein by reference). 10.67 -- Warrant Certificate dated as of November 1, 2000 by and between Brigham Exploration Company and DLJ MB Funding III, Inc. (filed as Exhibit 10.11 to the Company's Current Report on Form 8-K, as amended (filed November 8, 2000), and incorporated herein by reference). 10.68 -- Warrant Certificate dated as of November 1, 2000 by and between Brigham Exploration Company and DLJ ESC II, LP. (filed as Exhibit 10.12 to the Company's Current Report on Form 8-K, as amended (filed November 8, 2000), and incorporated herein by reference). 10.69 -- Stockholders Voting Agreement dated as of October 31, 2000 by and among Brigham Exploration Company, DLJ ESC II, L.P., DLJ MB Funding III, Inc., and certain shareholders of Brigham Exploration Company (filed as Exhibit 10.13 to the Company's Current Report on Form 8-K, as amended (filed November 8, 2000), and incorporated herein by reference). 10.70+ -- Securities Purchase Agreement dated as of March 5, 2001 among Brigham Exploration Company, DLJ MB Funding III, Inc., DLJ Merchant Banking Partners III, LP, DLJ ESC II, LP and DLJ Offshore Partners III, CV. 10.71+ -- First Amendment to Registration Rights Agreement, dated March 5, 2001, by and among Brigham Exploration Company, DLJMB Funding III, Inc., DLJ Merchant Banking Partners III, LP, DLJ ESC II, LP and DLJ Offshore Partners III, CV. 10.72+ -- Warrant Certificate dated as of March 5, 2001 by and between Brigham Exploration Company and DLJMB Funding III, Inc. 10.73+ -- Warrant Certificate dated as of March 5, 2001 by and between Brigham Exploration Company and DLJ ESC II, LP. 10.74+ -- Warrant Certificate dated as of March 5, 2001 by and between Brigham Exploration Company and DLJ Merchant Banking Partners III, LP. 10.75+ -- Warrant Certificate dated as of March 5, 2001 by and between Brigham Exploration Company and DLJ Offshore Partners III, CV. 10.76+ -- Stockholders Voting Agreement dated as of March 5, 2001 by and among Brigham Exploration Company, DLJMB Funding III, Inc., DLJ Merchant Banking Partners III, LP, DLJ ESC II, LP, DLJ Offshore Partners III, CV and certain shareholders of Brigham Exploration Company. 21+ -- Subsidiaries of the Registrant. 23.1+ -- Consent of PricewaterhouseCoopers LLP, independent public accountants. 23.2+ -- Consent of Cawley, Gillespie & Associates, Inc., independent petroleum engineers. * Management contract or compensatory plan. + Filed herewith. EX-4.2.1 2 0002.txt CERTIFICATE OF AMEND. OF CERTIF. OF DESIGNATIONS Exhibit 4.2.1 [filed March 2, 2001] CERTIFICATE OF AMENDMENT of CERTIFICATE OF DESIGNATIONS of SERIES A PREFERRED STOCK (Par Value $.01 Per Share) of BRIGHAM EXPLORATION COMPANY ---------------------------- Pursuant to Section 242 of the General Corporation Law of the State of Delaware ---------------------------- Brigham Exploration Company, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY as follows: FIRST: That the Board of Directors of the Corporation, by a unanimous written consent in lieu of special meeting dated March 1, 2001, duly adopted resolutions approving and adopting the amendments set forth below to the Certificate of Designations of Series A Preferred Stock of the Corporation (the "Certificate of Designations"), and that such amendments have been approved and adopted by all existing holders of the Series A Preferred Stock of the Corporation. SECOND: That the amendments set forth below have been duly adopted in accordance with the applicable provisions of Section 242 of the General Corporation Law of the State of Delaware. THIRD: That the Certificate of Designations is hereby amended as follows: A. Section 1 of the Certificate of Designations is hereby replaced in its entirety with the following: "Section 1. Designation and Number of Shares of Series A Preferred Stock. There is hereby authorized and established a series of Preferred Stock that shall be designated as "Series A Preferred Stock" (hereinafter referred to as "Series A Preferred"), and the number of shares constituting such series shall be 2,250,000. Such number of shares may be increased or decreased, but not to a number less than the number of shares of Series A Preferred then issued and outstanding, by resolution adopted by the full Board of Directors. The "Stated Value" per share of the Series A Preferred shall be equal to Twenty Dollars ($20.00)." B. The definition of "Warrants" contained in Section 2 of the Certificate of Designations is hereby replaced in its entirety with the following: " "Warrants" means (i) the warrants to purchase Common Stock originally issued to DLJ MB Funding III, Inc. and DLJ ESC II, LP on November 1, 2000, pursuant to warrant certificates in the form attached hereto as Exhibit A and/or (ii) the warrants to purchase Common Stock originally issued to DLJ Merchant Banking Partners III, L.P., DLJ Offshore Partners III, C.V., DLJ MB Funding III, Inc. and DLJ ESC II, LP on or about March 5, 2001, pursuant to warrant certificates in the form attached hereto as Exhibit B." C. An Exhibit B to the Certificate of Designations is hereby added thereto, in the form attached hereto as Exhibit B. IN WITNESS WHEREOF, this Certificate of Amendment has been duly executed on behalf of the Corporation by its authorized officer, this 2nd day of March, 2001. BRIGHAM EXPLORATION COMPANY By: /s/ Karen E. Lynch ---------------------------------- Name: Karen E. Lynch ------------------------------ Title: Vice President ------------------------------ EX-10.70 3 0003.txt SECURITIES PURCHASE AGREEMENT Exhibit 10.70 SECURITIES PURCHASE AGREEMENT This SECURITIES PURCHASE AGREEMENT (this "Agreement"), is entered into as of March 5, 2001, between Brigham Exploration Company, a Delaware corporation (the "Company"), DLJMB Funding III, Inc., a Delaware corporation ("MB"), DLJ Merchant Banking Partners III, LP, a Delaware limited partnership, ("MBP"), DLJ Offshore Partners III, CV, a Netherlands Antilles limited partnership ("DOP") and DLJ ESC II, LP, a Delaware limited partnership ("ESC") (collectively referred to as "Investors"). WHEREAS, the Company has authorized the sale and issuance of an aggregate of up to 500,000, shares of its Series A Preferred Stock (the "Shares") and warrants to acquire 2,105,263 shares of its Common Stock, (the "Warrants"), in the form attached hereto as Exhibit A; WHEREAS, Investors desire to purchase the Shares and the Warrants on the terms and conditions set forth herein; and WHEREAS, the Company desires to issue and sell the Shares and the Warrants to Investors on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, the Company and Investors hereby agree as follows: ARTICLE I TERMS OF THE TRANSACTION 1.1 Authorization of Shares. On or prior to the Closing (as defined in Section 2.1 below), the Company shall have authorized (a) the sale and issuance to Investors of the Shares and the Warrants and (b) the issuance of such shares of Common Stock to be issued upon exercise of the Warrants (the "Warrant Shares"). The Shares shall have the rights, preferences, privileges and restrictions set forth in the Certificate of Designations of the Company, in the form attached hereto as Exhibit B as amended by the Certificate of Amendment of Certificate of Designations in the form attached hereto as Exhibit C (as so amended, the "Certificate of Designations"). 1.2 Sale and Purchase. Subject to the terms and conditions hereof, at the Closing the Company hereby agrees to issue and sell to Investors, and Investors agree to purchase from the Company, 500,000 Units at a purchase price of Twenty Dollars ($20.00) per Unit, with each such Unit consisting of (i) one Share and (ii) Warrants to purchase 4.210526 Warrant Shares and such Shares and Warrants shall be allocated among the Investors as follows: Preferred Investor Stock Warrants -------- ----- -------- MBP 362,699 1,527,154 Offshore 15,307 64,451 MB 33,694 141,869 ESC 88,300 371,789 ------- --------- TOTAL 500,000 2,105,263 ARTICLE II CLOSING 2.1 Closing. The closing of the sale and purchase of the Shares and Warrants under this Agreement (the "Closing") shall take place at the offices of Brigham Exploration Company, 6300 Bridge Point Parkway, Building 2, Suite 500, Austin, Texas 70730, at 10:00 a.m., local time, on the date of this Agreement or at such other time or place as the Company and Investors may mutually agree (the "Closing Date"). All closing transactions at the Closing shall be deemed to have occurred simultaneously. 2.2 Closing into Escrow. (a) At the Closing, subject to the terms and conditions hereof, (i) the Company will deliver to Chase Manhattan Bank, a New York state bank (the "Escrow Agent"), as escrow agent under an Escrow Agreement of even date herewith in the form of Exhibit D hereto (the "Escrow Agreement"), certificates issued in the name of each Investor representing the applicable Shares and Warrants representing the applicable Warrants to purchase Warrant Shares, and (ii) each Investor will deliver to the Escrow Agent by wire transfer payment of the purchase price for its Shares and Warrants. (b) The Escrow Agreement shall provide that the Escrow Agent shall release the certificates representing the applicable Shares and Warrants to each Investor, and shall release the purchase price for such Shares and Warrants to the Company, along with all interest accruing thereon while on deposit under the Escrow Agreement, upon receipt of a certificate executed by the Investors and the Company stating either of the following: (i) That (A) the Company filed preliminary proxy materials with the Securities and Exchange Commission (the "SEC") in accordance with applicable rules under the Exchange Act seeking stockholder approval at the Company's annual stockholder's meeting to be held on or before May 31, 2001 (the "Annual Meeting") of the matters described in the Stockholders' Voting Agreement dated March 1, 2001 by and among the Company and certain of its stockholders (the "Stockholders' Voting Agreement"), as more fully described in Section 5.7 hereof, (B) either (1) the SEC has notified (whether orally or in writing) the Company or its representative that it will not review such proxy materials (which notice, if telephonic, shall be certified to the Investors by the Company or its representative in writing), (2) the SEC has notified the Company that it will review such proxy materials, the SEC has completed such review and the Company has responded to all comments from the SEC to the SEC's satisfaction, or (3) as of the date of mailing of the proxy materials to stockholders of the Company the Company has not received any notice, written or otherwise, from the SEC that the SEC intends to review such proxy materials, and upon the occurrence of any of the events described 2 in subsection 1, 2 or 3, above, the Company shall promptly certify the occurrence of such event in writing to the Investors, and (C) as of the record date for the annual meeting to be held in accordance with Section 5.7 hereof, the parties to the Stockholders' Voting Agreement held at least a majority of the outstanding shares of Common Stock of the Company; or (ii) That holders of a majority of the outstanding shares of Common Stock have voted in favor of the matters described in the Stockholders' Voting Agreement at the Annual Meeting. (c) The Escrow Agreement shall provide that the Escrow Agent shall release the certificates representing the applicable Shares and Warrants to the Company, and shall release the purchase price for such Shares and Warrants to the Investors in the amounts originally deposited with the Escrow Agent by each such Investor, along with all interest accruing thereon while on deposit under the Escrow Agreement, upon receipt of a certificate executed by the Investors and the Company stating that holders of a majority of the outstanding shares of Common Stock have failed to vote in favor of the matters described in the Stockholders' Voting Agreement at the Annual Meeting. (d) The Escrow Agreement shall provide that the Escrow Agent shall release the certificates representing the applicable Shares and Warrants, and shall release the purchase price for such Shares and Warrants, as set forth in either paragraph (b) or (c) above upon receipt of a certificate as set forth in paragraph (b) or (c), respectively, signed by only the Company or the Investors, if (i) the party signing such certificate also certifies that they have provided a copy of such certificate to the other parties to the Escrow Agreement in accordance with the notice provisions of the Escrow Agreement and (ii) ten (10) calendar days shall have elapsed between the date on which the Escrow Agent shall have received the certificate required by paragraph (b) or (c) and the Escrow Agent shall not have received any notice in accordance with the notice provisions of the Escrow Agreement from another party to the Escrow Agreement protesting or otherwise disputing, challenging or disagreeing with any assertion contained in the certificate. (e) In the event of any dispute under paragraph (d) above, the parties agree to resolve such dispute by binding arbitration pursuant to Section 10.8 hereof. Upon receipt of a certificate from the prevailing party directing the Escrow Agent to make a distribution of the Shares, Warrants, purchase price for such Shares and Warrants, and interest thereon, all as specified in such certificate, which certificate is accompanied by an arbitral order or award which states on its face that it is rendered pursuant to this Agreement and provides for such distribution as set forth in the certificate, the Escrow Agent shall distribute such Shares, Warrants, purchase price for the Shares and Warrants and interest thereon as directed by such certificate and final arbitral order or award. Any such certificate and final arbitral order or award shall override any notice or other document received by the Escrow Agent pursuant to paragraph (d) above, except to the extent that Escrow Agent has previously acted in accordance with the terms of paragraphs (b) or (c) above. 3 (f) In the event that the Escrow Agent has not received a certificate under paragraph (b), (c), (d) or (e) on or before June 15, 2001, the Escrow Agent shall release the certificates representing the applicable Shares and Warrants to the Company, and shall release the purchase price for such Shares and Warrants to the Investors in the amounts originally deposited with the Escrow Agent by each such Investor, along with all interest accruing thereon while on deposit under the Escrow Agreement, upon receipt of a certificate on or after June 15, 2001 executed by the Investors requesting such distribution. (g) If the Shares and Warrants are released to the Company and the purchase price for the Shares and the Warrants, along with interest accruing thereon while on deposit under the Escrow Agreement, is released to the Investors pursuant to the terms of the Escrow Agreement, then the Shares and the Warrants shall not be deemed to have been issued by the Company or to have been purchased by Investors hereunder, and this Agreement and the Ancillary Documents shall terminate; provided, however that the termination shall not release any party hereto from liability for any breach of any provision, covenant or agreement herein or in the Ancillary Documents prior to the termination of this Agreement and the Ancillary Documents. (h) The parties agree to deliver to the Escrow Agent the certificates and such other instructions as may be required under the Escrow Agreement in order to implement the provisions of this Section 2.2. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to Investors, as of the date hereof, that: 3.1 Corporate Organization. The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority in all material respects to own, lease, and operate its properties and to carry on its business as now being conducted. No actions or proceedings to dissolve the Company are pending or, to the best knowledge of the Company, threatened. The Company is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where such qualification is necessary, except where the failure to so qualify or to be in good standing would not reasonably be expected to have a Material Adverse Effect. 3.2 Capitalization of the Company. (a) On the Closing Date, the authorized capital stock of the Company will consist of 50,000,000 shares of Common Stock and 10,000,000 shares of preferred stock, $.01 par value, 2,250,000 of which are designated as Series A Preferred Stock. As of the date hereof, (i) 15,979,544 shares of Common Stock are outstanding and 1,013,334 shares of preferred stock are outstanding and (ii) 1,393,920 shares of Common Stock are reserved for issuance upon exercise of outstanding employee, officer and director stock options and 15,129,143 shares of Common Stock are reserved for issuance upon exercise of outstanding warrants or conversion rights. All outstanding shares of capital stock of the Company have been validly issued and are fully paid and nonassessable, and no 4 shares of capital stock of the Company are subject to, nor have any been issued in violation of, preemptive or similar rights. On the Closing Date, the rights, preferences, privileges and restrictions of the Shares will be as stated in the Certificate of Designations. (b) Except as set forth above in subparagraph (a) of this Section 3.2, there are outstanding (i) no shares of capital stock or other voting securities of the Company; (ii) no securities of the Company convertible into or exchangeable for shares of capital stock or other voting securities of the Company; (iii) no options or other rights to acquire from the Company, and no obligation of the Company to issue or sell, any shares of capital stock or other voting securities of the Company or any securities of the Company convertible into or exchangeable for such capital stock or voting securities; and (iv) no equity equivalents, interests in the ownership or earnings, or other similar rights of or with respect to the Company. (c) Neither the execution of this Agreement nor the performance of the Company's obligations hereunder, nor the consummation of any other transaction currently contemplated by the Company or any of its Subsidiaries, will trigger or cause any adjustment under any anti-dilution provisions or any other similar provisions contained in any agreement as currently in effect that have the effect of (i) causing a decrease in any exercise price or conversion price in any security exercisable for or convertible into shares of Common Stock (a "Common Stock Equivalent"), or (ii) causing an increase in the number of shares of Common Stock that may be acquired upon conversion or exercise of a Common Stock Equivalent. 3.3 Authority Relative to This Agreement. The Company has full corporate power and authority to execute, deliver, and perform this Agreement and to execute, deliver, and where applicable, perform the Ancillary Documents to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by the Company of this Agreement and the execution, delivery, and where applicable, performance by it of the Ancillary Documents to which it is a party, and the consummation by it of the transactions contemplated hereby and thereby, have been (or prior to the Closing will have been) duly authorized by all necessary corporate action of the Company. This Agreement has been duly executed and delivered by the Company and constitutes, and each Ancillary Document executed or to be executed by the Company has been, or when executed will be, duly executed and delivered by the Company and constitutes, or when executed and delivered will constitute, a valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms, except that such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting creditors' rights generally and (ii) general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law). 3.4 Noncontravention. The execution, delivery, and performance by the Company of this Agreement and the execution, delivery, and where applicable, the performance by it of Ancillary Documents to which it is a party and the consummation by it of the transactions contemplated hereby and thereby do not and will not (i) conflict with or result in a violation of any provision of the Company's Certificate of Incorporation, as amended, or the Company's Bylaws, as amended, or the charter, bylaws, partnership agreement or other governing instruments of any Subsidiary, (ii) conflict with or result in a violation of any provision of, or constitute (with or without the giving of notice or the passage of time or both) a default under, or give rise (with or without the giving of notice or the passage of time or both) to any loss of material benefit, or of any right of termination, cancellation, or acceleration under, any Material Agreement, (iii) result in the creation or imposition 5 of any Encumbrance upon the properties of the Company or any Subsidiary or (iv) assuming compliance with the matters referred to in Section 3.5, violate any Applicable Law binding upon the Company or any Subsidiary, except, in the case of clauses (ii), (iii) and (iv) above, for any such conflicts, violations, defaults, terminations, cancellations, accelerations, or Encumbrances which would not, individually or in the aggregate, have a Material Adverse Effect on the Company. 3.5 Consents and Approvals. No consent, approval, order, or authorization of, or declaration, filing, or registration with, any Governmental Entity is required to be obtained or made by the Company or any Subsidiary in connection with the execution, delivery, or performance by the Company of this Agreement and the execution, delivery, and where applicable, performance of Ancillary Documents to which it is a party or the consummation of the transactions contemplated hereby and thereby, other than (i) compliance with any applicable requirements of the Securities Act; (ii) compliance with any applicable requirements of the Exchange Act; (iii) compliance with any applicable state securities laws; (iv) filing of the Certificate of Amendment of Certificate of Designations with the Delaware Secretary of State; (v) compliance with any applicable requirements of the HSR Act as a result of the exercise of any of the Warrants; and (vi) such consents, approvals, orders, or authorizations which, if not obtained, and such declarations, filings, or registrations which, if not made, would not, individually or in the aggregate, have a Material Adverse Effect on the Company. Except for such consents as are obtained before or contemporaneously with consummation of the Closing, no consent or approval of any person other than the Company, Investors or any Governmental Entity is required to be obtained or made by the Company or any Subsidiary in connection with the execution, delivery, or performance by the Company of this Agreement and execution, delivery and, where applicable, performance of the Ancillary Documents to which it is a party or the consummation of the transactions contemplated hereby and thereby, other than such consents, approvals, orders, or authorizations which, if not obtained, and such declarations, filings, or registrations which, if not made, would not, individually or in the aggregate, have a Material Adverse Effect on the Company. 3.6 Authorization of Issuance; Reservation of Shares. When issued and delivered pursuant to this Agreement and the Certificate of Designations against payment therefor, the Shares and the Warrants will be validly issued, fully paid and nonassessable. The Warrant Shares have been duly and validly reserved for issuance. The issuances of the Shares and the Warrants are not subject to any preemptive or similar rights. 3.7 Financial Condition. The audited consolidated balance sheet of the Company and its Subsidiaries as at December 31, 1999 and the related consolidated statement of income, stockholders' equity and cash flow of the Company and its Subsidiaries for the fiscal year ended on said date, with the opinion thereon of Price Waterhouse heretofore furnished to the Investors and the unaudited consolidated balance sheet of the Company and its Subsidiaries as at September 30, 2000 and their related consolidated statements of income, stockholders' equity and cash flow of the Company and its Subsidiaries for the six-month period ended on such date heretofore furnished to the Investors, are complete and correct and fairly present the consolidated financial condition of the Company and its Subsidiaries as at said dates and the results of its operations for the fiscal year and the nine-month period on said dates, all in accordance with GAAP, as applied on a consistent basis (subject, in the case of the interim financial statements, to normal year-end adjustments). Neither the Company nor any Subsidiary has on the Closing Date any debt, trade payables, contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided 6 for in the Company's financial statements provided to the Investors as set forth in this Section 3.7 or in Schedule 3.7 or except to the extent that the existence of any of the foregoing would not have a Material Adverse Effect relative to the Company. Since December 31, 1999, there has been no change or event having a Material Adverse Effect relative to the Company, except as disclosed to the Investors in writing. Since the date of the Financial Statements, neither the business nor the properties of the Company's Subsidiaries, taken as a whole, have been materially and adversely affected as a result of any fire, explosion, earthquake, flood, drought, windstorm, accident, strike or other labor disturbance, embargo, requisition or taking of property or cancellation of contracts, permits or concessions by any Governmental Entity, riot, activities of armed forces or acts of God or of any public enemy. 3.8 Litigation. Except as disclosed in Schedule 3.8 hereto, at the Closing Date there is no litigation, legal, administrative or arbitral proceeding, investigation or other action of any nature pending or, to the knowledge of the Company, threatened against or affecting the Company or any Subsidiary which both (a) involves the possibility of any judgment or liability against the Company or any Subsidiary not fully covered by insurance (except for normal deductibles), and (b) would be more likely than not to have a Material Adverse Effect relative to the Company. 3.9 ERISA. The Company and each ERISA Affiliate have complied in all material respects with ERISA and, where applicable, the Code regarding each Plan. Each Plan is, and has been, maintained in substantial compliance with ERISA and, where applicable, the Code. No act, omission or transaction has occurred which could result in imposition on the Company or any ERISA Affiliate (whether directly or indirectly) of an amount of $100,000 or more as (i) either a civil penalty assessed pursuant to section 502(c), (i) or (1) of ERISA or a tax imposed pursuant to Chapter 43 of Subtitle D of the Code or (ii) breach of fiduciary duty liability damages under section 409 of ERISA. No Plan (other than a defined contribution plan) or any trust created under any such Plan has been terminated since September 2, 1974. No liability to the PBGC in excess of $100,000 (other than for the payment of current premiums which are not past due) by the Company or any ERISA Affiliate has been or is expected by the Company or any ERISA Affiliate to be incurred with respect to any Plan. No ERISA Event with respect to any Plan has occurred which could reasonably be expected to result in liabilities of $100,000 or more. Full payment when due has been made of all amounts which the Company or any ERISA Affiliate is required under the terms of each Plan or applicable law to have paid as contributions to such Plan, and no accumulated funding deficiency in an amount of $100,000 or more (as defined in section 302 of ERISA and section 412 of the Code), whether or not waived, exists with respect to any Plan. The actuarial present value of the benefit liabilities under each Plan which is subject to Title IV of ERISA does not, as of the end of the Company's most recently ended fiscal year, exceed the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities by $100,000 or more. The term "actuarial present value of the benefit liabilities" shall have the meaning specified in section 4041 of ERISA. 7 None of the Company or any ERISA Affiliate sponsors, maintains, or contributes to an employee welfare benefit plan, as defined in section 3(1) of ERISA, including, without limitation, any such plan maintained to provide benefits to former employees of such entities, that may not be terminated by the Company or any ERISA Affiliate in its sole discretion at any time without any material liability. None of the Company or any ERISA Affiliate sponsors, maintains or contributes to, or has at any time in the preceding six calendar years, sponsored, maintained or contributed to, any Multiemployer Plan. None of the Company or any ERISA Affiliate is required to provide security under section 401(a)(29) of the Code due to a Plan amendment that results in an increase in current liability for the Plan. 3.10 Taxes. The Company has filed all United States Federal income tax returns and all other tax returns which are required to be filed by it and has paid all material taxes due pursuant to such returns or pursuant to any assessment received by the Company, except for any taxes which are being contested in good faith and by proper proceedings and against which adequate reserves are being maintained. The charges, accruals and reserves on the books of the Company in respect of taxes and other governmental charges are, in the opinion of the Company, adequate. No tax lien has been filed and, to the knowledge of the Company, no claim is being asserted with respect to any such tax, fee or other charge, except for any taxes, fees or other charges which are not material or which are being contested in good faith and by proper proceedings and against which adequate reserves are being maintained. 3.11 Titles, etc. (a) Subject to the matters set out in Schedule 3.11, each of the Company and the Subsidiaries has good and defensible title, in all material respects, to the material Oil and Gas Properties that are evaluated in the most recently delivered reserve report, free and clear of all Liens, other than Excepted Liens. Except for immaterial divergences, after giving full effect to the Excepted Liens, the Company owns, in all material respects, the net interests in production attributable to the Hydrocarbon Interests that are evaluated in the most recently delivered reserve report, and the ownership of such Hydrocarbon Interests shall not in any material respect obligate the Company to bear the costs and expenses relating to the maintenance, development and operations of each such Hydrocarbon Interest in an amount in excess of the working interest of such Hydrocarbon Interest (without a corresponding increase in net revenue interest). The Company does not believe, based upon information in its possession, that its most recently delivered reserve report materially overstates its oil and gas reserves, bearing in mind that reserves are evaluated based upon estimates and assumptions with respect to which reasonable minds of competent reserve engineers may differ. (b) All leases and agreements necessary for the conduct of the business of the Company and the Subsidiaries are valid and subsisting, in full force and effect and there exists no default or event or circumstance which with the giving of notice or the passage of time or both would give rise to a default under any such lease or leases, which would have a Material Adverse Effect on the conduct of the business of the Company and the Subsidiaries. 8 (c) The Oil and Gas Properties presently owned, leased or licensed by the Company and the Subsidiaries, including, without limitation, all easements and rights of way, include all properties necessary to permit the Company and the Subsidiaries to conduct their business in all material respects in the same manner as its business has been conducted prior to the Closing Date. (d) All of the properties of the Company and the Subsidiaries which are reasonably necessary for the operation of their business are in good working condition in all material respects and are maintained in accordance with prudent business standards. 3.12 No Material Misstatements. Taken as a whole, the written information, statements, exhibits, certificates, documents and reports furnished to Investors by the Company or any Subsidiary in connection with the negotiation of this Agreement do not contain any material misstatement of fact or omit to state a material fact or any fact necessary to make the statements contained therein not materially misleading in the light of the circumstances in which made and with respect to the Company or any Subsidiary. As of the Closing Date, there is no fact peculiar to the Company or Subsidiary which has a Material Adverse Effect relative to the Company or in the future is reasonably likely to have (so far as the Company can now foresee) a Material Adverse Effect and which has not been set forth in this Agreement or the other documents, certificates and statements furnished to Investors by or on behalf of the Company or any Subsidiary prior to, or on, the Closing Date in connection with the transactions contemplated hereby. 3.13 Investment Company Act. Neither the Company nor any Subsidiary is an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. 3.14 Public Utility Holding Company Act. Neither the Company nor any Subsidiary is a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," or a "public utility" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 3.15 Subsidiaries. Except as set forth on Schedule 3.15, the Company has no Subsidiaries. Each Subsidiary is a corporation or limited partnership, duly incorporated or organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, if applicable, and has all requisite corporate power and authority in all material respects to own, lease, and operate its properties and to carry on its business as now being conducted. Each Subsidiary is duly qualified to do business as a foreign corporation or limited partnership, if applicable, and is in good standing in each jurisdiction where such qualification is necessary, except where the failure to so qualify or to be in good standing would not reasonably be expected to have a Material Adverse Effect. There are outstanding (i) no securities of any Subsidiary of the Company convertible into or exchangeable for shares of capital stock or other voting securities of any Subsidiary of the Company and (ii) no options or other rights to acquire from any Subsidiary of the Company, and no obligation of any Subsidiary of the Company to issue or sell, any shares of capital stock or other voting securities of any Subsidiary of the Company or any securities of any Subsidiary of the Company convertible into or exchangeable for such capital stock or voting securities. 3.16 Defaults. Neither the Company nor any Subsidiary is in default nor has any event or circumstance occurred which, but for the expiration of any applicable grace period or the giving of notice, or both, would constitute a default under any material agreement or instrument to which 9 the Company is a party or by which the Company is bound, which default would have a Material Adverse Effect. 3.17 Environmental Matters. Except for matters which are more likely than not to not to have a Material Adverse Effect (or with respect to (c), (d) and (e) below, where the failure to take such actions is more likely than not to not have a Material Adverse Effect): (a) Neither any Oil and Gas Property of the Company or any of its Subsidiaries nor the operations conducted thereon violate any order or requirement of any court or Governmental Entity or any Environmental Laws; (b) Without limitation of clause (a) above, no Oil and Gas Property of the Company or any of its Subsidiaries nor the operations currently conducted thereon or, to the best knowledge of the Company, by any prior owner or operator of such property or operation, are in violation of or subject to any existing, pending or threatened action, suit, investigation, inquiry or proceeding by or before any court or Governmental Entity or to any remedial obligations under Environmental Laws; (c) All notices, permits, licenses or similar authorizations, if any, required to be obtained or filed by the Company or any of its Subsidiaries in connection with the operation or use of any and all Property of the Company and each of its Subsidiaries, including without limitation present, or to the best of Company's knowledge, past treatment, storage, disposal or release of a hazardous substance or solid waste into the environment, have been duly obtained or filed, and the Company and each Subsidiary thereof are in compliance with the terms and conditions of all such notices, permits, licenses and similar authorizations; (d) All hazardous substances, solid waste, and oil and gas exploration and production wastes, if any, generated at any and all Oil and Gas Property of the Company and each of its Subsidiaries have in the past, during the tenure of ownership of the Company and its Subsidiaries and to the best of the Company's knowledge, prior thereto, been transported, treated and disposed of in accordance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment, and, to the best knowledge of the Company, all such transport carriers and treatment and disposal facilities have been and are operating in compliance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment, and are not the subject of any existing, pending or threatened action, investigation or inquiry by any Governmental Entity in connection with any Environmental Laws; (e) The Company has taken all steps reasonably necessary to determine and has determined that no hazardous substances, solid waste, or oil and gas exploration and production wastes, have been disposed of or otherwise released and there has been no threatened release of any hazardous substances on or to any Oil and Gas Property of the Company or any of its Subsidiaries except in compliance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment; and (f) To the extent applicable, all Oil and Gas Property of the Company and each of its Subsidiaries currently satisfies all design, operation, and equipment requirements imposed by the OPA or scheduled as of the Closing Date to be imposed by OPA during the term of this Agreement, and the Company does not have any reason to believe that such Oil and Gas Property, to the extent 10 subject to OPA, will not be able to maintain compliance with the OPA requirements during the term of this Agreement; and (g) Neither the Company nor any of its Subsidiaries has any known contingent liability in connection with any release or threatened release of any oil, hazardous substance or solid waste into the environment. 3.18 Compliance with the Law. Neither the Company nor any Subsidiary has violated any Governmental Requirement or failed to obtain any license, permit, franchise or other governmental authorization necessary for the ownership of any of its Oil and Gas Properties or the conduct of its business, which violation or failure would have (in the event such violation or failure were asserted by any Person through appropriate action) a Material Adverse Effect. Except for such acts or failures to act as would not have a Material Adverse Effect, the Oil and Gas Properties (and properties unitized therewith) have been maintained, operated and developed in a good and workmanlike manner and in conformity with all applicable laws and all rules, regulations and orders of all duly constituted authorities having jurisdiction and in conformity with the provisions of all leases, subleases or other contracts comprising a part of the Hydrocarbon Interests and other contracts and agreements forming a part of the Oil and Gas Properties; specifically in this connection, but subject to the Material Adverse Effect qualification set forth above, (i) after the Closing Date, no Oil and Gas Property is subject to having allowable production reduced below the full and regular allowable (including the maximum permissible tolerance) because of any overproduction (whether or not the same was permissible at the time) prior to the Closing Date and (ii) none of the wells comprising a part of the Oil and Gas Properties (or properties unitized therewith) are deviated from the vertical more than the maximum permitted by applicable laws, regulations, rules and orders, and such wells are, in fact, bottomed under and are producing from, and the well bores are wholly within, the Oil and Gas Properties (or in the case of wells located on properties unitized therewith, such unitized properties). 3.19 Insurance. Schedule 3.19 attached hereto contains an accurate and complete description of all material policies of fire, liability, workmen's compensation and other forms of insurance owned or held by the Company and each Subsidiary as of the Closing Date. All such policies are in full force and effect, all premiums with respect thereto covering all periods up to and including the Closing Date have been paid, and no notice of cancellation or termination has been received with respect to any such policy. Such policies are sufficient for compliance with all requirements of law and of all agreements to which the Company or any Subsidiary is a party; are valid, outstanding and enforceable policies; provide adequate insurance coverage in at least such amounts and against at least such risks (but including in any event public liability) as are usually insured against in the same general area by companies engaged in the same or a similar business for the assets and operations of the Company and each Subsidiary; will remain in full force and effect through the respective dates set forth in Schedule 3.19 with the payment of additional premiums; and will not in any way be affected by, or terminate or lapse by reason of, the transactions contemplated by this Agreement. Schedule 3.19 identifies all material risks, if any, which the Company, the Subsidiaries and their respective Board of Directors or officers have designated as being self insured. Neither the Company nor any Subsidiary has been refused any insurance with respect to its assets or operations, nor has its coverage been limited below usual and customary policy limits, by an insurance carrier to which it has applied for any such insurance or with which it has carried insurance during the last three years. 11 3.20 Hedging Agreements. Schedule 3.20 sets forth, as of the Closing Date, a true and complete list of all Hedging Agreements (including commodity price swap agreements, forward agreements or contracts of sale which provide for prepayment for deferred shipment or delivery of oil, gas or other commodities) of the Company and each Subsidiary. 3.21 Material Agreements. Set forth on Schedule 3.21 hereto is a complete and correct list of all material agreements, leases, indentures, purchase agreements, obligations in respect of letters of credit, guarantees, joint venture agreements, and other instruments in effect or to be in effect as of the Closing Date (other than Hedging Agreements) providing for, evidencing, securing or otherwise relating to any material Debt of the Company or any Subsidiary, and all obligations of the Company or any Subsidiary to issuers of surety or appeal bonds (excluding operator's bonds, plugging and abandonment bonds, and similar surety obligations obtained in the ordinary course of business) issued for account of the Company or any such Subsidiary. 3.22 Gas Imbalances. As of the Closing Date, except as set forth in the most recent Reserve Report furnished to Investors, on a net basis there are no gas imbalances, take or pay or other prepayments with respect to the Company's or any Subsidiary's Hydrocarbon Interests which would require the Company or such Subsidiary to deliver five percent (5%) or more of the monthly production from the Company's and its Subsidiaries' Hydrocarbons produced on a monthly basis from the Hydrocarbon Interests, at some future time without then or thereafter receiving full payment therefor. 3.23 Brokerage Fees. The Company has not retained any financial advisor, broker, agent, or finder or paid or agreed to pay any financial advisor, broker, agent, or finder on account of the sale by the Company and the purchase by Investors of the Shares pursuant to this Agreement. 3.24 SEC Filings. The Company has complied in all material respects with its obligations to file with the Securities and Exchange Commission all forms, reports, schedules, statements and other documents required to be filed by it since May 9, 1997 under the Securities Act and the Exchange Act. All forms, reports, schedules, statements, and other documents (including all amendments thereto) filed by the Company with the Securities and Exchange Commission since such date are herein collectively referred to as the "SEC Filings". The SEC Filings, at the time filed, complied in all material respects with all applicable requirements of federal securities laws. None of the SEC Filings, including, without limitation, any financial statements or schedules included therein, at the time filed or as same may have been amended, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements contained therein, in light of the circumstances under which they were made, not misleading. 3.25 Stockholder Approval. Neither the execution of this Agreement nor the consummation of the transactions contemplated hereunder require the approval of the stockholders of the Company under the applicable listing rules of the Nasdaq Stock Market, Inc.; provided, however, that the Warrants shall not be exercisable until after approval of the stockholders of the Company as set forth therein. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF INVESTORS 12 Each Investor represents and warrants to the Company that: 4.1 Organization. MB is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Each of ESC and MBP is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware. DOP is a limited partnership (commanditaire vennootschap), duly organized, validly existing and in good standing under the laws of the Netherlands Antilles. Each Investor has all requisite corporate power and authority in all material respects to own, lease, and operate its properties and to carry on its business as now being conducted. No actions or proceedings to dissolve either Investor are pending or, to the best knowledge of any Investor, threatened. 4.2 Authority Relative to This Agreement. Each Investor has full corporate or (if applicable) other power and authority to execute, deliver, and perform this Agreement and execute, deliver and, where applicable, perform the Ancillary Documents to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution, delivery, and performance by each Investor of this Agreement and execution, delivery, and, where applicable, performance of the Ancillary Documents to which it is a party, and the consummation by it of the transactions contemplated hereby and thereby, have been duly authorized by all necessary corporate (if applicable) action of such Investor. This Agreement has been duly executed and delivered by each Investor and constitutes, and each Ancillary Document executed or to be executed by each Investor has been, or when executed will be, duly executed and delivered by such Investor and constitutes, or when executed and delivered will constitute, a valid and legally binding obligation of such Investor, enforceable against such Investor in accordance with its terms, except that such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting creditors' rights generally and (ii) general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law). 4.3 Noncontravention. The execution, delivery, and performance by each Investor of this Agreement and the execution, delivery and, where applicable, performance of Ancillary Documents to which it is a party and the consummation by it of the transactions contemplated hereby and thereby do not and will not (i) conflict with or result in a violation of any provision of MB's Certificate of Incorporation or Bylaws or ESC's or MBP's Certificate of Limited Partnership or partnership agreement, or DOP's Agreement of Limited Partnership, (ii) conflict with or result in a violation of any provision of, or constitute (with or without the giving of notice or the passage of time or both) a default under, or give rise (with or without the giving of notice or the passage of time or both) to any right of termination, cancellation, or acceleration under, any bond, debenture, note, mortgage, indenture, lease, agreement or other instrument or obligation to which any Investor is a party or by which Investor or any of its properties may be bound, (iii) result in the creation or imposition of any Encumbrance upon the properties of any Investor, or (iv) violate any Applicable Law binding upon any Investor, except, in the case of clauses (ii), (iii) and (iv) above, for any such conflicts, violations, defaults, terminations, cancellations, accelerations, or Encumbrances which would not, individually or in the aggregate, have a Material Adverse Effect on any Investor. 4.4 Consents and Approvals. No consent, approval, order, or authorization of, or declaration, filing, or registration with, any Governmental Entity is required to be obtained or made by Investors in connection with the execution, delivery, or performance by Investors of this Agreement. No consent or approval of any person other than any Governmental Entity is required to be obtained or made by any Investor in connection with the execution, delivery or performance 13 by Investors of this Agreement and the execution, delivery and, where applicable, performance of the Ancillary Documents to which it is a party. 4.5 Purchase for Investment. Each Investor understands that none of the Shares, the Warrants or the Warrant Shares have been registered under the Securities Act. Each Investor also understands that the Shares, the Warrants and the Warrant Shares are being offered and sold pursuant to an exemption from registration contained in the Securities Act based in part upon Investors' representations contained in the Agreement. Each Investor hereby represents and warrants as follows: (a) Investor Bears Economic Risk. Each Investor has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests. Without limiting the generality of the foregoing, each Investor further represents that it has such knowledge regarding the oil and gas industry and the business of the Company and the current circumstances surrounding such industry and business that it is capable of evaluating the merits and risks of the acquisition of the Shares, the Warrants and the Warrant Shares. Each Investor must bear the economic risk of this investment indefinitely unless the Shares, the Warrants or the Warrant Shares are registered pursuant to the Securities Act, or an exemption from registration is available. Each Investor understands that the Company has no present intention of registering the Shares, the Warrants or the Warrant Shares. Each Investor also understands that there is no assurance that any exemption from registration under the Securities Act will be available and that, even if available, such exemption may not allow an Investor to transfer all or any portion of the Shares, Warrants or Warrant Shares under the circumstances, in the amounts or at the times an Investor might propose. (b) Acquisition for Own Account. Each Investor is acquiring the Shares, the Warrants and Warrant Shares for such Investor's own account for investment only, and not with a view towards their distribution. (c) Investor Can Protect Its Interest. Each Investor represents that by reason of its, or of its management's, business or financial experience, such Investor has the capacity to protect its own interests in connection with the transactions contemplated in this Agreement and the Ancillary Agreements. Further, neither Investor is aware of no publication of any advertisement in connection with the transactions contemplated in the Agreement. (d) Accredited Investor. Each Investor represents that it is an accredited investor within the meaning of Regulation D under the Securities Act. (e) Company Information. Each Investor has had access to the Company's SEC Filings and has had an opportunity to discuss the Company's business, management and financial affairs with directors, officers and management of the Company and has had the opportunity to review the Company's operations and facilities. Each Investor has also had the opportunity to ask questions of, and receive answers from, the Company and its management regarding the terms and conditions of this investment. Each Investor hereby acknowledges and affirms that it has completed its own independent investigation, analysis, and evaluation of the Company and its subsidiaries, that it has made all such reviews and inspections of the business, assets, results of operations, condition (financial or otherwise), and prospects of the Company and its subsidiaries as it has deemed 14 necessary or appropriate, and that in making its decision to enter into this Agreement and to consummate the transactions contemplated hereby it has relied solely on its own independent investigation, analysis, and evaluation of the Company and its subsidiaries, or that of its own independent advisers in evaluating its investment in the Shares, Warrants and Warrant Shares. (f) Rule 144. Each Investor acknowledges and agrees that the Shares and the Warrants, and, if issued, the Warrant Shares, must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Each Investor has been advised or is aware of the provisions of Rule 144, which permits limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things: the availability of certain current public information about the Company, the resale occurring following the required holding period under Rule 144 and the number of shares being sold during any three-month period not exceeding specified limitations. (g) Transfer Restrictions. Each Investor acknowledges and agrees that the Shares, the Warrants and the Warrant Shares are subject to restrictions on transfer as set forth in Section 5.5, below, and further understands that the Shares, the Warrants and the Warrant Shares will not have been registered pursuant to the Securities Act or any applicable state securities laws, that the Shares, the Warrants and the Warrant Shares will be characterized as "restricted securities" under federal securities laws, and that under such laws and applicable regulations the Shares, the Warrants and the Warrant Shares cannot be sold or otherwise disposed of without registration under the Securities Act or an exemption therefrom. In this connection, each Investor represents that it is familiar with Rule 144 promulgated under the Securities Act, as currently in effect, and understands the resale limitations imposed thereby and by the Securities Act. Appropriate stop transfer instructions may be issued to the transfer agent for securities of the Company (or a notation may be made in the appropriate records of the Company) in connection with the Shares, the Warrants or the Warrant Shares. (h) Confirmation. The acquisition of the Shares by an Investor at the Closing shall constitute such Investor's confirmation of the foregoing representations. 4.6 No Other Shares. Except for such rights as may be conferred on an Investor under the First Purchase Agreement or by this Agreement and the Ancillary Documents, Investors do not beneficially own, directly or indirectly, any shares of capital stock or other securities of the Company or any of its Subsidiaries. 4.7 Financial Resources. Each Investor has the financial resources available to it as are necessary to perform its obligations to acquire the Shares pursuant to the terms of this Agreement. 4.8 Brokerage Fees. No Investor has retained any financial advisor, broker, agent, or finder or paid or agreed to pay any financial advisor, broker, agent, or finder on account of the sale by the Company and the purchase by Investors of the Shares pursuant to this Agreement. ARTICLE V ADDITIONAL AGREEMENTS 5.1 Reasonable Best Efforts. 15 (a) Each party hereto agrees that it will use its reasonable best efforts to take, or cause to be taken, all action and to do, or cause to be done, all things reasonably necessary, proper, or advisable under Applicable Laws to consummate the transactions contemplated by this Agreement, including, without limitation, (i) cooperation in determining whether any consents, approvals, orders, authorizations, waivers, declarations, filings, or registrations of or with any Governmental Entity or third party are required in connection with the consummation of the transactions contemplated hereby; (ii) reasonable best efforts to obtain any such consents, approvals, orders, authorizations, and waivers and to effect any such declarations, filings, and registrations; (iii) reasonable best efforts to cause to be lifted or rescinded any injunction or restraining order or other order adversely affecting the ability of the parties to consummate the transactions contemplated hereby; (iv) reasonable best efforts to defend, and cooperation in defending, all lawsuits or other legal proceedings challenging this Agreement or the consummation of the transactions contemplated hereby; and (v) the execution of any additional instruments necessary to consummate the transactions contemplated hereby. (b) Without limiting the generality of Section 5.1(a), to the extent required by the HSR Act, each of the parties hereto shall (i) file or cause to be filed, as promptly as practicable but in no event later than five (5) consecutive Business Days after the execution and delivery of this Agreement, with the Federal Trade Commission and the United States Department of Justice, all reports and other documents required to be filed by such party under the HSR Act concerning the transactions contemplated hereby and (ii) promptly comply with or cause to be complied with any requests by the Federal Trade Commission or the United States Department of Justice for additional information concerning such transactions, in each case so that the waiting period applicable to this Agreement and the transactions contemplated hereby under the HSR Act shall expire as soon as practicable after the execution and delivery of this Agreement. Each party hereto agrees to request, and to cooperate with the other party or parties in requesting, early termination of any applicable waiting period under the HSR Act. Notwithstanding the foregoing, if any report or other document is required to be filed by any Investor under the HSR Act solely as a result of the purchase and sale of the Shares or the Warrants (with no regard to any other securities held by such Investor or its Affiliates), the Company shall pay any and all fees and expenses, including filing fees and legal expenses, incurred by such Investor in connection with the filing of such reports or other documents and any other actions required to comply with the provisions of the HSR Act. 5.2 Press Releases. Except as may be required by Applicable Law or by the rules of any national securities exchange or registered securities association, prior to the Closing, neither Investors nor the Company shall issue any press release with respect to this Agreement or the transactions contemplated hereby without the prior consent of the other party (which consent shall not be unreasonably withheld under the circumstances). Any such press release required by Applicable Law or by the rules of any national securities exchange or registered securities association shall only be made after reasonable notice to the other party. 5.3 Fees and Expenses. Except as otherwise expressly provided in this Agreement, all fees and expenses, including fees and expenses of counsel, financial advisors and accountants, incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such fee or expense. 5.4 Survival. The representations and warranties made herein shall survive the Closing, regardless of any investigation made by or on behalf of any party, until the second anniversary of the Closing Date; provided, however, the representations and warranties contained in Sections 3.9, 16 3.10 and 3.18 shall survive until the expiration of the applicable statute limitations relating to the subject matters of such representations and warranties (the "Survival Date".) All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company herein for purposes of this Section 5.5. No action may be brought with respect to a breach of any representation or warranty after the Survival Date unless, prior to such time, the party seeking to bring such an action has notified the other parties of such claim, specifying in reasonable detail the nature of the loss suffered. 5.5 Transfer Restrictions. (a) Notwithstanding any provision contained in this Agreement to the contrary, each Investor agrees that it will not, directly or indirectly, sell, assign, transfer, pledge, encumber, or otherwise dispose of any of the Shares, Warrants or Warrant Shares except: (i) In compliance with Rule 144; provided, however, that the Investor shall provide the Company with copies of all filings made with the Securities and Exchange Commission with respect to sales of securities under Rule 144 and with such other information and documents as the Company shall reasonably require in order to assure full compliance with Rule 144; or (ii) Pursuant to a no-action letter or other interpretive statement or release of the Securities and Exchange Commission to the effect that the proposed sale or other disposition may be effected without registration under the Securities Act; or (iii) Pursuant to an applicable exemption (other than Rule 144) under the Securities Act; provided, however, that the Investor shall have furnished the Company with an opinion of counsel, which opinion and counsel shall be reasonably acceptable to the Company, to the effect that such disposition does not require registration of such securities under the Securities Act; provided further, however, that no opinion of counsel shall be required in the case of a transfer to an affiliate (as defined in Rule 405 of the Securities Act) of Investor if such affiliate shall have furnished the Company with the representations contained in Section 4.5 of this Agreement and shall have agreed with the Company to be subject to the terms of this Agreement to the same extent as if an original holder of securities pursuant hereto. (iv) Pursuant to an effective registration statement filed under the Securities Act. (b) It is agreed and understood by each Investor that the certificates or instruments representing the Shares, Warrants and Warrant Shares shall each be stamped or otherwise imprinted with a legend in substantially the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM. SUCH SECURITIES ARE SUBJECT TO THE RESTRICTIONS AND PRIVILEGES SPECIFIED IN A SECURITIES PURCHASE AGREEMENT, DATED AS OF 17 MARCH 5, 2001, BETWEEN BRIGHAM EXPLORATION COMPANY AND THE INITIAL HOLDERS OF SECURITIES NAMED THEREIN, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF BRIGHAM EXPLORATION COMPANY AND WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER HEREOF UPON WRITTEN REQUEST, AND THE HOLDER OF THIS CERTIFICATE AGREES TO BE BOUND THEREBY." 5.6 Transaction Fee. The sum of One Hundred Thousand Dollars ($100,000), plus all reasonable out-of-pocket expenses incurred by the Investors, including attorneys fees, shall be paid by the Company to Investors on the Closing Date upon Closing. 5.7 Action at Annual Meeting of Stockholders. (a) The Company shall take all action necessary in accordance with applicable law and the Company's Certificate of Incorporation and Bylaws to have the Company's common stockholders, at the Annual Meeting to be held on or before May 31, 2001, consider and approve the matters described in the Stockholders Voting Agreement dated March 1, 2001, by and among the Company and certain of its stockholders, such approval, when so obtained, shall be referred to as the "Stockholder Approval". The Company shall not mail or otherwise distribute the proxy statement or information statement (or any related proxy materials or amendments or supplements thereto, if any) relating to the Annual Meeting to its stockholders without consultation with Investors and their counsel, and such proxy statement or information statement and such other items shall, to the extent same relate to the subject matter of the Stockholders Voting Agreement, be in such form as Investors and their counsel shall approve (such approval not to unreasonably withheld). (b) The Company shall provide a certificate signed by a duly authorized officer of the Company to each holder of Warrants promptly after the Annual Meeting certifying whether the Stockholder Approval has been obtained at the Annual Meeting and whether the Warrants are then exercisable. 5.8 Capitalization Certification. The Company shall provide, immediately after the Closing, a schedule reflecting the capitalization of the Company as of immediately after the transactions contemplated by this Agreement, including at least the information provided in the representation in Section 3.2 and indicating the number of fully-diluted shares of Common Stock, and certified by the Chief Financial Officer of the Company (the "Certificate"). Until the second anniversary of the Closing Date, the Company shall amend the Certificate at any time after the Closing to reflect any changes to the Certificate (which in all cases shall reflect the capitalization of the Company as of immediately after the transactions contemplated by this Agreement) if the Company learns that the Certificate is incorrect or not complete in any respect. Notwithstanding any provision contained in this Agreement, the Registration Rights Agreement and the Warrant Certificate, if the number of fully-diluted shares of Common Stock as reflected in the Certificate at any time is more than 34,608 shares in excess of 34,607,870 shares of Common Stock, then the number of shares purchasable upon exercise of the Warrant shall be increased to a number of shares equal to 6.08% of the fully-diluted shares of Common Stock. Upon any such adjustment to the number of shares to be acquired upon exercise of the Warrant, the holder of the Warrant shall deliver to the Company the Warrant Certificate for cancellation and immediately thereupon the Company shall issue a new Warrant Certificate reflecting the adjusted number of shares purchasable thereunder. For purposes of this Section 5.8, the term "fully-diluted shares of Common Stock" means the sum of shares of Common Stock outstanding, plus all shares of Common Stock issuable 18 pursuant to (i) the conversion or exchange of securities that are convertible into or exchangeable for shares of Common Stock or the exercise of any option, warrant or other right to acquire shares of Common Stock from the Company, (ii) the conversion or exchange of any security that is convertible into or exchangeable for any securities referenced in 5.8(i) or the exercise of any security that is exercisable for any securities referenced in 5.8(i), and (iii) the exercise of any rights under any agreement regarding equity equivalents, interests in the ownership or earnings, or other similar rights of or with respect to the Company. 5.9 Restrictions on Certain Actions. Investors hereby agree (subject to the occurrence of the Closing ) that for a period of one year from the Closing Date, Investors shall not, without the prior written approval of the Board of Directors of the Company, in any manner, directly or indirectly, acquire for their own accounts any Voting Securities (or beneficial ownership thereof), except by way of stock dividends or other distributions or offerings made available to holders of Voting Securities generally and except for acquisitions of Common Stock upon exercise of the Warrants (as defined herein) or upon exercise of the Warrants (as defined in the First Purchase Agreement). The parties acknowledge that various Affiliates of the Investors are brokers or investment advisors or are otherwise engaged in transactions in securities generally as part of their ordinary course of business. The parties agree that actions taken by Affiliates of the Investors as such in the ordinary course of their business, such as acting as broker for clients acquiring shares of Voting Securities, shall not be deemed a violation of any of the provisions of this Section 5.9. ARTICLE VI CONDITIONS TO OBLIGATIONS OF THE COMPANY The obligations of the Company to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment on or prior to the Closing Date of each of the following conditions: 6.1 Representations and Warranties. All the representations and warranties of Investors contained in this Agreement shall be true and correct in all material respects, except as affected by transactions contemplated or permitted by this Agreement. 6.2 Covenants and Agreements. Investors shall have performed and complied with in all material respects all covenants and agreements required by this Agreement to be performed or complied with by them on or prior to the Closing Date. 6.3 HSR Act. All waiting periods (and any extensions thereof) applicable to this Agreement and the transactions contemplated hereby under the HSR Act shall have expired or been terminated. 6.4 Legal Proceedings. No Proceeding shall, on the Closing Date, be pending or threatened seeking to restrain, prohibit or obtain damages or other relief in connection with this Agreement or the consummation of the transactions contemplated hereby. 6.5 Consents. All consents, approvals, orders, authorizations and waivers of, and all declarations, filings and registrations with, third parties (including Governmental Entities) required to be obtained or made by or on the part of the parties hereto, or otherwise reasonably necessary for 19 the consummation of the transactions contemplated hereby, shall have been obtained or made, and all thereof shall be in full force and effect at the time of Closing. ARTICLE VII CONDITIONS TO OBLIGATIONS OF INVESTORS The obligations of Investors to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment on or prior to the Closing Date of each of the following conditions: 7.1 Representations and Warranties. All the representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects, except as affected by transactions contemplated or permitted by this Agreement (or the announcement thereof). 7.2 Covenants and Agreements. The Company shall have performed and complied with in all material respects all covenants and agreements required by this Agreement to be performed or complied with by it on or prior to the Closing Date. 7.3 HSR Act. All waiting periods (and any extensions thereof) applicable to this Agreement and the transactions contemplated hereby under the HSR Act shall have expired or been terminated. 7.4 Legal Proceedings. No Proceeding shall, on the Closing Date, be pending or threatened seeking to restrain, prohibit or obtain damages or other relief in connection with this Agreement or the consummation of the transactions contemplated hereby. 7.5 Consents. All consents, approvals, orders, authorizations and waivers of, and all declarations, filings and registrations with, third parties (including Governmental Entities) required to be obtained or made by or on the part of the parties hereto, or otherwise reasonably necessary for the consummation of the transactions contemplated hereby, shall have been obtained or made, and all thereof shall be in full force and effect at the time of Closing. 7.6 Legal Opinion. Thompson & Knight, L.L.P., counsel to the Company, shall have delivered to the Investors a legal opinion satisfactory in form and substance to the Investors. 7.7 Closing Deliveries. The Escrow Agent shall have received the certificates, instruments and documents required to be delivered by the Company by Section 2.2. ARTICLE VIII COVENANTS 8.1 Affirmative Covenants. The Company covenants and agrees that, so long as any of the Shares are outstanding: (a) Financial Statements and Other Reports. The Company shall deliver, or shall cause to be delivered, to the Investors: (i) Annual Financial Statements. As soon as available and in any event within 90 days after the end of each fiscal year of the Company and its consolidated 20 Subsidiaries for such fiscal year, and the related consolidated and unaudited consolidating balance sheets of the Company and its consolidated Subsidiaries as at the end of such fiscal year, and setting forth in each case in comparative form the corresponding figures for the preceding fiscal year, and accompanied by the related opinion of independent public accountants which opinion shall state that said financial statements fairly present the consolidated financial condition and results of operations of the Company and its consolidated Subsidiaries as at the end of, and for, such fiscal year and that such financial statements have been prepared in accordance with GAAP except for such changes in such principles with which the independent public accountants shall have concurred. (ii) Quarterly Financial Statements. As soon as available and in any event within 60 days after the end of each of the first three fiscal quarterly periods of each fiscal year of the Company, consolidated statements of income, stockholders' equity, changes in financial position and cash flow of the Company and its consolidated Subsidiaries for such period and for the period from the beginning of the respective fiscal year to the end of such period, and the related consolidated and consolidating balance sheets as at the end of such period. (iii) Monthly Financial Statements. As soon as available and in any event within forty-five (45) days after the end of each calendar month that is not also the end of one of the Company's first three fiscal quarterly periods or of the Company's fiscal year, consolidated statements of income and changes in financial position of the Company and its consolidated Subsidiaries for such period and for the period from the beginning of the respective fiscal year to the end of such period, and the related consolidated balance sheets as at the end of such period and beginning statements setting forth in each case in comparative form the corresponding figures for the corresponding period in the preceding fiscal year. (b) SEC Filings, Etc. Promptly, upon its becoming available, each financial statement, report, notice or proxy statement sent by the Company to stockholders generally. (c) Engineering Reports. Not later than April 30 and October 30 of each year, the Company shall furnish to the Investors a Reserve Report as of the preceding December 31 and June 30, respectively. The Reserve Report to be furnished in April of each year shall be prepared by certified independent petroleum engineers or other independent petroleum consultant(s) and the Reserve Reports to be furnished in October of each year shall be prepared by or under the supervision of the chief engineer or Vice President of Operations of the Company who shall certify such Reserve Report to have been prepared in accordance with the procedures used in the immediately preceding April Reserve Report. At Company's option, the Reserve Report to be furnished in October of each year may instead consist of a report from the independent petroleum engineers referred to above on any new wells and a roll-forward by Company on any wells previously reported in the Reserve Report described in the immediately preceding April. (d) Exchange Act Reports. At all times (i) timely file all reports required to be filed by the Company under Section 13(d) or Section 15 of the Exchange Act and the rules and regulations thereunder, and (ii) if the Company is no longer subject to the requirements 21 of the Exchange Act, provide holders of the Shares reports in substantially the same form and at the same times as would be required if the Company were subject to the Exchange Act. (e) Nasdaq Listing. Maintain at all times a valid listing for the Common Stock on a national securities exchange or the National Market System or SmallCap Market of the Nasdaq Stock Market, Inc. (f) Further Assurances. The Company at its expense will promptly execute and deliver to the Investors upon request all such other documents, agreements and instruments to comply with or accomplish the covenants and agreements of the Company in this Agreement or any other agreements and documents executed by and between the Company and the Investors. 8.2 Negative Covenants. The Company covenants and agrees that, so long as at least 10% of the Shares are outstanding, without the prior written consent of the persons holding 75% of the then outstanding Shares: (a) Dividends, Distributions and Redemptions. The Company will not declare or pay any dividend, purchase, redeem, or otherwise acquire for value any, other than those issued under the First Purchase Agreement, Parity Security or Junior Security now or hereafter outstanding, return any capital or make a distribution of its assets to its stockholders. (b) Nature of Business. Neither the Company nor Brigham Oil & Gas, L.P. will allow any material change to be made in the character of its business as an independent oil and gas exploration and production company. (c) Environmental Matters. Neither the Company nor any Subsidiary will knowingly cause or permit any of its Property to be in violation of, or knowingly do anything or permit anything to be done which will subject any such Property to any remedial obligations under any Environmental Laws, assuming disclosure to the applicable Governmental Authority of all relevant facts, conditions and circumstances, if any, pertaining to such Property where such violations or remedial obligations would have a Material Adverse Effect. (d) Transactions with Affiliates. Neither the Company nor any Subsidiary will enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of Property or the rendering of any service, with any Affiliate unless such transactions are otherwise not in violation of this Agreement, and are upon fair and reasonable terms no less favorable to it than it would obtain in a comparable arm's length transaction with a Person not an Affiliate. ARTICLE IX AMENDMENT AND WAIVER 9.1 Amendment. This Agreement may not be amended except by an instrument in writing signed by or on behalf of all the parties hereto. 22 9.2 Waiver. No failure or delay by a party hereto in exercising any right, power, or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power, or privilege. The provisions of this Agreement may not be waived except by an instrument in writing signed by or on behalf of the party against whom such waiver is sought to be enforced. ARTICLE X MISCELLANEOUS 10.1 Notices. All notices, requests, demands, and other communications required or permitted to be given or made hereunder by any party hereto shall be in writing and shall be deemed to have been duly given or made if (i) delivered personally, (ii) sent by prepaid overnight courier service, or (iii) sent by telecopy or facsimile transmission, answer back requested, to the parties at the following addresses (or at such other addresses as shall be specified by the parties by like notice): (a) If to the Company: Brigham Exploration Company 6300 Bridge Point Parkway Building 2, Suite 500 Austin, TX 78730 Attention: Chief Financial Officer Telefax: 512-427-3400 with a copy to: Thompson & Knight L.L.P. 1700 Pacific Avenue, Suite 3300 Dallas, Texas 75201 Attention: Joe Dannenmaier Telefax: 214-969-1751 (b) If to MB, MBP or ESC, to such Investor at: 277 Park Avenue New York, New York 10172 Attention: Nicole Arnaboldi, Ivy Dodes Telefax: 212-892-7272 with a copy to: Gardere Wynne Sewell, LLP 1000 Louisiana, Suite 3400 Houston, Texas 77002 Attention: N.L. Stevens III Telefax: 713-276-5807 (c) If to DOP: c/o DLJ Offshore Management N.V. John B. Gorsiraweg 14 23 Willemstad, Curacao Netherlands, Antilles Fax: 011-599-961-4129 with a copy to: Gardere Wynne Sewell, LLP 1000 Louisiana, Suite 3400 Houston, Texas 77002 Attention: N.L. Stevens III Telefax: 713-276-5807 Such notices, requests, demands, and other communications shall be effective (i) if delivered personally or sent by courier service, upon actual receipt by the intended recipient, or (ii) if sent by telecopy or facsimile transmission, when the answer back is received. 10.2 Entire Agreement. This Agreement, together with the Schedules, Exhibits, Annexes, and other writings referred to herein or delivered pursuant hereto, constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, both written and oral, between the parties and their Affiliates with respect to the subject matter hereof. 10.3 Binding Effect; Assignment; No Third Party Benefit. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Except as otherwise expressly provided in this Agreement, neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto without the prior written consent of the other party. Nothing in this Agreement, express or implied, is intended to or shall confer upon any person other than the parties hereto, and their respective heirs, legal representatives, successors, and permitted assigns, any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement. 10.4 Severability. If any provision of this Agreement is held to be unenforceable, then this Agreement shall be considered divisible and such provision shall be deemed inoperative to the extent it is deemed unenforceable, and in all other respects this Agreement shall remain in full force and effect to the maximum extent permitted by Applicable Law. 10.5 Injunctive Relief. The parties hereto acknowledge and agree that irreparable damage would occur in the event any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement, and shall be entitled to enforce specifically the provisions of this Agreement, in any court of the United States or any state thereof having jurisdiction, in addition to any other remedy to which the parties may be entitled under this Agreement or at law or in equity. 10.6 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF. 24 10.7 Jurisdiction. Except as otherwise expressly provided in this Agreement, any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby may be brought in the United States District Court for the Southern District of New York or any other New York State court sitting in New York City, and each of the parties hereby consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 10.01 shall be deemed effective service of process on such party. 10.8 Binding Arbitration. In the event of any dispute, difference or question arising out of relating to the release of the Shares, Warrants, purchase price for the Shares and Warrants, and interest thereon accruing while such amounts are deposited under the Escrow Agreement ("Dispute") between any of the parties hereto ("Disputing Parties") which cannot be otherwise resolved by the Disputing Parties themselves, the Dispute will be settled by arbitration by an arbitrator mutually acceptable to the Disputing Parties in an arbitration proceeding conducted in Houston, Texas in accordance with the rules existing at the date hereof of the American Arbitration Association. If the Disputing Parties hereto cannot agree on an arbitrator within ten (10) days of the initiation of the arbitration proceeding, an arbitrator shall be selected for the Disputing Parties by the American Arbitration Association. The Disputing Parties shall use their best efforts to have the arbitral proceeding conclude and a judgement rendered by the arbitrator within forty (40) business days of the initiation of the arbitration proceeding. The decision of such arbitrator shall be final and judgement upon the award rendered by the arbitration may be entered in any court having jurisdiction thereof, and the costs (including, without limitation, reasonable fees and expenses of counsel and experts for the Disputing Parties) of such arbitration (including the cost to enforce or preserve the rights awarded in the arbitration) shall be borne by the Disputing Party whom the decision of the arbitrator is against. If the decision of the arbitrator is not clearly against one of the Disputing Parties, or the decisions of the arbitrator is against more than one Disputing Party on one or more issues, costs of such arbitration shall be borne equally by the Disputing Parties. 10.9 Counterparts. This Agreement may be executed by the parties hereto in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement. Each counterpart may consist of a number of copies hereof each signed by less than all, but together signed by all, the parties hereto. ARTICLE XI DEFINITIONS 11.1 Certain Defined Terms. As used in this Agreement, each of the following terms has the meaning given it in this Article: 25 "Affiliate" of any Person shall mean (i) any Person directly or indirectly controlled by, controlling or under common control with such first Person, (ii) any director or officer of such first Person or of any Person referred to in clause (i) above and (iii) if any Person in clause (i) above is an individual, any member of the immediate family (including parents, spouse and children) of such individual and any trust whose principal beneficiary is such individual or one or more members of such immediate family and any Person who is controlled by any such member or trust. For purposes of this definition, any Person which owns directly or indirectly 50% or more of the securities having ordinary voting power for the election of directors or other governing body of a corporation or 50% or more of the partnership or other ownership interests of any other Person (other than as a limited partner of such other Person) will be deemed to "control" (including, with its correlative meanings, "controlled by" and "under common control with") such corporation or other Person. "Ancillary Documents" means each agreement, instrument, and document (other than this Agreement) executed or to be executed by the Company or any Investor in connection with the sale and purchase of the Shares and Warrants and the other transactions contemplated by this Agreement. "Applicable Law" means any statute, law, rule, or regulation or any judgment, order, writ, injunction, or decree of any Governmental Entity to which a specified person or property is subject. "Board Representative" means any representative of Investors on the Board, to the extent (a) nominated to the Board pursuant to Article VIII of the First Purchase Agreement and (b) acting in his or her capacity as a member of the Board. "BOG" means Brigham Oil & Gas, L.P. "Business Day" shall mean any day other than a Saturday, a Sunday, or a day on which banking institutions in Austin, Texas are authorized or obligated by law or executive order to close. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time and any successor statute. "Common Stock" means the common stock, par value of $.01 per share, of the Company, and such other class of securities as shall represent the common equity of the Company. "Debt" shall mean, for any Person the sum of the following (without duplication): (i) all obligations of such Person for borrowed money or evidenced by bonds, debentures, notes or other similar instruments (including principal, interest, fees and charges); (ii) all obligations of such Person (whether contingent or otherwise) in respect of bankers acceptances, letters of credit, surety or other bonds and similar instruments; (iii) all obligations of such Person to pay the deferred purchase price of Property or services (other than for borrowed money) excluding Trade Payables; (iv) all obligations under leases which shall have been, or should have been, in accordance with GAAP, recorded as capital leases in respect of which such Person is liable (whether contingent or otherwise); (v) all obligations under leases (other than capital leases and oil and gas leases) which require such Person or its Affiliate to make payments exceeding $100,000 over the term of such lease, including payments at termination, which are substantially equal to at least eighty percent (80%) of the purchase price of the Property subject to such lease plus interest at an imputed market 26 rate of interest; (vi) all Debt (as described in the other clauses of this definition) of others secured by a Lien on any asset of such Person, whether or not such Debt is assumed by such Person; (vii) all Debt (as described in the other clauses of this definition) of others guaranteed by such Person or in which such Person otherwise assures a creditor against loss of the Debt of others; (viii) all obligations or undertakings of such Person to maintain or cause to be maintained the financial position or covenants of others including without limitation agreements expressed as an agreement to purchase the Debt or Property of others or otherwise; (x) obligations to pay for goods or services whether or not such goods or services are actually received or utilized by such Person; (xi) any capital stock of such Person in which such Person has a mandatory obligation to redeem such stock; (xii) the undischarged balance of any production payment created by such Person or for the creation of which such Person directly or indirectly received payment; and (xiii) all obligations of such Person under Hedging Agreements. "Encumbrances" means liens, charges, pledges, options, mortgages, deeds of trust, security interests, claims, restrictions (whether on voting, sale, transfer, disposition, or otherwise), easements, and other encumbrances of every type and description, whether imposed by law, agreement, understanding, or otherwise. "Environmental Laws" shall mean any and all Governmental Requirements pertaining to the environment in effect in any and all jurisdictions in which the Company or any Subsidiary is conducting or at any time has conducted business, or where any Oil and Gas Property of the Company or any Subsidiary is located, including without limitation, the Oil Pollution Act of 1990 ("OPA"), the Clean Air Act, as amended, the Comprehensive Environmental, Response, Compensation, and Liability Act of 1980 ("CERCLA"), as amended, the Federal Water Pollution Control Act, as amended, the Occupational Safety and Health Act of 1970, as amended, the Resource Conservation and Recovery Act of 1976 ("RCRA"), as amended, the Safe Drinking Water ACT, as amended, the Toxic Substances Control Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended, and other environmental conservation or protection laws. As used in the provisions hereof relating to Environmental Laws, the term "oil" shall have the meaning specified in OPA, the terms "hazardous substance" and "release" (or "threatened release") have the meanings specified in CERCLA, and the terms "solid waste" and "disposal" (or "disposal") have the meanings specified in RCRA; provided that to the extent the laws of the state in which any Oil and Gas Property of the Company or any Subsidiary is located establish a meaning for "oil", "hazardous substance," "release," "solid waste" or "disposal" which is broader than that specified in either OPA, CERCLA or RCRA, such broader meaning shall apply. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time and any successor statute. "ERISA Affiliate" shall mean each trade or business (whether or not incorporated) which together with the Company or any Subsidiary of the Company would be deemed to be a "single employer" within the meaning of section 4001(b)(1) of ERISA or subsections (b), (c), (m) or (o) of section 414 of the Code. "Excepted Liens" shall mean: (i) Liens for taxes, assessments or other governmental charges or levies not yet due or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP; (ii) Liens in connection with 27 workmen's compensation, unemployment insurance or other social security, old age pension or public liability obligations not yet due or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP; (iii) operators', vendors', carriers', warehousemen's, repairmen's, mechanics', workmen's, materialmen's, construction or other like Liens arising by operation of law in the ordinary course of business or incident to the exploration, development, operation and maintenance of Oil and Gas Properties or customary landlord's liens, each of which is in respect of obligations that have not been outstanding more than 90 days or which are being contested in good faith by appropriate proceedings and for which adequate reserves have been maintained in accordance with GAAP; (iv) any Liens reserved in leases or farmout agreements for rent or royalties and for compliance with the terms of the farmout agreements or leases in the case of leasehold estates, to the extent that any such Lien referred to in this clause does not materially impair the use of the property covered by such Lien for the purposes for which such property is held or materially impair the value of such property subject thereto; (v) encumbrances (other than to secure the payment of borrowed money or the deferred purchase price of property or services), easements, restrictions, servitudes, permits, conditions, covenants, exceptions or reservations in any rights of way or other property for the purpose of roads, pipelines, transmission lines, transportation lines, distribution lines for the removal of gas, oil, coal or other minerals or timber, and other like purposes, or for the joint or common use of real estate, rights of way, facilities and equipment, and defects, irregularities, zoning restrictions and deficiencies in title of any rights of way or other property which in the aggregate do not materially impair the use of such rights of way or other property for the purposes of which such rights of way and other property are held or materially impair the value of such property subject thereto; (vi) deposits of cash or securities to secure the performance of bids, trade contracts, leases, statutory obligations and other obligations of a like nature incurred in the ordinary course of business; and (vii) Liens (including "Excepted Liens") permitted by or created pursuant to the Senior Credit Agreement and Liens permitted by or created pursuant to the Subordinated Credit Agreement. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "First Purchase Agreement" means that certain Securities Purchase Agreement dated as of November 1, 2000, between the Company, MB and ESC. "Governmental Entity" means any court or tribunal in any jurisdiction (domestic or foreign) or any public, governmental, or regulatory body, agency, department, commission, board, bureau, or other authority or instrumentality (domestic or foreign). "Governmental Requirement" shall mean any law, statute, code, ordinance, order, determination, rule, regulation, judgment, decree, injunction, franchise, permit, certificate, license, authorization or other directive or requirement (in the case of banking regulatory authorities whether or not having the force of law), including, without limitation, Environmental Laws, energy regulations and occupational, safety and health standards or controls, of any Governmental Entity. "Hedging Agreements" shall mean any commodity, interest rate or currency swap, cap, floor, collar, forward agreement or other exchange or protection agreements or any option with respect to any such transaction. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. 28 "Hydrocarbon Interests" shall mean all rights, titles, interests and estates now or hereafter acquired in and to oil and gas leases, oil, gas and mineral leases, or other liquid or gaseous hydrocarbon leases, mineral fee interests, overriding royalty and royalty interests, net profit interests and production payment interests, including any reserved or residual interests of whatever nature. "Hydrocarbons" shall mean oil, gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all products refined or separated therefrom. "Lien" shall mean any interest in property securing an obligation owed to, or a claim by, a person other than the owner of the property, whether such interest is based on the common law, statute or contract, and whether such obligation or claim is fixed or contingent, and including but not limited to (i) the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes or (ii) production payments and the like payable out of Oil and Gas Properties. The term "Lien" shall include reservations, exceptions, encroachments, easements, rights of way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting property. For the purposes of this Agreement, a Person shall be deemed to be the owner of any property which it has acquired or holds subject to a conditional sale agreement, or leases under a financing lease or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person in a transaction intended to create a financing. "Material Adverse Effect" means, relative to the Company or the Investors, as the case may be, any change, development, or effect (individually or in the aggregate) which is, or is reasonably likely to be, materially adverse (i) to the business, assets, results of operations, condition (financial or otherwise), or prospects of the Company and the Subsidiaries considered as a whole, or the Investors, as the case may be, or (ii) to the ability of the Company or the Investors, as the case may be, to perform on a timely basis any material obligation of the Company or the Investors, as the case may be, under this Agreement or any agreement, instrument, or document entered into or delivered in connection herewith. "Material Agreement" means (a) any written agreement, contract, lease, commitment, understanding, instrument or obligation to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary or any of their respective properties may be bound involving total value or consideration or liability in excess of $500,000, (b) any loan or credit agreement, bond, debenture, note, mortgage or indenture by which the Company or any Subsidiary or any of their respective properties may be bound, or (c) any agreement set forth as an exhibit to the Company's Form 10-K for the fiscal year ended December 31, 1999. "Oil and Gas Properties" shall mean Hydrocarbon Interests; the Properties now or hereafter pooled or unitized with Hydrocarbon Interests; all presently existing or future unitization, pooling agreements and declarations of pooled units and the units created thereby (including without limitation all units created under orders, regulations and rules of any Governmental Authority) which may affect all or any portion of the Hydrocarbon Interests; all operating agreements, contracts and other agreements which relate to any of the Hydrocarbon Interests or the production, sale, purchase, exchange or processing of Hydrocarbons from or attributable to such Hydrocarbon Interests; all 29 Hydrocarbons in and under and which may be produced and saved or attributable to the Hydrocarbon Interests, including all oil in tanks, the lands covered thereby and all rents, issues, profits, proceeds, products, revenues and other incomes from or attributable to the Hydrocarbon Interests; all tenements, hereditaments, appurtenances and Properties in any manner appertaining, belonging, affixed or incidental to the Hydrocarbon Interests; and all Properties, rights, titles, interests and estates described or referred to above, including any and all Property, real or personal, now owned or hereinafter acquired and situated upon, used, held for use or useful in connection with the operating, working or development of any of such Hydrocarbon Interests or Property (excluding drilling rigs, automotive equipment or other personal property which may be on such premises for the purpose of drilling a well or for other similar temporary uses) and including any and all oil wells, gas wells, injection wells or other wells, buildings, structures, fuel separators, liquid extraction plants, plant compressors, pumps, pumping units, field gathering systems, tanks and tank batteries, fixtures, valves, fittings, machinery and parts, engines, boilers, meters, apparatus, appliances, tools, implements, cables, wires, towers, casing, tubing and rods, similar equipment, surface leases, rights-of-way, easements and servitudes together with all additions, substitutions, replacements, accessions and attachments to any and all of the foregoing. "Person" or "person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, enterprise, unincorporated organization, or Governmental Entity. "Plan" shall mean any employee pension benefit plan, as defined in Section 3(2) of ERISA, which (i) is currently or hereafter sponsored, maintained or contributed to by the Company, any Subsidiary or an ERISA Affiliate or (ii) was at any time during the preceding six calendar years sponsored, maintained or contributed to, by the Company, any Subsidiary or an ERISA Affiliate. "Proceeding" means any action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative, any appeal in such an action, suit or proceeding, and any inquiry or investigation that could lead to such an action, suit or proceeding. "Reasonable best efforts" means a party's best efforts in accordance with reasonable commercial practice and without the incurrence of unreasonable expense. "Registration Rights Agreement" means that certain Registration Rights Agreement, dated November 1, 2000, by and among the Company, MB and ESC, as amended by that certain First Amendment to Registration Rights Agreement, dated as of the date hereof, by and among the Company and the Investors. "Rule 144" means Rule 144 promulgated under the Securities Act. "Securities Act" means the Securities Act of 1933, as amended. "Senior Credit Agreement" means that certain Amended and Restated Credit Agreement dated as of February 17, 2000, by and between BOG, Bank of Montreal, as Agent, and the Lenders signatory thereto, as amended on October 31, 2000, together with the "Loan Documents" described therein. 30 "Subordinated Credit Agreement" means the Subordinated Credit Agreement dated as of October 31, 2000 by and between BOG, Shell Capital, Inc., as Agent, and the Lenders signatory thereto, together with the "Loan Documents" described therein. "Subsidiaries" means Brigham Oil & Gas, L.P.; Brigham, Inc.; Brigham Holdings I, LLC and Brigham Holdings II, LLC. "Voting Securities" means shares of Common Stock and any other securities of the Company entitled to vote generally for the election of directors or any other securities (including, without limitation, rights, warrants, and options) convertible into or exchangeable or exercisable for any of the foregoing (whether or not presently convertible, exchangeable, or exercisable). 31 IN WITNESS WHEREOF, the parties have executed this Agreement, or caused this Agreement to be executed by their duly authorized representatives, all as of the day and year first above written. THE COMPANY: BRIGHAM EXPLORATION COMPANY Address: 6300 Bridge Point Parkway Building 2, Suite 500 By: /s/ Karen E. Lynch Austin, TX 78730 ------------------------------------- INVESTORS: Address: DLJ ESC II, LP 277 Park Avenue New York, NY 10172 By: DLJ LBO Plans Management Corporation Attn: Ivy Dodes/Nicole Arnaboldi General Partner By: /s/ Steven A. Webster ------------------------------------- Steven A. Webster, Attorney in Fact Address: DLJMB FUNDING III, INC. 277 Park Avenue New York, NY 10172 By: /s/ Steven A. Webster ------------------------------------- Steven A. Webster, Attorney in Fact Address: DLJ MERCHANT BANKING PARTNERS III, L.P. 277 Park Avenue New York, NY 10172 By: DLJ Merchant Banking III, Inc. Managing General Partner By: /s/ Steven A. Webster ------------------------------------- Steven A. Webster, Attorney in Fact Address: DLJ OFFSHORE PARTNERS III, C.V. c/o DLJ Offshore Management N.V. John B. Gorsiraweg 14 By: DLJ Merchant Banking III, Inc. Willemstad, Curacao Managing General Partner Netherlands, Antilles By: /s/ Steven A. Webster ------------------------------------- Steven A. Webster, Attorney in Fact 32 EX-10.71 4 0004.txt FIRST AMENDMENT TO REGISTRATION RIGHT AGREEMENT Exhibit 10.71 First Amendment to REGISTRATION RIGHTS AGREEMENT THIS FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into as of March 5, 2001, by and among Brigham Exploration Company, a Delaware corporation (the "Company"), and the parties listed on Schedule A hereto. RECITALS WHEREAS, pursuant to that certain Registration Rights Agreement dated as of November 1, 2000 (the "Original Agreement"), by and among the Company and DLJMB Funding III, Inc., a Delaware corporation and DLJ ESC II, L.P., a Delaware Limited Partnership (the "Initial Investors"), the Company provided certain registration rights to the Initial Investors regarding shares of the Company's common stock issuable upon conversion of warrants issued by the Company to the Initial Investors; WHEREAS, each of the Initial Investors and DLJ Merchant Banking Partners III, L.P., a Delaware Limited Partnership, and DLJ Offshore Partners III, C.V., a Netherlands Antilles Limited Partnership (collectively hereinafter referred to as the "Investors"), and the Company are parties to that certain Securities Purchase Agreement dated as of March 5, 2001 (the "New Securities Purchase Agreement"); WHEREAS, each of the Investors is a party to a certain Warrant Certificate (the "New Warrant Certificate") dated as of March 5, 2001, by and between the Company and each of such Investors; WHEREAS, the New Warrant Certificates were executed and delivered in connection with the consummation of transactions contemplated by the new Securities Purchase Agreement; WHEREAS, pursuant to the New Warrant Certificates, each of the Investors has been issued a warrant (the "New Warrant") to purchase shares of the Company's common stock, par value $.01 per share; and WHEREAS, to induce the Investors to enter into the New Warrant Certificates and the new Securities Purchase Agreement, the Company has agreed to provide registration rights under the Original Agreement with respect to the shares issuable upon exercise of the New Warrants. NOW, THEREFORE, for and in consideration of the foregoing, and other good and valuable consideration, the sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows: Section 1. Amendments to the Original Agreement. (a) The "RECITALS" section of the Original Agreement is amended by deleting such section entirely and replacing it with the following: " WHEREAS, each of DLJMB Funding III, Inc. ("MB") and DLJ ESC II, L.P. ("ESC") (MB and ESC are sometimes hereinafter referred to collectively as the "Initial Investors") is a party to a certain Warrant Certificate (the "Warrant Certificate") dated as of November 1, 2000, by and between the Company and such Investor, and each of the Initial Investors and DLJ Merchant Banking Partners III, L.P. ("MBP") and DLJ Offshore Partners III, C.V. ("Offshore") (the Initial Investors, MBP and Offshore are sometimes hereinafter referred to collectively as the "Investors") is a party to a certain Warrant Certificate (the "New Warrant Certificate") dated as of March 5, 2001, by and between the Company and such Investor; WHEREAS, the Warrant Certificates were executed and delivered to the Initial Investors in connection with the consummation of transactions contemplated by that certain Securities Purchase Agreement dated as of November 1, 2000, by and among the Company and the Initial Investors, and the New Warrant Certificates were executed and delivered in connection with the consummation of transactions contemplated by that certain Securities Purchase Agreement dated as of March 5, 2001 by and among the Company and the Investors; WHEREAS, pursuant to the Warrant Certificates, each Holder (as defined below) has been issued a warrant (the "Warrant") to purchase shares of the Company's common stock, par value $.01 per share (the "Company's Common Stock"), and pursuant to the New Warrant Certificates, each Holder (as defined below) has been issued a warrant (the "New Warrant") to purchase shares of the Company's Common Stock; WHEREAS, to induce the Initial Investors to enter into the Warrant Certificates, and the Investors to enter into the New Warrant Certificates and the Securities Purchase Agreements described above, the Company has agreed to grant the registration and other rights contained in this Agreement;" (b) The definition of Registrable Securities in Section 1.(d) of the Original Agreement is amended by deleting such Section 1.(d) entirely and replacing it with the following: " (d) "Registrable Securities" means (i) the Common Stock of the Company issuable or issued upon exercise of the Warrants or the New Warrants and (ii) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, such Warrants, New Warrants or Common Stock, excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which its rights under this Agreement are not assigned; and" (c) Schedule A to the Original Agreement is amended by deleting such Schedule A entirely and replacing it with Schedule A to this Agreement. Section 2. No Other Changes. Except as explicitly amended by this Amendment, the terms, conditions, rights and obligations under the Original Agreement shall remain in full force and effect. Section 3. Counterparts. This Amendment may be executed by the parties hereto in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement. 2 IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date set forth above. BRIGHAM EXPLORATION COMPANY By: /s/ Karen E. Lynch ------------------------------------- Its: Vice President Address: Brigham Exploration Company 6300 Bridge Point Parkway Building 2, Suite 500 Austin, TX 78730 Attention: Chief Financial Officer Fax: 512-427-3400 DLJMB FUNDING III, INC. /s/ Steven A. Webster ---------------------------------------- Name: Steven A. Webster Title: Attorney-in-Fact Address: 277 Park Avenue New York, New York 10172 Attention: Nicole Arnaboldi, Ivy Dodes Telefax: 212-892-7272 DLJ ESC II, L.P. By: DLJ LBO Plans Management Corporation ---------------------------------------- General Partner /s/ Steven A. Webster ---------------------------------------- Name: Steven A. Webster Title: Attorney-in-Fact Address: c/o DLJ LBO Plans Management Corporation 277 Park Avenue New York, New York 10172 Attention: Ivy Dodes/Nicole Arnaboldi Telefax: 212-892-7272 3 DLJ Merchant Banking Partners III, L.P. By: DLJ Merchant Banking III, Inc. Managing General Partner /s/ Steven A. Webster ---------------------------------------- Name: Steven A. Webster Title: Attorney-in-Fact Address: DLJ Merchant Banking Partners III, L.P. 277 Park Avenue New York, New York 10072 Attention: Nicole Arnaboldi, Ivy Dodes Telefax: 212-892-7272 DLJ Offshore Partners III, C.V. By: DLJ Merchant Banking III, Inc. Managing General Partner /s/ Steven A. Webster ---------------------------------------- Name: Steven A. Webster Title: Attorney-in-Fact Address: c/o DLJ Offshore Management N.V. John B. Gorsiraweg 14 Willemstad, Curacao Netherlands, Antilles Fax: 011-599-961-4129 4 Schedule A to Registration Rights Agreement Number of Shares Holder Name November 1, 2000 March 5, 2001 - ----------- ---------------- ------------- DLJ MB Funding III, Inc., 6,036,667 141,869 a Delaware corporation DLJ ESC II, LP, 630,000 371,789 a Delaware limited partnership DLJ Merchant Banking Partners III, L.P. -0- 1,527,154 DLJ Offshore Partners III, C.V -0- 64,451 --------- --------- TOTAL 6,666,667 2,105,263 5 EX-10.72 5 0005.txt WARRANT CERTIFICATE Exhibit 10.72 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM. SUCH SECURITIES ARE SUBJECT TO THE RESTRICTIONS AND PRIVILEGES SPECIFIED IN THIS WARRANT CERTIFICATE AND IN A SECURITIES PURCHASE AGREEMENT, DATED AS OF MARCH 5, 2001, BETWEEN BRIGHAM EXPLORATION COMPANY AND THE INITIAL HOLDER OF SECURITIES NAMED THEREIN, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF BRIGHAM EXPLORATION COMPANY AND WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER HEREOF UPON WRITTEN REQUEST, AND THE HOLDER OF THIS CERTIFICATE AGREES TO BE BOUND THEREBY. WARRANT CERTIFICATE Number of Warrants: 141,869 Warrant No. 1 -------- ---- This Warrant certificate ("Warrant Certificate") certifies that, for value received, DLJ MB Funding III, Inc. is the registered holder of the number of warrants (the "Warrants") set forth above. Each Warrant entitles the holder thereof, at any time or from time to time during the Exercise Period, to purchase from the Company one fully paid and nonassessable share of Common Stock at the Exercise Price, subject to adjustment as provided herein. Initially capitalized terms used but not defined herein shall have the meanings ascribed to them in the Securities Purchase Agreement. "Common Stock" means the common stock, $.01 par value per share, of the Company and such other class of securities as shall then represent the common equity of the Company. "Company" means Brigham Exploration Company, a Delaware corporation. "Exercise Period" means the period of time between the day immediately following the date that Stockholder Approval, as defined in the Securities Purchase Agreement, is obtained and 5:00 p.m. (New York City time) on the Expiration Date. "Exercise Price," subject in all circumstances to adjustment in accordance with Section 2, means $4.75 per share. "Expiration Date" means the tenth anniversary of the Closing Date. "Issuance Date" means the Closing Date. "Person" means any individual, corporation, company, partnership, joint venture, trust, limited liability company, unincorporated organization or government or any agency, instrumentality or political subdivision thereof, or any other form of entity. "Preferred Stock" means shares of the Series A Preferred Stock, par value $0.01 per share, of the Company. "Preferred Value" per share of Preferred Stock means the Stated Value of such Share, plus, without duplication, all accrued and unpaid dividends on such share to and including the applicable date of Warrant exercise. "Price" means the average of the "high" and "low" prices as reported in The Wall Street Journal's listing for such day (corrected for obvious typographical errors) or if such shares are not reported in such listing, the average of the reported sales prices on the largest national securities exchange (based on the aggregate dollar value of securities listed) on which such shares are listed or traded, or if such shares are not listed or traded on any national securities exchange, then the average of the reported sales prices for such shares in the over-the-counter market, as reported on the National Association of Securities Dealers Automated Quotations System, or, if such prices shall not be reported thereon, the average of the closing bid and asked prices so reported, or, if such prices shall not be reported, then the average of the closing bid and asked prices reported by the National Quotations Bureau Incorporated. The "Average" Price per share for any period shall be determined by dividing the sum of the Prices determined for the individual trading days in such period by the number of trading days in such period. "Securities Purchase Agreement" means the Securities Purchase Agreement, dated as of March 5, 2001, between the Company and the Investors. "Stated Value" means the stated value per share of Preferred Stock, which is $20.00 per share. Section 1. Exercise of Warrants. (a) The Warrants may be exercised in whole or in part, at any time or from time to time, during the Exercise Period, by (i) presentation and surrender to the Company at its address set forth in Section 10 of this Warrant Certificate with the Election To Exercise, attached hereto as Exhibit A, duly completed and executed, and (ii) payment of the Exercise Price, for the number of Warrants being exercised by either: (1) bank draft or cashiers check, or (2) provided that the Company receives at least 5 days prior notice and subject to Section 1(d), delivery to the Company of certificate(s) representing a number of shares of Preferred Stock having an aggregate Preferred Value equal to the aggregate Exercise Price for the number of Warrants being exercised. If the aggregate Preferred Value of the Preferred Stock delivered in payment of the aggregate Exercise Price exceeds (because of fractional shares) the aggregate Exercise Price for the number of Warrants being exercised; then (subject to Section 1(d)) the Company will promptly pay to the holder of the Warrants in cash such excess amount; provided that such excess amount shall in no event be more than the Preferred Value of one share of Preferred Stock. If the holder of this Warrant Certificate at any time exercises less than all the Warrants, the -2- Company shall issue to such a holder a warrant certificate identical in form to this Warrant Certificate, but evidencing a number of Warrants equal to the number of Warrants originally represented by this Warrant Certificate less the number of Warrants previously exercised. Likewise, upon the presentation and surrender of this Warrant Certificate to the Company at its address set forth in Section 10 and at the request of the holder, the Company will, without expense, at the option of the holder, issue to the holder in substitution for this Warrant Certificate one or more warrant certificates in identical form and for an aggregate number of Warrants equal to the number of Warrants evidenced by this Warrant Certificate. (b) To the extent that the Warrants have not been exercised at or prior to the Expiration Date, such Warrants shall expire and the rights of the holder shall become void and of no effect. (c) Upon surrender of this Warrant Certificate in conformity with the foregoing provisions, the Company shall transfer to the holder of this Warrant Certificate appropriate evidence of ownership of the shares of Common Stock or other securities or property (including any money) to which the holder is entitled, registered or otherwise placed in, or payable to the order of, the name or names of the holder or such transferee as may be directed in writing by the holder, and shall deliver such evidence of ownership and any other securities or property (including any money) to the Person or Persons entitled to receive the same, together with an amount in cash in lieu of any fraction of a share. (d) In connection with payment of the Exercise Price with shares of Preferred Stock, the Company may require that at the time of such exercise it receive representations and warranties from the applicable holder of the Warrants regarding such holder's title to the Preferred Stock and the lack of encumbrances thereon. If the Company is unable to consummate an exercise of Warrants through payment of the Exercise Price with shares of Preferred Stock because of any limitations contained or construed in the Delaware General Corporation Law, the Company shall use its best efforts to take all such action as may be necessary to place the Company in a position to do so. In the event the Company, after the taking of any action by it as contemplated above, is unable to consummate such exercise, the Company shall accept such number of shares of Preferred Stock in payment as it shall then be authorized to do so under the Delaware General Corporation Law. (e) The Company shall not be required to issue a fractional share of Common Stock upon the exercise of Warrants. As to any fraction of a share which the Warrant holder would otherwise be entitled to purchase upon such exercise, the Company may pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the Price per share of Common Stock on the date of exercise. Section 2. Antidilution Adjustments. The shares of Common Stock purchasable on exercise of the Warrants are shares of Common Stock as constituted as of the Issuance Date. The number and kind of securities purchasable upon the exercise of the Warrants, and the Exercise Price, shall be subject to adjustment from time to time upon the happening of certain events, as follows: -3- (a) Mergers, Consolidations and Reclassifications. In case of any reclassification or change of outstanding securities issuable upon exercise of the Warrants at any time after the Issuance Date (other than a change in par value, or from par value to no par value, or from no par value to par value or as a result of a subdivision or combination to which Section 2(b) applies), or in case of any consolidation or merger of the Company with or into any entity or other person (other than a merger with another entity or other person in which the Company is the surviving corporation and which does not result in any reclassification or change in the securities issuable upon exercise of this Warrant Certificate), the holder of the Warrants shall have, and the Company, or such successor corporation or other entity, shall covenant in the constituent documents effecting any of the foregoing transactions that such holder does have the right to obtain, upon the exercise of the Warrants, in lieu of each share of Common Stock, other securities, money or other property theretofore issuable upon exercise of a Warrant, the kind and amount of shares of stock, other securities, money or other property receivable upon such reclassification, change, consolidation or merger by a holder of the shares of Common Stock, other securities, money or other property issuable upon exercise of a Warrant if the Warrants had been exercised immediately prior to such reclassification, change, consolidation or merger. The constituent documents effecting any such reclassification, change, consolidation or merger shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided in this Section 2(a). The provisions of this Section 2(a) shall similarly apply to successive reclassifications, changes, consolidations or mergers. (b) Subdivisions and Combinations. If the Company, at any time after the Issuance Date, shall subdivide its shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision shall be proportionately reduced, and the number of shares of Common Stock purchasable upon exercise of the Warrants shall be proportionately increased, as at the effective date of such subdivision, or if the Company shall take a record of holders of its Common Stock for such purpose, as at such record date, whichever is earlier. If the Company, at any time after the Issuance Date, shall combine its shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such combination shall be proportionately increased, and the number of shares of Common Stock purchasable upon exercise of the Warrants shall be proportionately reduced, as at the effective date of such combination, or if the Company shall take a record of holders of its Common Stock for purposes of such combination, as at such record date, whichever is earlier. (c) Dividends and Distributions. If the Company at any time after the Issuance Date shall declare a dividend on its Common Stock payable in stock or other securities of the Company to the holders of its Common Stock, the holder of this Warrant Certificate shall, without additional cost, be entitled to receive upon any exercise of a Warrant, in addition to the Common Stock to which such holder would otherwise be entitled upon such exercise, the number of shares of stock or other securities which such holder would have been entitled to receive if he had been a holder immediately prior to the record date for such dividend (or, if no record date shall have been established, the payment date for such dividend) of the number of shares of Common Stock purchasable on exercise of such Warrant immediately prior to such record date or payment date, as the case may be. -4- (d) Certain Issuances of Securities. Subject to Section 2(f), if the Company at any time after the Issuance Date shall issue any additional shares of Common Stock (otherwise than as provided in subsections (a) through (c) of this Section 2) at a price per share less than the Average Price per share of Common Stock for the 20 trading days immediately preceding the date of the authorization of such issuance (the "Market Price") by the Board of Directors or its compensation committee (as applicable), then the Exercise Price upon each such issuance shall be adjusted to that price determined by multiplying the Exercise Price by a fraction: i. the numerator of which shall be the sum of (1) the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares of Common Stock multiplied by the Market Price, and (2) the consideration, if any, received by the Company upon the issuance of such additional shares of Common Stock, and ii. the denominator of which shall be the Market Price multiplied by the total number of shares of Common Stock outstanding immediately after the issuance of such additional shares of Common Stock. No adjustments of the Exercise Price shall be made under this Section 2(d) upon the issuance of any additional shares of Common Stock that (v) are issued pursuant to any grant or award made prior to the Issuance Date under any thrift plan, stock purchase plan, stock bonus plan, stock option plan, employee stock ownership plan, incentive or profit sharing arrangement or other benefit or compensation plan for the benefit of the Company's officers, directors and/or employees ("Employee Benefit Plans") that has been approved by the Board of Directors of the Company or its compensation committee and that otherwise would cause an adjustment under this Section 2(d); (w) are issued pursuant to any grant or award made on or after the Issuance Date under any Employee Benefit Plan if the "Market Price" of any such issuance is not less than the lesser of the Market Price as determined above and the "Fair Market Value", as defined under the applicable Employee Benefit Plan, on the date of Board or compensation committee authorization; (x) are issued pursuant to any Common Stock Equivalent (as hereinafter defined) (i) if upon the issuance of any such Common Stock Equivalent, any such adjustments shall previously have been made pursuant to Section 2(e), (ii) if no adjustment was required pursuant to Section 2(e), or (iii) if such Common Stock Equivalent was issued prior to this Warrant Certificate; (y) are issued pursuant to a public offering by the Company; or (z) results in an adjustment pursuant to Section 2(f). (e) Common Stock Equivalents. i. Subject to Section 2(f), if the Company shall, after the Issuance Date, issue any security or evidence of indebtedness which is convertible into or exchangeable for Common Stock ("Convertible Security"), or any warrant, option or other right to subscribe for or purchase Common Stock or any Convertible Security, other than pursuant to Employee Benefit Plans (together with Convertible Securities, "Common Stock Equivalent"), then the Exercise Price upon each such issuance shall be adjusted as provided in Section 2(d) on the basis that (i) the maximum number of additional shares of Common Stock issuable pursuant -5- to all such Common Stock Equivalents shall be deemed to have been issued as of the date of issuance of such Common Stock Equivalent; and (ii) the aggregate consideration for such maximum number of additional shares of Common Stock shall be deemed to be the minimum consideration received and receivable by the Company for the issuance of such additional shares of Common Stock pursuant to such Common Stock Equivalent. ii. Notwithstanding the foregoing, no adjustment shall be made pursuant to this Section 2(e) unless the consideration received and receivable by the Company per share of Common Stock for the issuance of such additional shares of Common Stock pursuant to such Common Stock Equivalent is less than the Market Price. No adjustment of the Exercise Price shall be made under this Section 2(e) upon the issuance of any Convertible Security which is issued pursuant to the exercise of any warrants or other subscription or purchase rights therefor, if any adjustment shall previously have been made in the Exercise Price then in effect upon the issuance of such warrants or other rights pursuant to this Section 2(e). No adjustment shall be made under this Section 2(e) if an adjustment is to be made under Section 2(f). No adjustment shall be made as a result of adjustment in the exercise or conversion price of Common Stock Equivalents, if those adjustments occur by the terms of such Common Stock Equivalents. (f) Special Adjustments of Exercise Price. Notwithstanding anything to the contrary in Section 2(d) or Section 2(e), this Section 2(f) shall govern adjustments to the Exercise Price for the transactions described in this Section 2(f). i. If the Company at any time after the Issuance Date and prior to the second anniversary of the Issuance Date shall issue any additional shares of Common Stock (otherwise than as provided in subsections (a) through (c) of Section 2; pursuant to any Employee Benefit Plan; pursuant to any Common Stock Equivalent outstanding as of the Issuance Date) or upon the issuance of any such Common Stock, any adjustments shall previously have been made pursuant to Section 2(e) or Section 2(f)(ii); and the New Stock Issue Price (defined below) of such additional shares is less than the Exercise Price then in effect, then the Exercise Price upon each such issuance shall be adjusted to the New Stock Issue Price of such additional shares. The "New Stock Issuance Price" shall be determined by dividing the total amount of consideration received by the Company for such issue or sale by the number of shares of Common Stock issued or sold. ii. If the Company at any time after the Issuance Date and prior to the second anniversary of the Issuance Date, issues any Common Stock Equivalent (which by definition excludes Employee Benefit Plan securities) (otherwise than as provided in subsections (a) through (c) of Section 2; or pursuant to any Common Stock Equivalent outstanding as of the Issuance Date) and the New CSE Exercise Price (defined below) of such Common Stock Equivalents is less than the Exercise Price then in effect, then the Exercise Price upon each such issuance shall be adjusted to the New CSE Exercise Price of such Common Stock Equivalents. The "New CSE Exercise Price" shall be determined by dividing (x) the total amount, if any, received or receivable by the Company as consideration for the issuance of -6- such Common Stock Equivalents, plus the minimum aggregate amount of additional consideration payable to the Company upon the exercise, conversion or exchange of such Common Stock Equivalents, plus, in the case of any such Common Stock Equivalents which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange of such Convertible Securities, by (y) the total maximum number of shares of Common Stock issuable upon the exercise, conversion or exchange of all such Common Stock Equivalents. (g) Miscellaneous. The following provisions shall be applicable to the making of adjustments in the Exercise Price hereinbefore provided in this Section 2: i. The consideration received by the Company shall be deemed to be the following: (I) to the extent that any additional shares of Common Stock or any Common Stock Equivalent shall be issued for cash consideration, the consideration received by the Company therefor, or, if such additional shares of Common Stock or Common Stock Equivalent are offered by the Company for subscription, the subscription price, or, if such additional shares of Common Stock or Common Stock Equivalent are sold to underwriters or dealers for public offering without a subscription offering, the initial public offering price, in any such case excluding any amounts paid or receivable for accrued interest or accrued dividends and without deduction of any compensation, discounts, commissions or expenses paid or incurred by the Company for and in the underwriting of , or otherwise in connection with, the issue thereof; (II) to the extent that such issuance shall be for a consideration other than cash, then, except as herein otherwise expressly provided, the fair value of such consideration at the time of such issuance as determined in good faith by the Board of Directors, as evidenced by a certified resolution of the Board of Directors delivered to the holder of this Warrant Certificate setting forth such determination. The consideration for any additional shares of Common Stock issuable pursuant to any Common Stock Equivalent shall be the consideration received by the Company for issuing such Common Stock Equivalent, plus the additional consideration payable to the Company upon the exercise, conversion or exchange of such Common Stock Equivalent. In case of the issuance at any time of any additional shares of Common Stock or Common Stock Equivalent in payment or satisfaction of any dividend upon any class of stock other than Common Stock, the Company shall be deemed to have received for such additional shares of Common Stock or Common Stock Equivalent (which shall not be deemed to be a dividend payable in, or other distribution of, Common Stock under Section 2(c) above) consideration equal to the amount of such dividend so paid or satisfied. In the event additional shares of Common Stock or Common Stock Equivalents are issued together with other shares or securities or other assets of the Company or its subsidiaries for consideration which covers both, the consideration for such shares of Common Stock and Common Stock Equivalents shall be computed based on the respective portions of such consideration so received, computed as provided in this Section 2(g)i., as determined and allocated in good faith by the Board of Directors of the Company. ii. Upon the expiration of the right to convert, exchange or exercise any -7- Common Stock Equivalent the issuance of which effected an adjustment in the Exercise Price, if any such Common Stock Equivalent shall not have been converted, exercised or exchanged, the number of shares of Common Stock deemed to be issued and outstanding because they were issuable upon conversion, exchange or exercise of any such Common Stock Equivalent shall no longer be computed as set forth above, and the Exercise Price shall forthwith be readjusted and thereafter be the price which it would have been (but reflecting any other adjustments in the Exercise Price made pursuant to the provisions of Section 2(d) after the issuance of such Common Stock Equivalent) had the adjustment of the Exercise Price made upon the issuance or sale of such Common Stock Equivalent been made on the basis of the issuance only of the number of additional shares of Common Stock actually issued upon exercise, conversion or exchange of such Common Stock Equivalent and thereupon only the number of additional shares of Common Stock actually so issued shall be deemed to have been issued and only the consideration actually received by the Company (computed as in this Section 2(f)(i)) shall be deemed to have been received by the Company. iii. The number of shares of Common Stock at any time outstanding shall not include any shares thereof then directly or indirectly owned or held by or for the account of the Company or its wholly owned subsidiaries. iv. Upon each adjustment of the Exercise Price as a result of the calculations made in Section 2(d), (e) and (f) hereof, this Warrant shall thereafter evidence the right to purchase, at the adjusted Exercise Price, that number of shares of Common Stock obtained by (i) multiplying the number of shares covered by this Warrant immediately prior to such adjustment of the number of shares by the Exercise Price in effect immediately prior to such adjustment of the Exercise Price and (ii) dividing the product so obtained by the Exercise Price in effect immediately after such adjustment of the Exercise Price. v. For the purpose of this Section 2, the term "shares of Common Stock" shall mean shares of (i) the class of stock designated as the Common Stock at the date hereof or (ii) any other class of stock resulting from successive changes or reclassifications of such shares consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. If at any time, because of an adjustment pursuant to Section 2(a), the Warrants shall entitle the holders to purchase any securities other than shares of Common Stock, thereafter the number of such other securities so purchasable upon exercise of each Warrant and the Exercise Price of such securities shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in this Section 2. (h) Calculation of Exercise Price. The Exercise Price in effect from time to time shall be calculated to four decimal places and rounded to the nearest thousandth. -8- Section 3. Notice of Adjustments. Whenever the Exercise Price or the number of shares of Common Stock is required to be adjusted as provided in Section 2, the Company shall forthwith compute the adjusted Exercise Price or the number of shares of Common Stock issuable and shall prepare and mail to the holder hereof a certificate setting forth such adjusted Exercise Price or such number of shares of Common Stock, showing in reasonable detail the facts upon which the adjustment is based. Section 4. Voluntary Reduction. (a) The Company may at its option, but shall not be obligated to, at any time during the term of the Warrants, reduce the then current Exercise Price by any amount selected by the Board of Directors; provided that if the Company elects so to reduce the then current Exercise Price, such reduction shall be irrevocable during its effective period and remain in effect for a minimum of 30 days following the date of such election, after which time the Company may, at its option, reinstate the Exercise Price in effect prior to such reduction. Whenever the Exercise Price is reduced, the Company shall mail to the holder a notice of the reduction at least 30 days before the date the reduced Exercise Price takes effect, stating the reduced Exercise Price and the period for which such reduced Exercise Price will be in effect. (b) The Company may make such decreases in the Exercise Price, in addition to those required or allowed by this Section 4, as shall be determined by it, as evidenced by a certified resolution of the Board of Directors delivered to the holders, to be advisable to avoid or diminish any income tax to the holder resulting from any dividend or distribution of stock or issuance of rights or warrants to purchase or subscribe for stock or from any event treated as such for income tax purposes. Section 5. Mandatory Exercise. (a) If (i) the Price of the Common Stock is greater than 150% of the Exercise Price (as adjusted to reflect any stock split, combination, reclassification, recapitalization, exchange, stock dividend or other distribution payable in Common Stock with respect to shares of Common Stock) for sixty (60) consecutive trading days in the principal market in which the Common Stock is traded and (ii) the Company gives written notice (the "Company Notice") to the holder hereof of the satisfaction of the condition in clause (i), then within fifteen (15) days after the effective date of the Company Notice, the holder hereof shall exercise all of the Warrants. If required by this Section 5, the holder hereof agrees to exercise the Warrants, and to purchase shares of Common Stock pursuant to the terms of this Warrant Certificate. If the holder has not fulfilled its obligations to exercise the Warrants pursuant to this Section 5 within fifteen (15) days after the holder's receipt of the Company Notice, then (without limiting the Company's available remedies) (A) the obligations of holder under this Section 5 shall continue but the purchase rights otherwise represented by this Warrant Certificate shall terminate, (B) the Company may thereafter refuse, in its sole discretion, to allow holder to exercise the Warrants (including pursuant to this Section 5), (C) all obligations of the Company under Sections 3, 6, 7 and 8 shall terminate, (D) no further adjustments to the Exercise Price shall be made unless the Company in its sole discretion consents in writing. Each Warrant holder's obligations under this Section 5(a) shall be subject to the expiration or termination of all waiting periods (and any extensions thereof) applicable to exercise of such holder's Warrants -9- under the HSR Act (as defined below); provided that such holder shall have certified in writing to the Company that a filing under the HSR Act is required and provided further that such holder shall use its best efforts to cause the expiration or termination of such waiting period to occur as promptly as practicable. (b) Holder represents and warrants to the Company that holder has full corporate power and authority to execute, deliver, and perform this Warrant Certificate and to consummate the transactions contemplated hereby. The execution, delivery, and performance by holder of this Warrant Certificate have been duly authorized by all necessary corporate action of holder. This Warrant Certificate has been duly executed and delivered by holder and constitutes a valid and legally binding obligation of holder, enforceable against holder in accordance with its terms, except that such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting creditors' rights generally and (ii) general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law). (c) The right to require exercise of the Warrants is hereby declared by the parties hereto to be a unique right, the loss of which is not readily susceptible to monetary quantification. Consequently, the parties hereto agree that an action for specific performance of the exercise and purchase obligations created by this Section 5 is an available remedy for the breach of the provisions of this Section 5. If the Company is forced to institute legal proceedings to enforce its rights in accordance with the provisions of this Section 5, it shall be entitled to recover its reasonable attorneys' fees and court costs incurred in enforcing such rights. (d) Holder is executing this Warrant Certificate in order to make and agree to the covenants, representations and warranties of holder contained in this Section 5, which shall be binding upon the holder's successors and assigns. Section 6. Notices to Warrant Holders. In the event: (a) the Company shall authorize any consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company is required, or of the conveyance or sale of all or substantially all of the assets of the Company, or of any reclassification or change of the Common Stock or other securities issuable upon exercise of the Warrants (other than a change in par value, or from par value to no par value, or from no par value to par value or as result of a subdivision or combination), or a tender offer or exchange offer for shares of Common Stock (or other securities issuable upon the exercise of the Warrants); or (b) the Company shall declare any dividend (or any other distribution) on the Common Stock or any other class of its capital stock, other than dividends on the Shares, as defined in the Securities Purchase Agreement; or (c) the Company shall authorize the granting to the holders of Common Stock or any other class of its capital stock of rights or warrants to subscribe for or purchase any shares of any class or series of capital stock or any other securities convertible into or exchangeable for shares -10- of stock; or (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; then the Company shall cause to be sent to the holder hereof, at least 30 days prior to the applicable record date hereinafter specified, or promptly in the case of events for which there is no record date, a written notice stating (x) the date for the determination of the holders of record of shares of Common Stock (or other securities issuable upon the exercise of the Warrants) entitled to receive any such dividends or other distribution, (y) the initial expiration date set forth in any tender offer or exchange offer for shares of Common Stock (or other securities issuable upon the exercise of the Warrants), or (z) the date on which any of the events specified in subsections (a)-(d) is expected to become effective or consummated, and the date as of which it is expected that holders of record of shares of Common Stock (or other securities issuable upon the exercise of the Warrants) shall be entitled to exchange such shares for securities or other property, if any, deliverable upon any such event. Failure to give such notice or any defect therein shall not affect the legality or validity of any such event, or the vote upon any such action. Section 7. Reports to Warrant Holders. The Company will cause to be delivered, by first-class mail, postage prepaid, to holder at such holder's address appearing hereon, or such other address as the holder shall specify, a copy of any reports delivered by the Company to the holders of Common Stock. Section 8. Covenants of the Company. The Company covenants and agrees that: (a) Until the Expiration Date, the Company shall at all times reserve and keep available, out of the aggregate of its authorized but unissued Common Stock (and other securities), for the purpose of enabling it to satisfy any obligation to issue shares of Common Stock (and other securities) upon the exercise of the Warrants, the number of shares of Common Stock (and other securities) issuable upon the exercise of such Warrants. (b) The Company shall pay all expenses, taxes and other charges payable in connection with the preparation, issuance and delivery of new warrant certificates on transfer of the Warrants. (c) All Common Stock (and other securities) which may be issued upon exercise of the Warrants shall upon issuance be validly issued, fully paid, non-assessable and free from all preemptive rights and all taxes, liens and charges with respect to the issuance thereof, and will not be subject to any restrictions on voting or transfer thereof except as set forth in the Securities Purchase Agreement, any stockholders agreement and except for restrictions arising under state or federal securities laws. (d) All original issue taxes payable in respect of the issuance of shares of Common Stock to the registered holder hereof upon the exercise of the Warrants shall be borne by the -11- Company; provided, that the Company shall not be required to pay any tax or charge imposed in connection with any transfer involved in the issuance of any certificates representing shares of Common Stock (and other securities) in any name other than that of the registered holder hereof, and in such case the Company shall not be required to issue or deliver any certificate representing shares of Common Stock (and other securities) until such tax or other charge has been paid or it has been established to the Company's satisfaction that no such tax or charge is due. (e) As soon as practicable after the receipt from the holder of this Warrant Certificate of notice of the intent to exercise of a number of warrants sufficient to require a filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules, regulations and formal interpretations thereunder, as amended from time to time (the "HSR Act") (and after the receipt, if applicable, of the notice referred to in Rule 803.5 of the HSR Act), but in any event no later than the 15th business day after receipt of such notice(s), the Company will (i) if required by the HSR Act, prepare and file with Antitrust Division of the Department of Justice (the "DOJ") and the Federal Trade Commission (the "FTC") the Notification and Report Form (accompanied by all documentary attachments contemplated thereby) required by the HSR Act, (ii) upon request of the holder, request early termination of the waiting period imposed by the HSR Act, and (iii) coordinate and cooperate with the holder in responding to formal and informal requests for additional information and documentary material from the DOJ and the FTC in connection with such filing. Notwithstanding the foregoing, if the holder is required to file with the DOJ and FTC the Notification and Report Form solely as a result of its holding and/or purchasing shares of Common Stock issued pursuant to this Warrant (with no regard to any other securities held by such holder or its affiliates) and the holder certifies such fact to the Company in writing, the Company agrees to promptly reimburse the holder for all fees and expenses for the preparation and filing of such form, including all legal expenses and filing fees. (f) The Company will not change the par value of the Common Stock from par value $0.01 per share to any higher par value which exceeds the Exercise Price then in effect, and will reduce the par value of the Common Stock upon any event described in Section 2 that would, but for this provision, reduce the Exercise Price below the par value of the Common Stock. Section 9. No Rights as Stockholder. The holder of the Warrants shall not, by virtue of holding such Warrants, be entitled to any rights of a stockholder of the Company either at law or in equity, and the rights of the holder of the Warrants are limited to those expressed herein. Section 10. Notices. All notices, requests, demands, and other communications required or permitted to be given or made hereunder by any party hereto shall be in writing and shall be deemed to have been duly given or made if (i) delivered personally, (ii) sent by prepaid overnight courier service, or (iii) sent by telecopy or facsimile transmission, answer back requested, to the parties at the following addresses (or at such other addresses as shall be specified by the parties by like notice): if to the holder, to such holder at: -12- 277 Park Avenue New York, New York 10172 Attention: Nicole Arnaboldi, Ivy Dodes Telefax: 212-892-7272 with a copy to: Gardere Wynne Sewell, LLP 1000 Louisiana, Suite 3400 Houston, Texas 77002 Attention: N.L. Stevens III Telefax: 713-276-5807 and, if to the Company: Brigham Exploration Company 6300 Bridge Point Parkway Building 2, Suite 500 Austin, Texas 78730 Attention: Chief Financial Officer Telecopier: (512) 472-3400 Such notices, requests, demands, and other communications shall be effective (i) if delivered personally or sent by courier service, upon actual receipt by the intended recipient, or (ii) if sent by telecopy or facsimile transmission, when the answer back is received. Section 11. Governing Law. This Warrant Certificate shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflict of laws. Section 12. Lost, Stolen, Mutilated or Destroyed Warrant Certificates. Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Warrant Certificate, then, in the absence of notice to the Company that such Warrant Certificate has been acquired by a bona fide purchaser, the Company shall execute and deliver, in exchange for or in lieu of the lost, stolen, destroyed or mutilated Warrant Certificate, a substitute Warrant Certificate of the same tenor and evidencing a like number of Warrants. Section 13. Transfer. Subject to Section 14 and the Securities Purchase Agreement, transfer of Warrants, in whole or in part, shall be registered on the books of the Company to be maintained for such purposes, upon surrender of the Warrant Certificate representing such Warrants at the principal office of the Company referred to in Section 10, together with a written assignment substantially in the form of Exhibit B to this Warrant Certificate and a written agreement, in form reasonably satisfactory to the Company, setting forth the new Warrant holder's agreement to be bound by all of the terms of this Warrant Certificate (including without limitation Section 14) and -13- Section 5.5 of the Securities Purchase Agreement, each duly executed by the holder, and funds sufficient to pay any transfer taxes payable by such holder upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant Certificate or Warrant Certificates in the name of the assignee or assignees and in the denomination specified in such instrument of assignment, and shall issue to the assignor a new Warrant Certificate or Warrant Certificates evidencing the portion of the old Warrant Certificate not so assigned, and the old Warrant Certificate shall promptly be canceled. Section 14. Restrictions on Transferability. The Warrant Certificate represents Warrants referred to in the Securities Purchase Agreement. Said Securities Purchase Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of certain limitations of rights, obligations, duties and immunities thereunder of the Company and the holders, and in the event of any conflict between the terms of this Warrant Certificate and the provisions of the Securities Purchase Agreement, the provisions of the Securities Purchase Agreement shall control. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be executed as of March 5, 2001, by the undersigned, thereunto duly authorized. BRIGHAM EXPLORATION COMPANY By: /s/ Karen E. Lynch ------------------------------------- Karen E. Lynch Vice President DLJMB Funding III, Inc. By: /s/ Steven A. Webster ------------------------------------- Name: Steven A. Webster Title: Attorney-in-Fact -14- EX-10.73 6 0006.txt WARRANT CERTIFICATE Exhibit 10.73 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM. SUCH SECURITIES ARE SUBJECT TO THE RESTRICTIONS AND PRIVILEGES SPECIFIED IN THIS WARRANT CERTIFICATE AND IN A SECURITIES PURCHASE AGREEMENT, DATED AS OF MARCH 5, 2001, BETWEEN BRIGHAM EXPLORATION COMPANY AND THE INITIAL HOLDER OF SECURITIES NAMED THEREIN, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF BRIGHAM EXPLORATION COMPANY AND WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER HEREOF UPON WRITTEN REQUEST, AND THE HOLDER OF THIS CERTIFICATE AGREES TO BE BOUND THEREBY. WARRANT CERTIFICATE Number of Warrants: 371789 Warrant No. 2 ------- ---- This Warrant certificate ("Warrant Certificate") certifies that, for value received, DLJ ESC II, L.P. is the registered holder of the number of warrants (the "Warrants") set forth above. Each Warrant entitles the holder thereof, at any time or from time to time during the Exercise Period, to purchase from the Company one fully paid and nonassessable share of Common Stock at the Exercise Price, subject to adjustment as provided herein. Initially capitalized terms used but not defined herein shall have the meanings ascribed to them in the Securities Purchase Agreement. "Common Stock" means the common stock, $.01 par value per share, of the Company and such other class of securities as shall then represent the common equity of the Company. "Company" means Brigham Exploration Company, a Delaware corporation. "Exercise Period" means the period of time between the day immediately following the date that Stockholder Approval, as defined in the Securities Purchase Agreement, is obtained and 5:00 p.m. (New York City time) on the Expiration Date. "Exercise Price," subject in all circumstances to adjustment in accordance with Section 2, means $4.75 per share. "Expiration Date" means the tenth anniversary of the Closing Date. "Issuance Date" means the Closing Date. "Person" means any individual, corporation, company, partnership, joint venture, trust, limited liability company, unincorporated organization or government or any agency, instrumentality or political subdivision thereof, or any other form of entity. "Preferred Stock" means shares of the Series A Preferred Stock, par value $0.01 per share, of the Company. "Preferred Value" per share of Preferred Stock means the Stated Value of such Share, plus, without duplication, all accrued and unpaid dividends on such share to and including the applicable date of Warrant exercise. "Price" means the average of the "high" and "low" prices as reported in The Wall Street Journal's listing for such day (corrected for obvious typographical errors) or if such shares are not reported in such listing, the average of the reported sales prices on the largest national securities exchange (based on the aggregate dollar value of securities listed) on which such shares are listed or traded, or if such shares are not listed or traded on any national securities exchange, then the average of the reported sales prices for such shares in the over-the-counter market, as reported on the National Association of Securities Dealers Automated Quotations System, or, if such prices shall not be reported thereon, the average of the closing bid and asked prices so reported, or, if such prices shall not be reported, then the average of the closing bid and asked prices reported by the National Quotations Bureau Incorporated. The "Average" Price per share for any period shall be determined by dividing the sum of the Prices determined for the individual trading days in such period by the number of trading days in such period. "Securities Purchase Agreement" means the Securities Purchase Agreement, dated as of March 5, 2001, between the Company and the Investors. "Stated Value" means the stated value per share of Preferred Stock, which is $20.00 per share. Section 1. Exercise of Warrants. (a) The Warrants may be exercised in whole or in part, at any time or from time to time, during the Exercise Period, by (i) presentation and surrender to the Company at its address set forth in Section 10 of this Warrant Certificate with the Election To Exercise, attached hereto as Exhibit A, duly completed and executed, and (ii) payment of the Exercise Price, for the number of Warrants being exercised by either: (1) bank draft or cashiers check, or (2) provided that the Company receives at least 5 days prior notice and subject to Section 1(d), delivery to the Company of certificate(s) representing a number of shares of Preferred Stock having an aggregate Preferred Value equal to the aggregate Exercise Price for the number of Warrants being exercised. If the aggregate Preferred Value of the Preferred Stock delivered in payment of the aggregate Exercise Price exceeds (because of fractional shares) the aggregate Exercise Price for the number of Warrants being exercised; then (subject to Section 1(d)) the Company will promptly pay to the holder of the Warrants in cash such excess amount; provided that such excess amount shall in no event be more than the Preferred Value of one share of Preferred -2- Stock. If the holder of this Warrant Certificate at any time exercises less than all the Warrants, the Company shall issue to such a holder a warrant certificate identical in form to this Warrant Certificate, but evidencing a number of Warrants equal to the number of Warrants originally represented by this Warrant Certificate less the number of Warrants previously exercised. Likewise, upon the presentation and surrender of this Warrant Certificate to the Company at its address set forth in Section 10 and at the request of the holder, the Company will, without expense, at the option of the holder, issue to the holder in substitution for this Warrant Certificate one or more warrant certificates in identical form and for an aggregate number of Warrants equal to the number of Warrants evidenced by this Warrant Certificate. (b) To the extent that the Warrants have not been exercised at or prior to the Expiration Date, such Warrants shall expire and the rights of the holder shall become void and of no effect. (c) Upon surrender of this Warrant Certificate in conformity with the foregoing provisions, the Company shall transfer to the holder of this Warrant Certificate appropriate evidence of ownership of the shares of Common Stock or other securities or property (including any money) to which the holder is entitled, registered or otherwise placed in, or payable to the order of, the name or names of the holder or such transferee as may be directed in writing by the holder, and shall deliver such evidence of ownership and any other securities or property (including any money) to the Person or Persons entitled to receive the same, together with an amount in cash in lieu of any fraction of a share. (d) In connection with payment of the Exercise Price with shares of Preferred Stock, the Company may require that at the time of such exercise it receive representations and warranties from the applicable holder of the Warrants regarding such holder's title to the Preferred Stock and the lack of encumbrances thereon. If the Company is unable to consummate an exercise of Warrants through payment of the Exercise Price with shares of Preferred Stock because of any limitations contained or construed in the Delaware General Corporation Law, the Company shall use its best efforts to take all such action as may be necessary to place the Company in a position to do so. In the event the Company, after the taking of any action by it as contemplated above, is unable to consummate such exercise, the Company shall accept such number of shares of Preferred Stock in payment as it shall then be authorized to do so under the Delaware General Corporation Law. (e) The Company shall not be required to issue a fractional share of Common Stock upon the exercise of Warrants. As to any fraction of a share which the Warrant holder would otherwise be entitled to purchase upon such exercise, the Company may pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the Price per share of Common Stock on the date of exercise. Section 2. Antidilution Adjustments. The shares of Common Stock purchasable on exercise of the Warrants are shares of Common Stock as constituted as of the Issuance Date. The number and kind of securities purchasable upon the exercise of the Warrants, and the Exercise Price, shall be subject to adjustment from time to time upon the happening of certain events, as follows: -3- (a) Mergers, Consolidations and Reclassifications. In case of any reclassification or change of outstanding securities issuable upon exercise of the Warrants at any time after the Issuance Date (other than a change in par value, or from par value to no par value, or from no par value to par value or as a result of a subdivision or combination to which Section 2(b) applies), or in case of any consolidation or merger of the Company with or into any entity or other person (other than a merger with another entity or other person in which the Company is the surviving corporation and which does not result in any reclassification or change in the securities issuable upon exercise of this Warrant Certificate), the holder of the Warrants shall have, and the Company, or such successor corporation or other entity, shall covenant in the constituent documents effecting any of the foregoing transactions that such holder does have the right to obtain, upon the exercise of the Warrants, in lieu of each share of Common Stock, other securities, money or other property theretofore issuable upon exercise of a Warrant, the kind and amount of shares of stock, other securities, money or other property receivable upon such reclassification, change, consolidation or merger by a holder of the shares of Common Stock, other securities, money or other property issuable upon exercise of a Warrant if the Warrants had been exercised immediately prior to such reclassification, change, consolidation or merger. The constituent documents effecting any such reclassification, change, consolidation or merger shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided in this Section 2(a). The provisions of this Section 2(a) shall similarly apply to successive reclassifications, changes, consolidations or mergers. (b) Subdivisions and Combinations. If the Company, at any time after the Issuance Date, shall subdivide its shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision shall be proportionately reduced, and the number of shares of Common Stock purchasable upon exercise of the Warrants shall be proportionately increased, as at the effective date of such subdivision, or if the Company shall take a record of holders of its Common Stock for such purpose, as at such record date, whichever is earlier. If the Company, at any time after the Issuance Date, shall combine its shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such combination shall be proportionately increased, and the number of shares of Common Stock purchasable upon exercise of the Warrants shall be proportionately reduced, as at the effective date of such combination, or if the Company shall take a record of holders of its Common Stock for purposes of such combination, as at such record date, whichever is earlier. (c) Dividends and Distributions. If the Company at any time after the Issuance Date shall declare a dividend on its Common Stock payable in stock or other securities of the Company to the holders of its Common Stock, the holder of this Warrant Certificate shall, without additional cost, be entitled to receive upon any exercise of a Warrant, in addition to the Common Stock to which such holder would otherwise be entitled upon such exercise, the number of shares of stock or other securities which such holder would have been entitled to receive if he had been a holder immediately prior to the record date for such dividend (or, if no record date shall have been established, the payment date for such dividend) of the number of shares of Common Stock purchasable on exercise of such Warrant immediately prior to such record date or payment date, as -4- the case may be. (d) Certain Issuances of Securities. Subject to Section 2(f), if the Company at any time after the Issuance Date shall issue any additional shares of Common Stock (otherwise than as provided in subsections (a) through (c) of this Section 2) at a price per share less than the Average Price per share of Common Stock for the 20 trading days immediately preceding the date of the authorization of such issuance (the "Market Price") by the Board of Directors or its compensation committee (as applicable), then the Exercise Price upon each such issuance shall be adjusted to that price determined by multiplying the Exercise Price by a fraction: i. the numerator of which shall be the sum of (1) the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares of Common Stock multiplied by the Market Price, and (2) the consideration, if any, received by the Company upon the issuance of such additional shares of Common Stock, and ii. the denominator of which shall be the Market Price multiplied by the total number of shares of Common Stock outstanding immediately after the issuance of such additional shares of Common Stock. No adjustments of the Exercise Price shall be made under this Section 2(d) upon the issuance of any additional shares of Common Stock that (v) are issued pursuant to any grant or award made prior to the Issuance Date under any thrift plan, stock purchase plan, stock bonus plan, stock option plan, employee stock ownership plan, incentive or profit sharing arrangement or other benefit or compensation plan for the benefit of the Company's officers, directors and/or employees ("Employee Benefit Plans") that has been approved by the Board of Directors of the Company or its compensation committee and that otherwise would cause an adjustment under this Section 2(d); (w) are issued pursuant to any grant or award made on or after the Issuance Date under any Employee Benefit Plan if the "Market Price" of any such issuance is not less than the lesser of the Market Price as determined above and the "Fair Market Value", as defined under the applicable Employee Benefit Plan, on the date of Board or compensation committee authorization; (x) are issued pursuant to any Common Stock Equivalent (as hereinafter defined) (i) if upon the issuance of any such Common Stock Equivalent, any such adjustments shall previously have been made pursuant to Section 2(e), (ii) if no adjustment was required pursuant to Section 2(e), or (iii) if such Common Stock Equivalent was issued prior to this Warrant Certificate; (y) are issued pursuant to a public offering by the Company; or (z) results in an adjustment pursuant to Section 2(f). (e) Common Stock Equivalents. i. Subject to Section 2(f), if the Company shall, after the Issuance Date, issue any security or evidence of indebtedness which is convertible into or exchangeable for Common Stock ("Convertible Security"), or any warrant, option or other right to subscribe for or purchase Common Stock or any Convertible Security, other than pursuant to Employee Benefit Plans (together with Convertible Securities, "Common Stock Equivalent"), then the Exercise Price upon each such issuance shall be adjusted as provided in Section 2(d) on the -5- basis that (i) the maximum number of additional shares of Common Stock issuable pursuant to all such Common Stock Equivalents shall be deemed to have been issued as of the date of issuance of such Common Stock Equivalent; and (ii) the aggregate consideration for such maximum number of additional shares of Common Stock shall be deemed to be the minimum consideration received and receivable by the Company for the issuance of such additional shares of Common Stock pursuant to such Common Stock Equivalent. ii. Notwithstanding the foregoing, no adjustment shall be made pursuant to this Section 2(e) unless the consideration received and receivable by the Company per share of Common Stock for the issuance of such additional shares of Common Stock pursuant to such Common Stock Equivalent is less than the Market Price. No adjustment of the Exercise Price shall be made under this Section 2(e) upon the issuance of any Convertible Security which is issued pursuant to the exercise of any warrants or other subscription or purchase rights therefor, if any adjustment shall previously have been made in the Exercise Price then in effect upon the issuance of such warrants or other rights pursuant to this Section 2(e). No adjustment shall be made under this Section 2(e) if an adjustment is to be made under Section 2(f). No adjustment shall be made as a result of adjustment in the exercise or conversion price of Common Stock Equivalents, if those adjustments occur by the terms of such Common Stock Equivalents. (f) Special Adjustments of Exercise Price. Notwithstanding anything to the contrary in Section 2(d) or Section 2(e), this Section 2(f) shall govern adjustments to the Exercise Price for the transactions described in this Section 2(f). i. If the Company at any time after the Issuance Date and prior to the second anniversary of the Issuance Date shall issue any additional shares of Common Stock (otherwise than as provided in subsections (a) through (c) of Section 2; pursuant to any Employee Benefit Plan; pursuant to any Common Stock Equivalent outstanding as of the Issuance Date) or upon the issuance of any such Common Stock, any adjustments shall previously have been made pursuant to Section 2(e) or Section 2(f)(ii); and the New Stock Issue Price (defined below) of such additional shares is less than the Exercise Price then in effect, then the Exercise Price upon each such issuance shall be adjusted to the New Stock Issue Price of such additional shares. The "New Stock Issuance Price" shall be determined by dividing the total amount of consideration received by the Company for such issue or sale by the number of shares of Common Stock issued or sold. ii. If the Company at any time after the Issuance Date and prior to the second anniversary of the Issuance Date, issues any Common Stock Equivalent (which by definition excludes Employee Benefit Plan securities) (otherwise than as provided in subsections (a) through (c) of Section 2; or pursuant to any Common Stock Equivalent outstanding as of the Issuance Date) and the New CSE Exercise Price (defined below) of such Common Stock Equivalents is less than the Exercise Price then in effect, then the Exercise Price upon each such issuance shall be adjusted to the New CSE Exercise Price of such Common Stock Equivalents. The "New CSE Exercise Price" shall be determined by dividing (x) the total -6- amount, if any, received or receivable by the Company as consideration for the issuance of such Common Stock Equivalents, plus the minimum aggregate amount of additional consideration payable to the Company upon the exercise, conversion or exchange of such Common Stock Equivalents, plus, in the case of any such Common Stock Equivalents which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange of such Convertible Securities, by (y) the total maximum number of shares of Common Stock issuable upon the exercise, conversion or exchange of all such Common Stock Equivalents. (g) Miscellaneous. The following provisions shall be applicable to the making of adjustments in the Exercise Price hereinbefore provided in this Section 2: i. The consideration received by the Company shall be deemed to be the following: (I) to the extent that any additional shares of Common Stock or any Common Stock Equivalent shall be issued for cash consideration, the consideration received by the Company therefor, or, if such additional shares of Common Stock or Common Stock Equivalent are offered by the Company for subscription, the subscription price, or, if such additional shares of Common Stock or Common Stock Equivalent are sold to underwriters or dealers for public offering without a subscription offering, the initial public offering price, in any such case excluding any amounts paid or receivable for accrued interest or accrued dividends and without deduction of any compensation, discounts, commissions or expenses paid or incurred by the Company for and in the underwriting of , or otherwise in connection with, the issue thereof; (II) to the extent that such issuance shall be for a consideration other than cash, then, except as herein otherwise expressly provided, the fair value of such consideration at the time of such issuance as determined in good faith by the Board of Directors, as evidenced by a certified resolution of the Board of Directors delivered to the holder of this Warrant Certificate setting forth such determination. The consideration for any additional shares of Common Stock issuable pursuant to any Common Stock Equivalent shall be the consideration received by the Company for issuing such Common Stock Equivalent, plus the additional consideration payable to the Company upon the exercise, conversion or exchange of such Common Stock Equivalent. In case of the issuance at any time of any additional shares of Common Stock or Common Stock Equivalent in payment or satisfaction of any dividend upon any class of stock other than Common Stock, the Company shall be deemed to have received for such additional shares of Common Stock or Common Stock Equivalent (which shall not be deemed to be a dividend payable in, or other distribution of, Common Stock under Section 2(c) above) consideration equal to the amount of such dividend so paid or satisfied. In the event additional shares of Common Stock or Common Stock Equivalents are issued together with other shares or securities or other assets of the Company or its subsidiaries for consideration which covers both, the consideration for such shares of Common Stock and Common Stock Equivalents shall be computed based on the respective portions of such consideration so received, computed as provided in this Section 2(g)i., as determined and allocated in good faith by the Board of Directors of the Company. -7- ii. Upon the expiration of the right to convert, exchange or exercise any Common Stock Equivalent the issuance of which effected an adjustment in the Exercise Price, if any such Common Stock Equivalent shall not have been converted, exercised or exchanged, the number of shares of Common Stock deemed to be issued and outstanding because they were issuable upon conversion, exchange or exercise of any such Common Stock Equivalent shall no longer be computed as set forth above, and the Exercise Price shall forthwith be readjusted and thereafter be the price which it would have been (but reflecting any other adjustments in the Exercise Price made pursuant to the provisions of Section 2(d) after the issuance of such Common Stock Equivalent) had the adjustment of the Exercise Price made upon the issuance or sale of such Common Stock Equivalent been made on the basis of the issuance only of the number of additional shares of Common Stock actually issued upon exercise, conversion or exchange of such Common Stock Equivalent and thereupon only the number of additional shares of Common Stock actually so issued shall be deemed to have been issued and only the consideration actually received by the Company (computed as in this Section 2(f)(i)) shall be deemed to have been received by the Company. iii. The number of shares of Common Stock at any time outstanding shall not include any shares thereof then directly or indirectly owned or held by or for the account of the Company or its wholly owned subsidiaries. iv. Upon each adjustment of the Exercise Price as a result of the calculations made in Section 2(d), (e) and (f) hereof, this Warrant shall thereafter evidence the right to purchase, at the adjusted Exercise Price, that number of shares of Common Stock obtained by (i) multiplying the number of shares covered by this Warrant immediately prior to such adjustment of the number of shares by the Exercise Price in effect immediately prior to such adjustment of the Exercise Price and (ii) dividing the product so obtained by the Exercise Price in effect immediately after such adjustment of the Exercise Price. v. For the purpose of this Section 2, the term "shares of Common Stock" shall mean shares of (i) the class of stock designated as the Common Stock at the date hereof or (ii) any other class of stock resulting from successive changes or reclassifications of such shares consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. If at any time, because of an adjustment pursuant to Section 2(a), the Warrants shall entitle the holders to purchase any securities other than shares of Common Stock, thereafter the number of such other securities so purchasable upon exercise of each Warrant and the Exercise Price of such securities shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in this Section 2. (h) Calculation of Exercise Price. The Exercise Price in effect from time to time shall be calculated to four decimal places and rounded to the nearest thousandth. -8- Section 3. Notice of Adjustments. Whenever the Exercise Price or the number of shares of Common Stock is required to be adjusted as provided in Section 2, the Company shall forthwith compute the adjusted Exercise Price or the number of shares of Common Stock issuable and shall prepare and mail to the holder hereof a certificate setting forth such adjusted Exercise Price or such number of shares of Common Stock, showing in reasonable detail the facts upon which the adjustment is based. Section 4. Voluntary Reduction. (a) The Company may at its option, but shall not be obligated to, at any time during the term of the Warrants, reduce the then current Exercise Price by any amount selected by the Board of Directors; provided that if the Company elects so to reduce the then current Exercise Price, such reduction shall be irrevocable during its effective period and remain in effect for a minimum of 30 days following the date of such election, after which time the Company may, at its option, reinstate the Exercise Price in effect prior to such reduction. Whenever the Exercise Price is reduced, the Company shall mail to the holder a notice of the reduction at least 30 days before the date the reduced Exercise Price takes effect, stating the reduced Exercise Price and the period for which such reduced Exercise Price will be in effect. (b) The Company may make such decreases in the Exercise Price, in addition to those required or allowed by this Section 4, as shall be determined by it, as evidenced by a certified resolution of the Board of Directors delivered to the holders, to be advisable to avoid or diminish any income tax to the holder resulting from any dividend or distribution of stock or issuance of rights or warrants to purchase or subscribe for stock or from any event treated as such for income tax purposes. Section 5. Mandatory Exercise. (a) If (i) the Price of the Common Stock is greater than 150% of the Exercise Price (as adjusted to reflect any stock split, combination, reclassification, recapitalization, exchange, stock dividend or other distribution payable in Common Stock with respect to shares of Common Stock) for sixty (60) consecutive trading days in the principal market in which the Common Stock is traded and (ii) the Company gives written notice (the "Company Notice") to the holder hereof of the satisfaction of the condition in clause (i), then within fifteen (15) days after the effective date of the Company Notice, the holder hereof shall exercise all of the Warrants. If required by this Section 5, the holder hereof agrees to exercise the Warrants, and to purchase shares of Common Stock pursuant to the terms of this Warrant Certificate. If the holder has not fulfilled its obligations to exercise the Warrants pursuant to this Section 5 within fifteen (15) days after the holder's receipt of the Company Notice, then (without limiting the Company's available remedies) (A) the obligations of holder under this Section 5 shall continue but the purchase rights otherwise represented by this Warrant Certificate shall terminate, (B) the Company may thereafter refuse, in its sole discretion, to allow holder to exercise the Warrants (including pursuant to this Section 5), (C) all obligations of the Company under Sections 3, 6, 7 and 8 shall terminate, (D) no further adjustments to the Exercise Price shall be made unless the Company in its sole discretion consents in writing. Each Warrant holder's obligations under this Section 5(a) shall be subject to the expiration or termination of all waiting periods (and any extensions thereof) applicable to exercise of such holder's Warrants -9- under the HSR Act (as defined below); provided that such holder shall have certified in writing to the Company that a filing under the HSR Act is required and provided further that such holder shall use its best efforts to cause the expiration or termination of such waiting period to occur as promptly as practicable. (b) Holder represents and warrants to the Company that holder has full corporate power and authority to execute, deliver, and perform this Warrant Certificate and to consummate the transactions contemplated hereby. The execution, delivery, and performance by holder of this Warrant Certificate have been duly authorized by all necessary corporate action of holder. This Warrant Certificate has been duly executed and delivered by holder and constitutes a valid and legally binding obligation of holder, enforceable against holder in accordance with its terms, except that such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting creditors' rights generally and (ii) general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law). (c) The right to require exercise of the Warrants is hereby declared by the parties hereto to be a unique right, the loss of which is not readily susceptible to monetary quantification. Consequently, the parties hereto agree that an action for specific performance of the exercise and purchase obligations created by this Section 5 is an available remedy for the breach of the provisions of this Section 5. If the Company is forced to institute legal proceedings to enforce its rights in accordance with the provisions of this Section 5, it shall be entitled to recover its reasonable attorneys' fees and court costs incurred in enforcing such rights. (d) Holder is executing this Warrant Certificate in order to make and agree to the covenants, representations and warranties of holder contained in this Section 5, which shall be binding upon the holder's successors and assigns. Section 6. Notices to Warrant Holders. In the event: (a) the Company shall authorize any consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company is required, or of the conveyance or sale of all or substantially all of the assets of the Company, or of any reclassification or change of the Common Stock or other securities issuable upon exercise of the Warrants (other than a change in par value, or from par value to no par value, or from no par value to par value or as result of a subdivision or combination), or a tender offer or exchange offer for shares of Common Stock (or other securities issuable upon the exercise of the Warrants); or (b) the Company shall declare any dividend (or any other distribution) on the Common Stock or any other class of its capital stock, other than dividends on the Shares, as defined in the Securities Purchase Agreement; or (c) the Company shall authorize the granting to the holders of Common Stock or any other class of its capital stock of rights or warrants to subscribe for or purchase any shares of any class or series of capital stock or any other securities convertible into or exchangeable for shares -10- of stock; or (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; then the Company shall cause to be sent to the holder hereof, at least 30 days prior to the applicable record date hereinafter specified, or promptly in the case of events for which there is no record date, a written notice stating (x) the date for the determination of the holders of record of shares of Common Stock (or other securities issuable upon the exercise of the Warrants) entitled to receive any such dividends or other distribution, (y) the initial expiration date set forth in any tender offer or exchange offer for shares of Common Stock (or other securities issuable upon the exercise of the Warrants), or (z) the date on which any of the events specified in subsections (a)-(d) is expected to become effective or consummated, and the date as of which it is expected that holders of record of shares of Common Stock (or other securities issuable upon the exercise of the Warrants) shall be entitled to exchange such shares for securities or other property, if any, deliverable upon any such event. Failure to give such notice or any defect therein shall not affect the legality or validity of any such event, or the vote upon any such action. Section 7. Reports to Warrant Holders. The Company will cause to be delivered, by first-class mail, postage prepaid, to holder at such holder's address appearing hereon, or such other address as the holder shall specify, a copy of any reports delivered by the Company to the holders of Common Stock. Section 8. Covenants of the Company. The Company covenants and agrees that: (a) Until the Expiration Date, the Company shall at all times reserve and keep available, out of the aggregate of its authorized but unissued Common Stock (and other securities), for the purpose of enabling it to satisfy any obligation to issue shares of Common Stock (and other securities) upon the exercise of the Warrants, the number of shares of Common Stock (and other securities) issuable upon the exercise of such Warrants. (b) The Company shall pay all expenses, taxes and other charges payable in connection with the preparation, issuance and delivery of new warrant certificates on transfer of the Warrants. (c) All Common Stock (and other securities) which may be issued upon exercise of the Warrants shall upon issuance be validly issued, fully paid, non-assessable and free from all preemptive rights and all taxes, liens and charges with respect to the issuance thereof, and will not be subject to any restrictions on voting or transfer thereof except as set forth in the Securities Purchase Agreement, any stockholders agreement and except for restrictions arising under state or federal securities laws. (d) All original issue taxes payable in respect of the issuance of shares of Common Stock to the registered holder hereof upon the exercise of the Warrants shall be borne by the -11- Company; provided, that the Company shall not be required to pay any tax or charge imposed in connection with any transfer involved in the issuance of any certificates representing shares of Common Stock (and other securities) in any name other than that of the registered holder hereof, and in such case the Company shall not be required to issue or deliver any certificate representing shares of Common Stock (and other securities) until such tax or other charge has been paid or it has been established to the Company's satisfaction that no such tax or charge is due. (e) As soon as practicable after the receipt from the holder of this Warrant Certificate of notice of the intent to exercise of a number of warrants sufficient to require a filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules, regulations and formal interpretations thereunder, as amended from time to time (the "HSR Act") (and after the receipt, if applicable, of the notice referred to in Rule 803.5 of the HSR Act), but in any event no later than the 15th business day after receipt of such notice(s), the Company will (i) if required by the HSR Act, prepare and file with Antitrust Division of the Department of Justice (the "DOJ") and the Federal Trade Commission (the "FTC") the Notification and Report Form (accompanied by all documentary attachments contemplated thereby) required by the HSR Act, (ii) upon request of the holder, request early termination of the waiting period imposed by the HSR Act, and (iii) coordinate and cooperate with the holder in responding to formal and informal requests for additional information and documentary material from the DOJ and the FTC in connection with such filing. Notwithstanding the foregoing, if the holder is required to file with the DOJ and FTC the Notification and Report Form solely as a result of its holding and/or purchasing shares of Common Stock issued pursuant to this Warrant (with no regard to any other securities held by such holder or its affiliates) and the holder certifies such fact to the Company in writing, the Company agrees to promptly reimburse the holder for all fees and expenses for the preparation and filing of such form, including all legal expenses and filing fees. (f) The Company will not change the par value of the Common Stock from par value $0.01 per share to any higher par value which exceeds the Exercise Price then in effect, and will reduce the par value of the Common Stock upon any event described in Section 2 that would, but for this provision, reduce the Exercise Price below the par value of the Common Stock. Section 9. No Rights as Stockholder. The holder of the Warrants shall not, by virtue of holding such Warrants, be entitled to any rights of a stockholder of the Company either at law or in equity, and the rights of the holder of the Warrants are limited to those expressed herein. Section 10. Notices. All notices, requests, demands, and other communications required or permitted to be given or made hereunder by any party hereto shall be in writing and shall be deemed to have been duly given or made if (i) delivered personally, (ii) sent by prepaid overnight courier service, or (iii) sent by telecopy or facsimile transmission, answer back requested, to the parties at the following addresses (or at such other addresses as shall be specified by the parties by like notice): if to the holder, to such holder at: -12- 277 Park Avenue New York, New York 10172 Attention: Ivy Dodes/Nicole Arnaboldi Telefax: 212-892-7272 with a copy to: Gardere Wynne Sewell, LLP 1000 Louisiana, Suite 3400 Houston, Texas 77002 Attention: N.L. Stevens III Telefax: 713-276-5807 and, if to the Company: Brigham Exploration Company 6300 Bridge Point Parkway Building 2, Suite 500 Austin, Texas 78730 Attention: Chief Financial Officer Telecopier: (512) 472-3400 Such notices, requests, demands, and other communications shall be effective (i) if delivered personally or sent by courier service, upon actual receipt by the intended recipient, or (ii) if sent by telecopy or facsimile transmission, when the answer back is received. Section 11. Governing Law. This Warrant Certificate shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflict of laws. Section 12. Lost, Stolen, Mutilated or Destroyed Warrant Certificates. Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Warrant Certificate, then, in the absence of notice to the Company that such Warrant Certificate has been acquired by a bona fide purchaser, the Company shall execute and deliver, in exchange for or in lieu of the lost, stolen, destroyed or mutilated Warrant Certificate, a substitute Warrant Certificate of the same tenor and evidencing a like number of Warrants. Section 13. Transfer. Subject to Section 14 and the Securities Purchase Agreement, transfer of Warrants, in whole or in part, shall be registered on the books of the Company to be maintained for such purposes, upon surrender of the Warrant Certificate representing such Warrants at the principal office of the Company referred to in Section 10, together with a written assignment substantially in the form of Exhibit B to this Warrant Certificate and a written agreement, in form reasonably satisfactory to the Company, setting forth the new Warrant holder's agreement to be bound by all of the terms of this Warrant Certificate (including without limitation Section 14) and -13- Section 5.5 of the Securities Purchase Agreement, each duly executed by the holder, and funds sufficient to pay any transfer taxes payable by such holder upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant Certificate or Warrant Certificates in the name of the assignee or assignees and in the denomination specified in such instrument of assignment, and shall issue to the assignor a new Warrant Certificate or Warrant Certificates evidencing the portion of the old Warrant Certificate not so assigned, and the old Warrant Certificate shall promptly be canceled. Section 14. Restrictions on Transferability. The Warrant Certificate represents Warrants referred to in the Securities Purchase Agreement. Said Securities Purchase Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of certain limitations of rights, obligations, duties and immunities thereunder of the Company and the holders, and in the event of any conflict between the terms of this Warrant Certificate and the provisions of the Securities Purchase Agreement, the provisions of the Securities Purchase Agreement shall control. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be executed as of March 5, 2001, by the undersigned, thereunto duly authorized. BRIGHAM EXPLORATION COMPANY By: /s/ Karen E. Lynch ------------------------------------- Karen E. Lynch Vice President DLJ ESC II, LP DLJ LBO Plans Management Corporation, General Partner By: /s/ Steven A. Webster ------------------------------------- Name: Steven A. Webster Title: Attorney-in-Fact -14- EX-10.74 7 0007.txt WARRANT CERTIFICATE Exhibit 10.74 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM. SUCH SECURITIES ARE SUBJECT TO THE RESTRICTIONS AND PRIVILEGES SPECIFIED IN THIS WARRANT CERTIFICATE AND IN A SECURITIES PURCHASE AGREEMENT, DATED AS OF MARCH 5, 2001, BETWEEN BRIGHAM EXPLORATION COMPANY AND THE INITIAL HOLDER OF SECURITIES NAMED THEREIN, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF BRIGHAM EXPLORATION COMPANY AND WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER HEREOF UPON WRITTEN REQUEST, AND THE HOLDER OF THIS CERTIFICATE AGREES TO BE BOUND THEREBY. WARRANT CERTIFICATE Number of Warrants: 1,527,154 Warrant No. 3 ---------- ---- This Warrant certificate ("Warrant Certificate") certifies that, for value received, DLJ Merchant Banking Partners III, L.P. is the registered holder of the number of warrants (the "Warrants") set forth above. Each Warrant entitles the holder thereof, at any time or from time to time during the Exercise Period, to purchase from the Company one fully paid and nonassessable share of Common Stock at the Exercise Price, subject to adjustment as provided herein. Initially capitalized terms used but not defined herein shall have the meanings ascribed to them in the Securities Purchase Agreement. "Common Stock" means the common stock, $.01 par value per share, of the Company and such other class of securities as shall then represent the common equity of the Company. "Company" means Brigham Exploration Company, a Delaware corporation. "Exercise Period" means the period of time between the day immediately following the date that Stockholder Approval, as defined in the Securities Purchase Agreement, is obtained and 5:00 p.m. (New York City time) on the Expiration Date. "Exercise Price," subject in all circumstances to adjustment in accordance with Section 2, means $4.75 per share. "Expiration Date" means the tenth anniversary of the Closing Date. "Issuance Date" means the Closing Date. "Person" means any individual, corporation, company, partnership, joint venture, trust, limited liability company, unincorporated organization or government or any agency, instrumentality or political subdivision thereof, or any other form of entity. "Preferred Stock" means shares of the Series A Preferred Stock, par value $0.01 per share, of the Company. "Preferred Value" per share of Preferred Stock means the Stated Value of such Share, plus, without duplication, all accrued and unpaid dividends on such share to and including the applicable date of Warrant exercise. "Price" means the average of the "high" and "low" prices as reported in The Wall Street Journal's listing for such day (corrected for obvious typographical errors) or if such shares are not reported in such listing, the average of the reported sales prices on the largest national securities exchange (based on the aggregate dollar value of securities listed) on which such shares are listed or traded, or if such shares are not listed or traded on any national securities exchange, then the average of the reported sales prices for such shares in the over-the-counter market, as reported on the National Association of Securities Dealers Automated Quotations System, or, if such prices shall not be reported thereon, the average of the closing bid and asked prices so reported, or, if such prices shall not be reported, then the average of the closing bid and asked prices reported by the National Quotations Bureau Incorporated. The "Average" Price per share for any period shall be determined by dividing the sum of the Prices determined for the individual trading days in such period by the number of trading days in such period. "Securities Purchase Agreement" means the Securities Purchase Agreement, dated as of March 5, 2001, between the Company and the Investors. "Stated Value" means the stated value per share of Preferred Stock, which is $20.00 per share. Section 1. Exercise of Warrants. (a) The Warrants may be exercised in whole or in part, at any time or from time to time, during the Exercise Period, by (i) presentation and surrender to the Company at its address set forth in Section 10 of this Warrant Certificate with the Election To Exercise, attached hereto as Exhibit A, duly completed and executed, and (ii) payment of the Exercise Price, for the number of Warrants being exercised by either: (1) bank draft or cashiers check, or (2) provided that the Company receives at least 5 days prior notice and subject to Section 1(d), delivery to the Company of certificate(s) representing a number of shares of Preferred Stock having an aggregate Preferred Value equal to the aggregate Exercise Price for the number of Warrants being exercised. If the aggregate Preferred Value of the Preferred Stock delivered in payment of the aggregate Exercise Price exceeds (because of fractional shares) the aggregate Exercise Price for the number of Warrants being exercised; then (subject to Section 1(d)) the Company will promptly pay to the holder of the Warrants in cash such excess amount; provided that -2- such excess amount shall in no event be more than the Preferred Value of one share of Preferred Stock. If the holder of this Warrant Certificate at any time exercises less than all the Warrants, the Company shall issue to such a holder a warrant certificate identical in form to this Warrant Certificate, but evidencing a number of Warrants equal to the number of Warrants originally represented by this Warrant Certificate less the number of Warrants previously exercised. Likewise, upon the presentation and surrender of this Warrant Certificate to the Company at its address set forth in Section 10 and at the request of the holder, the Company will, without expense, at the option of the holder, issue to the holder in substitution for this Warrant Certificate one or more warrant certificates in identical form and for an aggregate number of Warrants equal to the number of Warrants evidenced by this Warrant Certificate. (b) To the extent that the Warrants have not been exercised at or prior to the Expiration Date, such Warrants shall expire and the rights of the holder shall become void and of no effect. (c) Upon surrender of this Warrant Certificate in conformity with the foregoing provisions, the Company shall transfer to the holder of this Warrant Certificate appropriate evidence of ownership of the shares of Common Stock or other securities or property (including any money) to which the holder is entitled, registered or otherwise placed in, or payable to the order of, the name or names of the holder or such transferee as may be directed in writing by the holder, and shall deliver such evidence of ownership and any other securities or property (including any money) to the Person or Persons entitled to receive the same, together with an amount in cash in lieu of any fraction of a share. (d) In connection with payment of the Exercise Price with shares of Preferred Stock, the Company may require that at the time of such exercise it receive representations and warranties from the applicable holder of the Warrants regarding such holder's title to the Preferred Stock and the lack of encumbrances thereon. If the Company is unable to consummate an exercise of Warrants through payment of the Exercise Price with shares of Preferred Stock because of any limitations contained or construed in the Delaware General Corporation Law, the Company shall use its best efforts to take all such action as may be necessary to place the Company in a position to do so. In the event the Company, after the taking of any action by it as contemplated above, is unable to consummate such exercise, the Company shall accept such number of shares of Preferred Stock in payment as it shall then be authorized to do so under the Delaware General Corporation Law. (e) The Company shall not be required to issue a fractional share of Common Stock upon the exercise of Warrants. As to any fraction of a share which the Warrant holder would otherwise be entitled to purchase upon such exercise, the Company may pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the Price per share of Common Stock on the date of exercise. Section 2. Antidilution Adjustments. The shares of Common Stock purchasable on exercise of the Warrants are shares of Common Stock as constituted as of the Issuance Date. The number and kind of securities purchasable upon the exercise of the Warrants, and the Exercise Price, -3- shall be subject to adjustment from time to time upon the happening of certain events, as follows: (a) Mergers, Consolidations and Reclassifications. In case of any reclassification or change of outstanding securities issuable upon exercise of the Warrants at any time after the Issuance Date (other than a change in par value, or from par value to no par value, or from no par value to par value or as a result of a subdivision or combination to which Section 2(b) applies), or in case of any consolidation or merger of the Company with or into any entity or other person (other than a merger with another entity or other person in which the Company is the surviving corporation and which does not result in any reclassification or change in the securities issuable upon exercise of this Warrant Certificate), the holder of the Warrants shall have, and the Company, or such successor corporation or other entity, shall covenant in the constituent documents effecting any of the foregoing transactions that such holder does have the right to obtain, upon the exercise of the Warrants, in lieu of each share of Common Stock, other securities, money or other property theretofore issuable upon exercise of a Warrant, the kind and amount of shares of stock, other securities, money or other property receivable upon such reclassification, change, consolidation or merger by a holder of the shares of Common Stock, other securities, money or other property issuable upon exercise of a Warrant if the Warrants had been exercised immediately prior to such reclassification, change, consolidation or merger. The constituent documents effecting any such reclassification, change, consolidation or merger shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided in this Section 2(a). The provisions of this Section 2(a) shall similarly apply to successive reclassifications, changes, consolidations or mergers. (b) Subdivisions and Combinations. If the Company, at any time after the Issuance Date, shall subdivide its shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision shall be proportionately reduced, and the number of shares of Common Stock purchasable upon exercise of the Warrants shall be proportionately increased, as at the effective date of such subdivision, or if the Company shall take a record of holders of its Common Stock for such purpose, as at such record date, whichever is earlier. If the Company, at any time after the Issuance Date, shall combine its shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such combination shall be proportionately increased, and the number of shares of Common Stock purchasable upon exercise of the Warrants shall be proportionately reduced, as at the effective date of such combination, or if the Company shall take a record of holders of its Common Stock for purposes of such combination, as at such record date, whichever is earlier. (c) Dividends and Distributions. If the Company at any time after the Issuance Date shall declare a dividend on its Common Stock payable in stock or other securities of the Company to the holders of its Common Stock, the holder of this Warrant Certificate shall, without additional cost, be entitled to receive upon any exercise of a Warrant, in addition to the Common Stock to which such holder would otherwise be entitled upon such exercise, the number of shares of stock or other securities which such holder would have been entitled to receive if he had been a holder immediately prior to the record date for such dividend (or, if no record date shall have been established, the payment date for such dividend) of the number of shares of Common Stock -4- purchasable on exercise of such Warrant immediately prior to such record date or payment date, as the case may be. (d) Certain Issuances of Securities. Subject to Section 2(f), if the Company at any time after the Issuance Date shall issue any additional shares of Common Stock (otherwise than as provided in subsections (a) through (c) of this Section 2) at a price per share less than the Average Price per share of Common Stock for the 20 trading days immediately preceding the date of the authorization of such issuance (the "Market Price") by the Board of Directors or its compensation committee (as applicable), then the Exercise Price upon each such issuance shall be adjusted to that price determined by multiplying the Exercise Price by a fraction: i. the numerator of which shall be the sum of (1) the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares of Common Stock multiplied by the Market Price, and (2) the consideration, if any, received by the Company upon the issuance of such additional shares of Common Stock, and ii. the denominator of which shall be the Market Price multiplied by the total number of shares of Common Stock outstanding immediately after the issuance of such additional shares of Common Stock. No adjustments of the Exercise Price shall be made under this Section 2(d) upon the issuance of any additional shares of Common Stock that (v) are issued pursuant to any grant or award made prior to the Issuance Date under any thrift plan, stock purchase plan, stock bonus plan, stock option plan, employee stock ownership plan, incentive or profit sharing arrangement or other benefit or compensation plan for the benefit of the Company's officers, directors and/or employees ("Employee Benefit Plans") that has been approved by the Board of Directors of the Company or its compensation committee and that otherwise would cause an adjustment under this Section 2(d); (w) are issued pursuant to any grant or award made on or after the Issuance Date under any Employee Benefit Plan if the "Market Price" of any such issuance is not less than the lesser of the Market Price as determined above and the "Fair Market Value", as defined under the applicable Employee Benefit Plan, on the date of Board or compensation committee authorization; (x) are issued pursuant to any Common Stock Equivalent (as hereinafter defined) (i) if upon the issuance of any such Common Stock Equivalent, any such adjustments shall previously have been made pursuant to Section 2(e), (ii) if no adjustment was required pursuant to Section 2(e), or (iii) if such Common Stock Equivalent was issued prior to this Warrant Certificate; (y) are issued pursuant to a public offering by the Company; or (z) results in an adjustment pursuant to Section 2(f). (e) Common Stock Equivalents. i. Subject to Section 2(f), if the Company shall, after the Issuance Date, issue any security or evidence of indebtedness which is convertible into or exchangeable for Common Stock ("Convertible Security"), or any warrant, option or other right to subscribe for or purchase Common Stock or any Convertible Security, other than pursuant to Employee Benefit Plans (together with Convertible Securities, "Common Stock Equivalent"), then the -5- Exercise Price upon each such issuance shall be adjusted as provided in Section 2(d) on the basis that (i) the maximum number of additional shares of Common Stock issuable pursuant to all such Common Stock Equivalents shall be deemed to have been issued as of the date of issuance of such Common Stock Equivalent; and (ii) the aggregate consideration for such maximum number of additional shares of Common Stock shall be deemed to be the minimum consideration received and receivable by the Company for the issuance of such additional shares of Common Stock pursuant to such Common Stock Equivalent. ii. Notwithstanding the foregoing, no adjustment shall be made pursuant to this Section 2(e) unless the consideration received and receivable by the Company per share of Common Stock for the issuance of such additional shares of Common Stock pursuant to such Common Stock Equivalent is less than the Market Price. No adjustment of the Exercise Price shall be made under this Section 2(e) upon the issuance of any Convertible Security which is issued pursuant to the exercise of any warrants or other subscription or purchase rights therefor, if any adjustment shall previously have been made in the Exercise Price then in effect upon the issuance of such warrants or other rights pursuant to this Section 2(e). No adjustment shall be made under this Section 2(e) if an adjustment is to be made under Section 2(f). No adjustment shall be made as a result of adjustment in the exercise or conversion price of Common Stock Equivalents, if those adjustments occur by the terms of such Common Stock Equivalents. (f) Special Adjustments of Exercise Price. Notwithstanding anything to the contrary in Section 2(d) or Section 2(e), this Section 2(f) shall govern adjustments to the Exercise Price for the transactions described in this Section 2(f). i. If the Company at any time after the Issuance Date and prior to the second anniversary of the Issuance Date shall issue any additional shares of Common Stock (otherwise than as provided in subsections (a) through (c) of Section 2; pursuant to any Employee Benefit Plan; pursuant to any Common Stock Equivalent outstanding as of the Issuance Date) or upon the issuance of any such Common Stock, any adjustments shall previously have been made pursuant to Section 2(e) or Section 2(f)(ii); and the New Stock Issue Price (defined below) of such additional shares is less than the Exercise Price then in effect, then the Exercise Price upon each such issuance shall be adjusted to the New Stock Issue Price of such additional shares. The "New Stock Issuance Price" shall be determined by dividing the total amount of consideration received by the Company for such issue or sale by the number of shares of Common Stock issued or sold. ii. If the Company at any time after the Issuance Date and prior to the second anniversary of the Issuance Date, issues any Common Stock Equivalent (which by definition excludes Employee Benefit Plan securities) (otherwise than as provided in subsections (a) through (c) of Section 2; or pursuant to any Common Stock Equivalent outstanding as of the Issuance Date) and the New CSE Exercise Price (defined below) of such Common Stock Equivalents is less than the Exercise Price then in effect, then the Exercise Price upon each such issuance shall be adjusted to the New CSE Exercise Price of such Common Stock -6- Equivalents. The "New CSE Exercise Price" shall be determined by dividing (x) the total amount, if any, received or receivable by the Company as consideration for the issuance of such Common Stock Equivalents, plus the minimum aggregate amount of additional consideration payable to the Company upon the exercise, conversion or exchange of such Common Stock Equivalents, plus, in the case of any such Common Stock Equivalents which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange of such Convertible Securities, by (y) the total maximum number of shares of Common Stock issuable upon the exercise, conversion or exchange of all such Common Stock Equivalents. (g) Miscellaneous. The following provisions shall be applicable to the making of adjustments in the Exercise Price hereinbefore provided in this Section 2: i. The consideration received by the Company shall be deemed to be the following: (I) to the extent that any additional shares of Common Stock or any Common Stock Equivalent shall be issued for cash consideration, the consideration received by the Company therefor, or, if such additional shares of Common Stock or Common Stock Equivalent are offered by the Company for subscription, the subscription price, or, if such additional shares of Common Stock or Common Stock Equivalent are sold to underwriters or dealers for public offering without a subscription offering, the initial public offering price, in any such case excluding any amounts paid or receivable for accrued interest or accrued dividends and without deduction of any compensation, discounts, commissions or expenses paid or incurred by the Company for and in the underwriting of , or otherwise in connection with, the issue thereof; (II) to the extent that such issuance shall be for a consideration other than cash, then, except as herein otherwise expressly provided, the fair value of such consideration at the time of such issuance as determined in good faith by the Board of Directors, as evidenced by a certified resolution of the Board of Directors delivered to the holder of this Warrant Certificate setting forth such determination. The consideration for any additional shares of Common Stock issuable pursuant to any Common Stock Equivalent shall be the consideration received by the Company for issuing such Common Stock Equivalent, plus the additional consideration payable to the Company upon the exercise, conversion or exchange of such Common Stock Equivalent. In case of the issuance at any time of any additional shares of Common Stock or Common Stock Equivalent in payment or satisfaction of any dividend upon any class of stock other than Common Stock, the Company shall be deemed to have received for such additional shares of Common Stock or Common Stock Equivalent (which shall not be deemed to be a dividend payable in, or other distribution of, Common Stock under Section 2(c) above) consideration equal to the amount of such dividend so paid or satisfied. In the event additional shares of Common Stock or Common Stock Equivalents are issued together with other shares or securities or other assets of the Company or its subsidiaries for consideration which covers both, the consideration for such shares of Common Stock and Common Stock Equivalents shall be computed based on the respective portions of such consideration so received, computed as provided in this Section 2(g)i., as determined and allocated in good faith by the Board of Directors of the Company. -7- ii. Upon the expiration of the right to convert, exchange or exercise any Common Stock Equivalent the issuance of which effected an adjustment in the Exercise Price, if any such Common Stock Equivalent shall not have been converted, exercised or exchanged, the number of shares of Common Stock deemed to be issued and outstanding because they were issuable upon conversion, exchange or exercise of any such Common Stock Equivalent shall no longer be computed as set forth above, and the Exercise Price shall forthwith be readjusted and thereafter be the price which it would have been (but reflecting any other adjustments in the Exercise Price made pursuant to the provisions of Section 2(d) after the issuance of such Common Stock Equivalent) had the adjustment of the Exercise Price made upon the issuance or sale of such Common Stock Equivalent been made on the basis of the issuance only of the number of additional shares of Common Stock actually issued upon exercise, conversion or exchange of such Common Stock Equivalent and thereupon only the number of additional shares of Common Stock actually so issued shall be deemed to have been issued and only the consideration actually received by the Company (computed as in this Section 2(f)(i)) shall be deemed to have been received by the Company. iii. The number of shares of Common Stock at any time outstanding shall not include any shares thereof then directly or indirectly owned or held by or for the account of the Company or its wholly owned subsidiaries. iv. Upon each adjustment of the Exercise Price as a result of the calculations made in Section 2(d), (e) and (f) hereof, this Warrant shall thereafter evidence the right to purchase, at the adjusted Exercise Price, that number of shares of Common Stock obtained by (i) multiplying the number of shares covered by this Warrant immediately prior to such adjustment of the number of shares by the Exercise Price in effect immediately prior to such adjustment of the Exercise Price and (ii) dividing the product so obtained by the Exercise Price in effect immediately after such adjustment of the Exercise Price. v. For the purpose of this Section 2, the term "shares of Common Stock" shall mean shares of (i) the class of stock designated as the Common Stock at the date hereof or (ii) any other class of stock resulting from successive changes or reclassifications of such shares consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. If at any time, because of an adjustment pursuant to Section 2(a), the Warrants shall entitle the holders to purchase any securities other than shares of Common Stock, thereafter the number of such other securities so purchasable upon exercise of each Warrant and the Exercise Price of such securities shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in this Section 2. (h) Calculation of Exercise Price. The Exercise Price in effect from time to time shall be calculated to four decimal places and rounded to the nearest thousandth. -8- Section 3. Notice of Adjustments. Whenever the Exercise Price or the number of shares of Common Stock is required to be adjusted as provided in Section 2, the Company shall forthwith compute the adjusted Exercise Price or the number of shares of Common Stock issuable and shall prepare and mail to the holder hereof a certificate setting forth such adjusted Exercise Price or such number of shares of Common Stock, showing in reasonable detail the facts upon which the adjustment is based. Section 4. Voluntary Reduction. (a) The Company may at its option, but shall not be obligated to, at any time during the term of the Warrants, reduce the then current Exercise Price by any amount selected by the Board of Directors; provided that if the Company elects so to reduce the then current Exercise Price, such reduction shall be irrevocable during its effective period and remain in effect for a minimum of 30 days following the date of such election, after which time the Company may, at its option, reinstate the Exercise Price in effect prior to such reduction. Whenever the Exercise Price is reduced, the Company shall mail to the holder a notice of the reduction at least 30 days before the date the reduced Exercise Price takes effect, stating the reduced Exercise Price and the period for which such reduced Exercise Price will be in effect. (b) The Company may make such decreases in the Exercise Price, in addition to those required or allowed by this Section 4, as shall be determined by it, as evidenced by a certified resolution of the Board of Directors delivered to the holders, to be advisable to avoid or diminish any income tax to the holder resulting from any dividend or distribution of stock or issuance of rights or warrants to purchase or subscribe for stock or from any event treated as such for income tax purposes. Section 5. Mandatory Exercise. (a) If (i) the Price of the Common Stock is greater than 150% of the Exercise Price (as adjusted to reflect any stock split, combination, reclassification, recapitalization, exchange, stock dividend or other distribution payable in Common Stock with respect to shares of Common Stock) for sixty (60) consecutive trading days in the principal market in which the Common Stock is traded and (ii) the Company gives written notice (the "Company Notice") to the holder hereof of the satisfaction of the condition in clause (i), then within fifteen (15) days after the effective date of the Company Notice, the holder hereof shall exercise all of the Warrants. If required by this Section 5, the holder hereof agrees to exercise the Warrants, and to purchase shares of Common Stock pursuant to the terms of this Warrant Certificate. If the holder has not fulfilled its obligations to exercise the Warrants pursuant to this Section 5 within fifteen (15) days after the holder's receipt of the Company Notice, then (without limiting the Company's available remedies) (A) the obligations of holder under this Section 5 shall continue but the purchase rights otherwise represented by this Warrant Certificate shall terminate, (B) the Company may thereafter refuse, in its sole discretion, to allow holder to exercise the Warrants (including pursuant to this Section 5), (C) all obligations of the Company under Sections 3, 6, 7 and 8 shall terminate, (D) no further adjustments to the Exercise Price shall be made unless the Company in its sole discretion consents in writing. Each Warrant holder's obligations under this Section 5(a) shall be subject to the expiration or termination -9- of all waiting periods (and any extensions thereof) applicable to exercise of such holder's Warrants under the HSR Act (as defined below); provided that such holder shall have certified in writing to the Company that a filing under the HSR Act is required and provided further that such holder shall use its best efforts to cause the expiration or termination of such waiting period to occur as promptly as practicable. (b) Holder represents and warrants to the Company that holder has full corporate power and authority to execute, deliver, and perform this Warrant Certificate and to consummate the transactions contemplated hereby. The execution, delivery, and performance by holder of this Warrant Certificate have been duly authorized by all necessary corporate action of holder. This Warrant Certificate has been duly executed and delivered by holder and constitutes a valid and legally binding obligation of holder, enforceable against holder in accordance with its terms, except that such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting creditors' rights generally and (ii) general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law). (c) The right to require exercise of the Warrants is hereby declared by the parties hereto to be a unique right, the loss of which is not readily susceptible to monetary quantification. Consequently, the parties hereto agree that an action for specific performance of the exercise and purchase obligations created by this Section 5 is an available remedy for the breach of the provisions of this Section 5. If the Company is forced to institute legal proceedings to enforce its rights in accordance with the provisions of this Section 5, it shall be entitled to recover its reasonable attorneys' fees and court costs incurred in enforcing such rights. (d) Holder is executing this Warrant Certificate in order to make and agree to the covenants, representations and warranties of holder contained in this Section 5, which shall be binding upon the holder's successors and assigns. Section 6. Notices to Warrant Holders. In the event: (a) the Company shall authorize any consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company is required, or of the conveyance or sale of all or substantially all of the assets of the Company, or of any reclassification or change of the Common Stock or other securities issuable upon exercise of the Warrants (other than a change in par value, or from par value to no par value, or from no par value to par value or as result of a subdivision or combination), or a tender offer or exchange offer for shares of Common Stock (or other securities issuable upon the exercise of the Warrants); or (b) the Company shall declare any dividend (or any other distribution) on the Common Stock or any other class of its capital stock, other than dividends on the Shares, as defined in the Securities Purchase Agreement; or (c) the Company shall authorize the granting to the holders of Common Stock or any other class of its capital stock of rights or warrants to subscribe for or purchase any shares of -10- any class or series of capital stock or any other securities convertible into or exchangeable for shares of stock; or (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; then the Company shall cause to be sent to the holder hereof, at least 30 days prior to the applicable record date hereinafter specified, or promptly in the case of events for which there is no record date, a written notice stating (x) the date for the determination of the holders of record of shares of Common Stock (or other securities issuable upon the exercise of the Warrants) entitled to receive any such dividends or other distribution, (y) the initial expiration date set forth in any tender offer or exchange offer for shares of Common Stock (or other securities issuable upon the exercise of the Warrants), or (z) the date on which any of the events specified in subsections (a)-(d) is expected to become effective or consummated, and the date as of which it is expected that holders of record of shares of Common Stock (or other securities issuable upon the exercise of the Warrants) shall be entitled to exchange such shares for securities or other property, if any, deliverable upon any such event. Failure to give such notice or any defect therein shall not affect the legality or validity of any such event, or the vote upon any such action. Section 7. Reports to Warrant Holders. The Company will cause to be delivered, by first-class mail, postage prepaid, to holder at such holder's address appearing hereon, or such other address as the holder shall specify, a copy of any reports delivered by the Company to the holders of Common Stock. Section 8. Covenants of the Company. The Company covenants and agrees that: (a) Until the Expiration Date, the Company shall at all times reserve and keep available, out of the aggregate of its authorized but unissued Common Stock (and other securities), for the purpose of enabling it to satisfy any obligation to issue shares of Common Stock (and other securities) upon the exercise of the Warrants, the number of shares of Common Stock (and other securities) issuable upon the exercise of such Warrants. (b) The Company shall pay all expenses, taxes and other charges payable in connection with the preparation, issuance and delivery of new warrant certificates on transfer of the Warrants. (c) All Common Stock (and other securities) which may be issued upon exercise of the Warrants shall upon issuance be validly issued, fully paid, non-assessable and free from all preemptive rights and all taxes, liens and charges with respect to the issuance thereof, and will not be subject to any restrictions on voting or transfer thereof except as set forth in the Securities Purchase Agreement, any stockholders agreement and except for restrictions arising under state or federal securities laws. (d) All original issue taxes payable in respect of the issuance of shares of Common -11- Stock to the registered holder hereof upon the exercise of the Warrants shall be borne by the Company; provided, that the Company shall not be required to pay any tax or charge imposed in connection with any transfer involved in the issuance of any certificates representing shares of Common Stock (and other securities) in any name other than that of the registered holder hereof, and in such case the Company shall not be required to issue or deliver any certificate representing shares of Common Stock (and other securities) until such tax or other charge has been paid or it has been established to the Company's satisfaction that no such tax or charge is due. (e) As soon as practicable after the receipt from the holder of this Warrant Certificate of notice of the intent to exercise of a number of warrants sufficient to require a filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules, regulations and formal interpretations thereunder, as amended from time to time (the "HSR Act") (and after the receipt, if applicable, of the notice referred to in Rule 803.5 of the HSR Act), but in any event no later than the 15th business day after receipt of such notice(s), the Company will (i) if required by the HSR Act, prepare and file with Antitrust Division of the Department of Justice (the "DOJ") and the Federal Trade Commission (the "FTC") the Notification and Report Form (accompanied by all documentary attachments contemplated thereby) required by the HSR Act, (ii) upon request of the holder, request early termination of the waiting period imposed by the HSR Act, and (iii) coordinate and cooperate with the holder in responding to formal and informal requests for additional information and documentary material from the DOJ and the FTC in connection with such filing. Notwithstanding the foregoing, if the holder is required to file with the DOJ and FTC the Notification and Report Form solely as a result of its holding and/or purchasing shares of Common Stock issued pursuant to this Warrant (with no regard to any other securities held by such holder or its affiliates) and the holder certifies such fact to the Company in writing, the Company agrees to promptly reimburse the holder for all fees and expenses for the preparation and filing of such form, including all legal expenses and filing fees. (f) The Company will not change the par value of the Common Stock from par value $0.01 per share to any higher par value which exceeds the Exercise Price then in effect, and will reduce the par value of the Common Stock upon any event described in Section 2 that would, but for this provision, reduce the Exercise Price below the par value of the Common Stock. Section 9. No Rights as Stockholder. The holder of the Warrants shall not, by virtue of holding such Warrants, be entitled to any rights of a stockholder of the Company either at law or in equity, and the rights of the holder of the Warrants are limited to those expressed herein. Section 10. Notices. All notices, requests, demands, and other communications required or permitted to be given or made hereunder by any party hereto shall be in writing and shall be deemed to have been duly given or made if (i) delivered personally, (ii) sent by prepaid overnight courier service, or (iii) sent by telecopy or facsimile transmission, answer back requested, to the parties at the following addresses (or at such other addresses as shall be specified by the parties by like notice): if to the holder, to such holder at: -12- 277 Park Avenue New York, New York 10172 Attention: Nicole Arnaboldi, Ivy Dodes Telefax: 212-892-7272 with a copy to: Gardere Wynne Sewell, LLP 1000 Louisiana, Suite 3400 Houston, Texas 77002 Attention: N.L. Stevens III Telefax: 713-276-5807 and, if to the Company: Brigham Exploration Company 6300 Bridge Point Parkway Building 2, Suite 500 Austin, Texas 78730 Attention: Chief Financial Officer Telecopier: (512) 472-3400 Such notices, requests, demands, and other communications shall be effective (i) if delivered personally or sent by courier service, upon actual receipt by the intended recipient, or (ii) if sent by telecopy or facsimile transmission, when the answer back is received. Section 11. Governing Law. This Warrant Certificate shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflict of laws. Section 12. Lost, Stolen, Mutilated or Destroyed Warrant Certificates. Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Warrant Certificate, then, in the absence of notice to the Company that such Warrant Certificate has been acquired by a bona fide purchaser, the Company shall execute and deliver, in exchange for or in lieu of the lost, stolen, destroyed or mutilated Warrant Certificate, a substitute Warrant Certificate of the same tenor and evidencing a like number of Warrants. Section 13. Transfer. Subject to Section 14 and the Securities Purchase Agreement, transfer of Warrants, in whole or in part, shall be registered on the books of the Company to be maintained for such purposes, upon surrender of the Warrant Certificate representing such Warrants at the principal office of the Company referred to in Section 10, together with a written assignment substantially in the form of Exhibit B to this Warrant Certificate and a written agreement, in form reasonably satisfactory to the Company, setting forth the new Warrant holder's agreement to be -13- bound by all of the terms of this Warrant Certificate (including without limitation Section 14) and Section 5.5 of the Securities Purchase Agreement, each duly executed by the holder, and funds sufficient to pay any transfer taxes payable by such holder upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant Certificate or Warrant Certificates in the name of the assignee or assignees and in the denomination specified in such instrument of assignment, and shall issue to the assignor a new Warrant Certificate or Warrant Certificates evidencing the portion of the old Warrant Certificate not so assigned, and the old Warrant Certificate shall promptly be canceled. Section 14. Restrictions on Transferability. The Warrant Certificate represents Warrants referred to in the Securities Purchase Agreement. Said Securities Purchase Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of certain limitations of rights, obligations, duties and immunities thereunder of the Company and the holders, and in the event of any conflict between the terms of this Warrant Certificate and the provisions of the Securities Purchase Agreement, the provisions of the Securities Purchase Agreement shall control. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be executed as of March 5, 2001, by the undersigned, thereunto duly authorized. BRIGHAM EXPLORATION COMPANY By: /s/ Karen E. Lynch ------------------------------------- Karen E. Lynch Vice President DLJ MERCHANT BANKING PARTNERS III, L.P. By: DLJ Merchant Banking III, Inc. Managing General Partner By: /s/ Steven A. Webster ------------------------------------- Name: Steven A. Webster Title: Attorney-in-Fact -14- EX-10.75 8 0008.txt WARRANT CERTIFICATE Exhibit 10.75 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM. SUCH SECURITIES ARE SUBJECT TO THE RESTRICTIONS AND PRIVILEGES SPECIFIED IN THIS WARRANT CERTIFICATE AND IN A SECURITIES PURCHASE AGREEMENT, DATED AS OF MARCH 5, 2001, BETWEEN BRIGHAM EXPLORATION COMPANY AND THE INITIAL HOLDER OF SECURITIES NAMED THEREIN, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF BRIGHAM EXPLORATION COMPANY AND WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER HEREOF UPON WRITTEN REQUEST, AND THE HOLDER OF THIS CERTIFICATE AGREES TO BE BOUND THEREBY. WARRANT CERTIFICATE Number of Warrants: 64,451 Warrant No. 4 ------- --- This Warrant certificate ("Warrant Certificate") certifies that, for value received, DLJ Offshore Partners III, C.V. is the registered holder of the number of warrants (the "Warrants") set forth above. Each Warrant entitles the holder thereof, at any time or from time to time during the Exercise Period, to purchase from the Company one fully paid and nonassessable share of Common Stock at the Exercise Price, subject to adjustment as provided herein. Initially capitalized terms used but not defined herein shall have the meanings ascribed to them in the Securities Purchase Agreement. "Common Stock" means the common stock, $.01 par value per share, of the Company and such other class of securities as shall then represent the common equity of the Company. "Company" means Brigham Exploration Company, a Delaware corporation. "Exercise Period" means the period of time between the day immediately following the date that Stockholder Approval, as defined in the Securities Purchase Agreement, is obtained and 5:00 p.m. (New York City time) on the Expiration Date. "Exercise Price," subject in all circumstances to adjustment in accordance with Section 2, means $4.75 per share. "Expiration Date" means the tenth anniversary of the Closing Date. "Issuance Date" means the Closing Date. "Person" means any individual, corporation, company, partnership, joint venture, trust, limited liability company, unincorporated organization or government or any agency, instrumentality or political subdivision thereof, or any other form of entity. "Preferred Stock" means shares of the Series A Preferred Stock, par value $0.01 per share, of the Company. "Preferred Value" per share of Preferred Stock means the Stated Value of such Share, plus, without duplication, all accrued and unpaid dividends on such share to and including the applicable date of Warrant exercise. "Price" means the average of the "high" and "low" prices as reported in The Wall Street Journal's listing for such day (corrected for obvious typographical errors) or if such shares are not reported in such listing, the average of the reported sales prices on the largest national securities exchange (based on the aggregate dollar value of securities listed) on which such shares are listed or traded, or if such shares are not listed or traded on any national securities exchange, then the average of the reported sales prices for such shares in the over-the-counter market, as reported on the National Association of Securities Dealers Automated Quotations System, or, if such prices shall not be reported thereon, the average of the closing bid and asked prices so reported, or, if such prices shall not be reported, then the average of the closing bid and asked prices reported by the National Quotations Bureau Incorporated. The "Average" Price per share for any period shall be determined by dividing the sum of the Prices determined for the individual trading days in such period by the number of trading days in such period. "Securities Purchase Agreement" means the Securities Purchase Agreement, dated as of March 5, 2001, between the Company and the Investors. "Stated Value" means the stated value per share of Preferred Stock, which is $20.00 per share. Section 1. Exercise of Warrants. (a) The Warrants may be exercised in whole or in part, at any time or from time to time, during the Exercise Period, by (i) presentation and surrender to the Company at its address set forth in Section 10 of this Warrant Certificate with the Election To Exercise, attached hereto as Exhibit A, duly completed and executed, and (ii) payment of the Exercise Price, for the number of Warrants being exercised by either: (1) bank draft or cashiers check, or (2) provided that the Company receives at least 5 days prior notice and subject to Section 1(d), delivery to the Company of certificate(s) representing a number of shares of Preferred Stock having an aggregate Preferred Value equal to the aggregate Exercise Price for the number of Warrants being exercised. If the aggregate Preferred Value of the Preferred Stock delivered in payment of the aggregate Exercise Price exceeds (because of fractional shares) the aggregate Exercise Price for the number of Warrants being exercised; then (subject to Section 1(d)) the Company will promptly pay to the holder of the Warrants in cash such excess amount; provided that such excess amount shall in no event be more than the Preferred Value of one share of Preferred Stock. If the holder of this Warrant Certificate at any time exercises less than all the Warrants, the -2- Company shall issue to such a holder a warrant certificate identical in form to this Warrant Certificate, but evidencing a number of Warrants equal to the number of Warrants originally represented by this Warrant Certificate less the number of Warrants previously exercised. Likewise, upon the presentation and surrender of this Warrant Certificate to the Company at its address set forth in Section 10 and at the request of the holder, the Company will, without expense, at the option of the holder, issue to the holder in substitution for this Warrant Certificate one or more warrant certificates in identical form and for an aggregate number of Warrants equal to the number of Warrants evidenced by this Warrant Certificate. (b) To the extent that the Warrants have not been exercised at or prior to the Expiration Date, such Warrants shall expire and the rights of the holder shall become void and of no effect. (c) Upon surrender of this Warrant Certificate in conformity with the foregoing provisions, the Company shall transfer to the holder of this Warrant Certificate appropriate evidence of ownership of the shares of Common Stock or other securities or property (including any money) to which the holder is entitled, registered or otherwise placed in, or payable to the order of, the name or names of the holder or such transferee as may be directed in writing by the holder, and shall deliver such evidence of ownership and any other securities or property (including any money) to the Person or Persons entitled to receive the same, together with an amount in cash in lieu of any fraction of a share. (d) In connection with payment of the Exercise Price with shares of Preferred Stock, the Company may require that at the time of such exercise it receive representations and warranties from the applicable holder of the Warrants regarding such holder's title to the Preferred Stock and the lack of encumbrances thereon. If the Company is unable to consummate an exercise of Warrants through payment of the Exercise Price with shares of Preferred Stock because of any limitations contained or construed in the Delaware General Corporation Law, the Company shall use its best efforts to take all such action as may be necessary to place the Company in a position to do so. In the event the Company, after the taking of any action by it as contemplated above, is unable to consummate such exercise, the Company shall accept such number of shares of Preferred Stock in payment as it shall then be authorized to do so under the Delaware General Corporation Law. (e) The Company shall not be required to issue a fractional share of Common Stock upon the exercise of Warrants. As to any fraction of a share which the Warrant holder would otherwise be entitled to purchase upon such exercise, the Company may pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the Price per share of Common Stock on the date of exercise. Section 2. Antidilution Adjustments. The shares of Common Stock purchasable on exercise of the Warrants are shares of Common Stock as constituted as of the Issuance Date. The number and kind of securities purchasable upon the exercise of the Warrants, and the Exercise Price, shall be subject to adjustment from time to time upon the happening of certain events, as follows: -3- (a) Mergers, Consolidations and Reclassifications. In case of any reclassification or change of outstanding securities issuable upon exercise of the Warrants at any time after the Issuance Date (other than a change in par value, or from par value to no par value, or from no par value to par value or as a result of a subdivision or combination to which Section 2(b) applies), or in case of any consolidation or merger of the Company with or into any entity or other person (other than a merger with another entity or other person in which the Company is the surviving corporation and which does not result in any reclassification or change in the securities issuable upon exercise of this Warrant Certificate), the holder of the Warrants shall have, and the Company, or such successor corporation or other entity, shall covenant in the constituent documents effecting any of the foregoing transactions that such holder does have the right to obtain, upon the exercise of the Warrants, in lieu of each share of Common Stock, other securities, money or other property theretofore issuable upon exercise of a Warrant, the kind and amount of shares of stock, other securities, money or other property receivable upon such reclassification, change, consolidation or merger by a holder of the shares of Common Stock, other securities, money or other property issuable upon exercise of a Warrant if the Warrants had been exercised immediately prior to such reclassification, change, consolidation or merger. The constituent documents effecting any such reclassification, change, consolidation or merger shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided in this Section 2(a). The provisions of this Section 2(a) shall similarly apply to successive reclassifications, changes, consolidations or mergers. (b) Subdivisions and Combinations. If the Company, at any time after the Issuance Date, shall subdivide its shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision shall be proportionately reduced, and the number of shares of Common Stock purchasable upon exercise of the Warrants shall be proportionately increased, as at the effective date of such subdivision, or if the Company shall take a record of holders of its Common Stock for such purpose, as at such record date, whichever is earlier. If the Company, at any time after the Issuance Date, shall combine its shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such combination shall be proportionately increased, and the number of shares of Common Stock purchasable upon exercise of the Warrants shall be proportionately reduced, as at the effective date of such combination, or if the Company shall take a record of holders of its Common Stock for purposes of such combination, as at such record date, whichever is earlier. (c) Dividends and Distributions. If the Company at any time after the Issuance Date shall declare a dividend on its Common Stock payable in stock or other securities of the Company to the holders of its Common Stock, the holder of this Warrant Certificate shall, without additional cost, be entitled to receive upon any exercise of a Warrant, in addition to the Common Stock to which such holder would otherwise be entitled upon such exercise, the number of shares of stock or other securities which such holder would have been entitled to receive if he had been a holder immediately prior to the record date for such dividend (or, if no record date shall have been established, the payment date for such dividend) of the number of shares of Common Stock purchasable on exercise of such Warrant immediately prior to such record date or payment date, as the case may be. -4- (d) Certain Issuances of Securities. Subject to Section 2(f), if the Company at any time after the Issuance Date shall issue any additional shares of Common Stock (otherwise than as provided in subsections (a) through (c) of this Section 2) at a price per share less than the Average Price per share of Common Stock for the 20 trading days immediately preceding the date of the authorization of such issuance (the "Market Price") by the Board of Directors or its compensation committee (as applicable), then the Exercise Price upon each such issuance shall be adjusted to that price determined by multiplying the Exercise Price by a fraction: i. the numerator of which shall be the sum of (1) the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares of Common Stock multiplied by the Market Price, and (2) the consideration, if any, received by the Company upon the issuance of such additional shares of Common Stock, and ii. the denominator of which shall be the Market Price multiplied by the total number of shares of Common Stock outstanding immediately after the issuance of such additional shares of Common Stock. No adjustments of the Exercise Price shall be made under this Section 2(d) upon the issuance of any additional shares of Common Stock that (v) are issued pursuant to any grant or award made prior to the Issuance Date under any thrift plan, stock purchase plan, stock bonus plan, stock option plan, employee stock ownership plan, incentive or profit sharing arrangement or other benefit or compensation plan for the benefit of the Company's officers, directors and/or employees ("Employee Benefit Plans") that has been approved by the Board of Directors of the Company or its compensation committee and that otherwise would cause an adjustment under this Section 2(d); (w) are issued pursuant to any grant or award made on or after the Issuance Date under any Employee Benefit Plan if the "Market Price" of any such issuance is not less than the lesser of the Market Price as determined above and the "Fair Market Value", as defined under the applicable Employee Benefit Plan, on the date of Board or compensation committee authorization; (x) are issued pursuant to any Common Stock Equivalent (as hereinafter defined) (i) if upon the issuance of any such Common Stock Equivalent, any such adjustments shall previously have been made pursuant to Section 2(e), (ii) if no adjustment was required pursuant to Section 2(e), or (iii) if such Common Stock Equivalent was issued prior to this Warrant Certificate; (y) are issued pursuant to a public offering by the Company; or (z) results in an adjustment pursuant to Section 2(f). (e) Common Stock Equivalents. i. Subject to Section 2(f), if the Company shall, after the Issuance Date, issue any security or evidence of indebtedness which is convertible into or exchangeable for Common Stock ("Convertible Security"), or any warrant, option or other right to subscribe for or purchase Common Stock or any Convertible Security, other than pursuant to Employee Benefit Plans (together with Convertible Securities, "Common Stock Equivalent"), then the Exercise Price upon each such issuance shall be adjusted as provided in Section 2(d) on the basis that (i) the maximum number of additional shares of Common Stock issuable pursuant -5- to all such Common Stock Equivalents shall be deemed to have been issued as of the date of issuance of such Common Stock Equivalent; and (ii) the aggregate consideration for such maximum number of additional shares of Common Stock shall be deemed to be the minimum consideration received and receivable by the Company for the issuance of such additional shares of Common Stock pursuant to such Common Stock Equivalent. ii. Notwithstanding the foregoing, no adjustment shall be made pursuant to this Section 2(e) unless the consideration received and receivable by the Company per share of Common Stock for the issuance of such additional shares of Common Stock pursuant to such Common Stock Equivalent is less than the Market Price. No adjustment of the Exercise Price shall be made under this Section 2(e) upon the issuance of any Convertible Security which is issued pursuant to the exercise of any warrants or other subscription or purchase rights therefor, if any adjustment shall previously have been made in the Exercise Price then in effect upon the issuance of such warrants or other rights pursuant to this Section 2(e). No adjustment shall be made under this Section 2(e) if an adjustment is to be made under Section 2(f). No adjustment shall be made as a result of adjustment in the exercise or conversion price of Common Stock Equivalents, if those adjustments occur by the terms of such Common Stock Equivalents. (f) Special Adjustments of Exercise Price. Notwithstanding anything to the contrary in Section 2(d) or Section 2(e), this Section 2(f) shall govern adjustments to the Exercise Price for the transactions described in this Section 2(f). i. If the Company at any time after the Issuance Date and prior to the second anniversary of the Issuance Date shall issue any additional shares of Common Stock (otherwise than as provided in subsections (a) through (c) of Section 2; pursuant to any Employee Benefit Plan; pursuant to any Common Stock Equivalent outstanding as of the Issuance Date) or upon the issuance of any such Common Stock, any adjustments shall previously have been made pursuant to Section 2(e) or Section 2(f)(ii); and the New Stock Issue Price (defined below) of such additional shares is less than the Exercise Price then in effect, then the Exercise Price upon each such issuance shall be adjusted to the New Stock Issue Price of such additional shares. The "New Stock Issuance Price" shall be determined by dividing the total amount of consideration received by the Company for such issue or sale by the number of shares of Common Stock issued or sold. ii. If the Company at any time after the Issuance Date and prior to the second anniversary of the Issuance Date, issues any Common Stock Equivalent (which by definition excludes Employee Benefit Plan securities) (otherwise than as provided in subsections (a) through (c) of Section 2; or pursuant to any Common Stock Equivalent outstanding as of the Issuance Date) and the New CSE Exercise Price (defined below) of such Common Stock Equivalents is less than the Exercise Price then in effect, then the Exercise Price upon each such issuance shall be adjusted to the New CSE Exercise Price of such Common Stock Equivalents. The "New CSE Exercise Price" shall be determined by dividing (x) the total amount, if any, received or receivable by the Company as consideration for the issuance of -6- such Common Stock Equivalents, plus the minimum aggregate amount of additional consideration payable to the Company upon the exercise, conversion or exchange of such Common Stock Equivalents, plus, in the case of any such Common Stock Equivalents which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange of such Convertible Securities, by (y) the total maximum number of shares of Common Stock issuable upon the exercise, conversion or exchange of all such Common Stock Equivalents. (g) Miscellaneous. The following provisions shall be applicable to the making of adjustments in the Exercise Price hereinbefore provided in this Section 2: i. The consideration received by the Company shall be deemed to be the following: (I) to the extent that any additional shares of Common Stock or any Common Stock Equivalent shall be issued for cash consideration, the consideration received by the Company therefor, or, if such additional shares of Common Stock or Common Stock Equivalent are offered by the Company for subscription, the subscription price, or, if such additional shares of Common Stock or Common Stock Equivalent are sold to underwriters or dealers for public offering without a subscription offering, the initial public offering price, in any such case excluding any amounts paid or receivable for accrued interest or accrued dividends and without deduction of any compensation, discounts, commissions or expenses paid or incurred by the Company for and in the underwriting of , or otherwise in connection with, the issue thereof; (II) to the extent that such issuance shall be for a consideration other than cash, then, except as herein otherwise expressly provided, the fair value of such consideration at the time of such issuance as determined in good faith by the Board of Directors, as evidenced by a certified resolution of the Board of Directors delivered to the holder of this Warrant Certificate setting forth such determination. The consideration for any additional shares of Common Stock issuable pursuant to any Common Stock Equivalent shall be the consideration received by the Company for issuing such Common Stock Equivalent, plus the additional consideration payable to the Company upon the exercise, conversion or exchange of such Common Stock Equivalent. In case of the issuance at any time of any additional shares of Common Stock or Common Stock Equivalent in payment or satisfaction of any dividend upon any class of stock other than Common Stock, the Company shall be deemed to have received for such additional shares of Common Stock or Common Stock Equivalent (which shall not be deemed to be a dividend payable in, or other distribution of, Common Stock under Section 2(c) above) consideration equal to the amount of such dividend so paid or satisfied. In the event additional shares of Common Stock or Common Stock Equivalents are issued together with other shares or securities or other assets of the Company or its subsidiaries for consideration which covers both, the consideration for such shares of Common Stock and Common Stock Equivalents shall be computed based on the respective portions of such consideration so received, computed as provided in this Section 2(g)i., as determined and allocated in good faith by the Board of Directors of the Company. ii. Upon the expiration of the right to convert, exchange or exercise any -7- Common Stock Equivalent the issuance of which effected an adjustment in the Exercise Price, if any such Common Stock Equivalent shall not have been converted, exercised or exchanged, the number of shares of Common Stock deemed to be issued and outstanding because they were issuable upon conversion, exchange or exercise of any such Common Stock Equivalent shall no longer be computed as set forth above, and the Exercise Price shall forthwith be readjusted and thereafter be the price which it would have been (but reflecting any other adjustments in the Exercise Price made pursuant to the provisions of Section 2(d) after the issuance of such Common Stock Equivalent) had the adjustment of the Exercise Price made upon the issuance or sale of such Common Stock Equivalent been made on the basis of the issuance only of the number of additional shares of Common Stock actually issued upon exercise, conversion or exchange of such Common Stock Equivalent and thereupon only the number of additional shares of Common Stock actually so issued shall be deemed to have been issued and only the consideration actually received by the Company (computed as in this Section 2(f)(i)) shall be deemed to have been received by the Company. iii. The number of shares of Common Stock at any time outstanding shall not include any shares thereof then directly or indirectly owned or held by or for the account of the Company or its wholly owned subsidiaries. iv. Upon each adjustment of the Exercise Price as a result of the calculations made in Section 2(d), (e) and (f) hereof, this Warrant shall thereafter evidence the right to purchase, at the adjusted Exercise Price, that number of shares of Common Stock obtained by (i) multiplying the number of shares covered by this Warrant immediately prior to such adjustment of the number of shares by the Exercise Price in effect immediately prior to such adjustment of the Exercise Price and (ii) dividing the product so obtained by the Exercise Price in effect immediately after such adjustment of the Exercise Price. v. For the purpose of this Section 2, the term "shares of Common Stock" shall mean shares of (i) the class of stock designated as the Common Stock at the date hereof or (ii) any other class of stock resulting from successive changes or reclassifications of such shares consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. If at any time, because of an adjustment pursuant to Section 2(a), the Warrants shall entitle the holders to purchase any securities other than shares of Common Stock, thereafter the number of such other securities so purchasable upon exercise of each Warrant and the Exercise Price of such securities shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in this Section 2. (h) Calculation of Exercise Price. The Exercise Price in effect from time to time shall be calculated to four decimal places and rounded to the nearest thousandth. -8- Section 3. Notice of Adjustments. Whenever the Exercise Price or the number of shares of Common Stock is required to be adjusted as provided in Section 2, the Company shall forthwith compute the adjusted Exercise Price or the number of shares of Common Stock issuable and shall prepare and mail to the holder hereof a certificate setting forth such adjusted Exercise Price or such number of shares of Common Stock, showing in reasonable detail the facts upon which the adjustment is based. Section 4. Voluntary Reduction. (a) The Company may at its option, but shall not be obligated to, at any time during the term of the Warrants, reduce the then current Exercise Price by any amount selected by the Board of Directors; provided that if the Company elects so to reduce the then current Exercise Price, such reduction shall be irrevocable during its effective period and remain in effect for a minimum of 30 days following the date of such election, after which time the Company may, at its option, reinstate the Exercise Price in effect prior to such reduction. Whenever the Exercise Price is reduced, the Company shall mail to the holder a notice of the reduction at least 30 days before the date the reduced Exercise Price takes effect, stating the reduced Exercise Price and the period for which such reduced Exercise Price will be in effect. (b) The Company may make such decreases in the Exercise Price, in addition to those required or allowed by this Section 4, as shall be determined by it, as evidenced by a certified resolution of the Board of Directors delivered to the holders, to be advisable to avoid or diminish any income tax to the holder resulting from any dividend or distribution of stock or issuance of rights or warrants to purchase or subscribe for stock or from any event treated as such for income tax purposes. Section 5. Mandatory Exercise. (a) If (i) the Price of the Common Stock is greater than 150% of the Exercise Price (as adjusted to reflect any stock split, combination, reclassification, recapitalization, exchange, stock dividend or other distribution payable in Common Stock with respect to shares of Common Stock) for sixty (60) consecutive trading days in the principal market in which the Common Stock is traded and (ii) the Company gives written notice (the "Company Notice") to the holder hereof of the satisfaction of the condition in clause (i), then within fifteen (15) days after the effective date of the Company Notice, the holder hereof shall exercise all of the Warrants. If required by this Section 5, the holder hereof agrees to exercise the Warrants, and to purchase shares of Common Stock pursuant to the terms of this Warrant Certificate. If the holder has not fulfilled its obligations to exercise the Warrants pursuant to this Section 5 within fifteen (15) days after the holder's receipt of the Company Notice, then (without limiting the Company's available remedies) (A) the obligations of holder under this Section 5 shall continue but the purchase rights otherwise represented by this Warrant Certificate shall terminate, (B) the Company may thereafter refuse, in its sole discretion, to allow holder to exercise the Warrants (including pursuant to this Section 5), (C) all obligations of the Company under Sections 3, 6, 7 and 8 shall terminate, (D) no further adjustments to the Exercise Price shall be made unless the Company in its sole discretion consents in writing. Each Warrant holder's obligations under this Section 5(a) shall be subject to the expiration or termination of all waiting periods (and any extensions thereof) applicable to exercise of such holder's Warrants -9- under the HSR Act (as defined below); provided that such holder shall have certified in writing to the Company that a filing under the HSR Act is required and provided further that such holder shall use its best efforts to cause the expiration or termination of such waiting period to occur as promptly as practicable. (b) Holder represents and warrants to the Company that holder has full corporate power and authority to execute, deliver, and perform this Warrant Certificate and to consummate the transactions contemplated hereby. The execution, delivery, and performance by holder of this Warrant Certificate have been duly authorized by all necessary corporate action of holder. This Warrant Certificate has been duly executed and delivered by holder and constitutes a valid and legally binding obligation of holder, enforceable against holder in accordance with its terms, except that such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting creditors' rights generally and (ii) general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law). (c) The right to require exercise of the Warrants is hereby declared by the parties hereto to be a unique right, the loss of which is not readily susceptible to monetary quantification. Consequently, the parties hereto agree that an action for specific performance of the exercise and purchase obligations created by this Section 5 is an available remedy for the breach of the provisions of this Section 5. If the Company is forced to institute legal proceedings to enforce its rights in accordance with the provisions of this Section 5, it shall be entitled to recover its reasonable attorneys' fees and court costs incurred in enforcing such rights. (d) Holder is executing this Warrant Certificate in order to make and agree to the covenants, representations and warranties of holder contained in this Section 5, which shall be binding upon the holder's successors and assigns. Section 6. Notices to Warrant Holders. In the event: (a) the Company shall authorize any consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company is required, or of the conveyance or sale of all or substantially all of the assets of the Company, or of any reclassification or change of the Common Stock or other securities issuable upon exercise of the Warrants (other than a change in par value, or from par value to no par value, or from no par value to par value or as result of a subdivision or combination), or a tender offer or exchange offer for shares of Common Stock (or other securities issuable upon the exercise of the Warrants); or (b) the Company shall declare any dividend (or any other distribution) on the Common Stock or any other class of its capital stock, other than dividends on the Shares, as defined in the Securities Purchase Agreement; or (c) the Company shall authorize the granting to the holders of Common Stock or any other class of its capital stock of rights or warrants to subscribe for or purchase any shares of any class or series of capital stock or any other securities convertible into or exchangeable for shares -10- of stock; or (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; then the Company shall cause to be sent to the holder hereof, at least 30 days prior to the applicable record date hereinafter specified, or promptly in the case of events for which there is no record date, a written notice stating (x) the date for the determination of the holders of record of shares of Common Stock (or other securities issuable upon the exercise of the Warrants) entitled to receive any such dividends or other distribution, (y) the initial expiration date set forth in any tender offer or exchange offer for shares of Common Stock (or other securities issuable upon the exercise of the Warrants), or (z) the date on which any of the events specified in subsections (a)-(d) is expected to become effective or consummated, and the date as of which it is expected that holders of record of shares of Common Stock (or other securities issuable upon the exercise of the Warrants) shall be entitled to exchange such shares for securities or other property, if any, deliverable upon any such event. Failure to give such notice or any defect therein shall not affect the legality or validity of any such event, or the vote upon any such action. Section 7. Reports to Warrant Holders. The Company will cause to be delivered, by first-class mail, postage prepaid, to holder at such holder's address appearing hereon, or such other address as the holder shall specify, a copy of any reports delivered by the Company to the holders of Common Stock. Section 8. Covenants of the Company. The Company covenants and agrees that: (a) Until the Expiration Date, the Company shall at all times reserve and keep available, out of the aggregate of its authorized but unissued Common Stock (and other securities), for the purpose of enabling it to satisfy any obligation to issue shares of Common Stock (and other securities) upon the exercise of the Warrants, the number of shares of Common Stock (and other securities) issuable upon the exercise of such Warrants. (b) The Company shall pay all expenses, taxes and other charges payable in connection with the preparation, issuance and delivery of new warrant certificates on transfer of the Warrants. (c) All Common Stock (and other securities) which may be issued upon exercise of the Warrants shall upon issuance be validly issued, fully paid, non-assessable and free from all preemptive rights and all taxes, liens and charges with respect to the issuance thereof, and will not be subject to any restrictions on voting or transfer thereof except as set forth in the Securities Purchase Agreement, any stockholders agreement and except for restrictions arising under state or federal securities laws. (d) All original issue taxes payable in respect of the issuance of shares of Common Stock to the registered holder hereof upon the exercise of the Warrants shall be borne by the -11- Company; provided, that the Company shall not be required to pay any tax or charge imposed in connection with any transfer involved in the issuance of any certificates representing shares of Common Stock (and other securities) in any name other than that of the registered holder hereof, and in such case the Company shall not be required to issue or deliver any certificate representing shares of Common Stock (and other securities) until such tax or other charge has been paid or it has been established to the Company's satisfaction that no such tax or charge is due. (e) As soon as practicable after the receipt from the holder of this Warrant Certificate of notice of the intent to exercise of a number of warrants sufficient to require a filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules, regulations and formal interpretations thereunder, as amended from time to time (the "HSR Act") (and after the receipt, if applicable, of the notice referred to in Rule 803.5 of the HSR Act), but in any event no later than the 15th business day after receipt of such notice(s), the Company will (i) if required by the HSR Act, prepare and file with Antitrust Division of the Department of Justice (the "DOJ") and the Federal Trade Commission (the "FTC") the Notification and Report Form (accompanied by all documentary attachments contemplated thereby) required by the HSR Act, (ii) upon request of the holder, request early termination of the waiting period imposed by the HSR Act, and (iii) coordinate and cooperate with the holder in responding to formal and informal requests for additional information and documentary material from the DOJ and the FTC in connection with such filing. Notwithstanding the foregoing, if the holder is required to file with the DOJ and FTC the Notification and Report Form solely as a result of its holding and/or purchasing shares of Common Stock issued pursuant to this Warrant (with no regard to any other securities held by such holder or its affiliates) and the holder certifies such fact to the Company in writing, the Company agrees to promptly reimburse the holder for all fees and expenses for the preparation and filing of such form, including all legal expenses and filing fees. (f) The Company will not change the par value of the Common Stock from par value $0.01 per share to any higher par value which exceeds the Exercise Price then in effect, and will reduce the par value of the Common Stock upon any event described in Section 2 that would, but for this provision, reduce the Exercise Price below the par value of the Common Stock. Section 9. No Rights as Stockholder. The holder of the Warrants shall not, by virtue of holding such Warrants, be entitled to any rights of a stockholder of the Company either at law or in equity, and the rights of the holder of the Warrants are limited to those expressed herein. Section 10. Notices. All notices, requests, demands, and other communications required or permitted to be given or made hereunder by any party hereto shall be in writing and shall be deemed to have been duly given or made if (i) delivered personally, (ii) sent by prepaid overnight courier service, or (iii) sent by telecopy or facsimile transmission, answer back requested, to the parties at the following addresses (or at such other addresses as shall be specified by the parties by like notice): if to the holder, to such holder at: -12- c/o DLJ Offshore Management N.V. John B. Gorsiraweg 14 Willemstad, Curacao Netherlands, Antilles Fax: 011-599-961-4129 with a copy to: Gardere Wynne Sewell, LLP 1000 Louisiana, Suite 3400 Houston, Texas 77002 Attention: N.L. Stevens III Telefax: 713-276-5807 and, if to the Company: Brigham Exploration Company 6300 Bridge Point Parkway Building 2, Suite 500 Austin, Texas 78730 Attention: Chief Financial Officer Telecopier: (512) 472-3400 Such notices, requests, demands, and other communications shall be effective (i) if delivered personally or sent by courier service, upon actual receipt by the intended recipient, or (ii) if sent by telecopy or facsimile transmission, when the answer back is received. Section 11. Governing Law. This Warrant Certificate shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflict of laws. Section 12. Lost, Stolen, Mutilated or Destroyed Warrant Certificates. Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Warrant Certificate, then, in the absence of notice to the Company that such Warrant Certificate has been acquired by a bona fide purchaser, the Company shall execute and deliver, in exchange for or in lieu of the lost, stolen, destroyed or mutilated Warrant Certificate, a substitute Warrant Certificate of the same tenor and evidencing a like number of Warrants. Section 13. Transfer. Subject to Section 14 and the Securities Purchase Agreement, transfer of Warrants, in whole or in part, shall be registered on the books of the Company to be maintained for such purposes, upon surrender of the Warrant Certificate representing such Warrants at the principal office of the Company referred to in Section 10, together with a written assignment substantially in the form of Exhibit B to this Warrant Certificate and a written agreement, in form reasonably satisfactory to the Company, setting forth the new Warrant holder's agreement to be -13- bound by all of the terms of this Warrant Certificate (including without limitation Section 14) and Section 5.5 of the Securities Purchase Agreement, each duly executed by the holder, and funds sufficient to pay any transfer taxes payable by such holder upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant Certificate or Warrant Certificates in the name of the assignee or assignees and in the denomination specified in such instrument of assignment, and shall issue to the assignor a new Warrant Certificate or Warrant Certificates evidencing the portion of the old Warrant Certificate not so assigned, and the old Warrant Certificate shall promptly be canceled. Section 14. Restrictions on Transferability. The Warrant Certificate represents Warrants referred to in the Securities Purchase Agreement. Said Securities Purchase Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of certain limitations of rights, obligations, duties and immunities thereunder of the Company and the holders, and in the event of any conflict between the terms of this Warrant Certificate and the provisions of the Securities Purchase Agreement, the provisions of the Securities Purchase Agreement shall control. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be executed as of March 5, 2001, by the undersigned, thereunto duly authorized. BRIGHAM EXPLORATION COMPANY By: /s/ Karen E. Lynch ------------------------------------- Karen E. Lynch Vice President DLJ OFFSHORE PARTNERS III, C.V. By: DLJ MERCHANT BANKING III, INC. Managing General Partner By: /s/ Steven A. Webster ------------------------------------- Name: Steven A. Webster Title: Attorney-in-Fact -14- EX-10.76 9 0009.txt BEC STOCKHOLDERS VOTING AGREEMENT Exhibit 10.76 BRIGHAM EXPLORATION COMPANY Stockholders Voting Agreement This STOCKHOLDERS VOTING AGREEMENT, dated March 1, 2001 (this "Agreement"), is made and entered into by and among Brigham Exploration Company, a Delaware corporation (the "Company"), "ES", "MB", "MBP" and "DOP", as ES, MB, MBP and DOP (collectively, the "Investors") are each defined on Page 7(a) hereof, and the following shareholders of the Company (the "Shareholders"): Ben M. and Anne L. Brigham, individual residents of Travis County, Texas, Harold D. Carter, a resident of Dallas County, Texas, General Atlantic Partners III, L.P., a Delaware limited partnership, GAP-Brigham Partners, L.P., a Delaware limited partnership, GAP Coinvestment Partners II, L.P., a Delaware limited partnership, Aspect Resources, LLC, a Colorado limited liability company, and the individual officers of the Company listed on Schedule I hereto. W I T N E S S E T H: WHEREAS, the Company and the Investors propose to enter into a Securities Purchase Agreement concurrently with the execution hereof (the "Purchase Agreement"), pursuant to which the Company will issue and sell to the Investors an aggregate of up to 500,000 shares of its Series A Preferred Stock and warrants (the "Warrants") to acquire 2,105,263 shares (the "Warrant Shares") of its common stock (the "Common Stock"); WHEREAS, the Company, ES and MB previously entered into a Securities Purchase Agreement dated November 1, 2000 (the "Previous Purchase Agreement"), pursuant to which the Company issued and sold to ES and MB an aggregate of 1,000,000 shares of its Series A Preferred Stock and warrants (the "Previous Warrants") to acquire 6,666,667 shares (the "Previous Warrant Shares") of Common Stock; WHEREAS, the issuance of the Previous Warrants has been approved by the stockholders of the Company; WHEREAS, the Warrant Shares and the Previous Warrant Shares represent greater than 30% of the outstanding Common Stock before issuance; WHEREAS, representatives of the Nasdaq Stock Market have informed the Company that they believe that the issuance of the Warrants, if the exercisability of the Warrants were not conditioned on stockholder approval of the issuance of the Warrants and the terms thereof, would constitute a change of control under the rules of the Nasdaq Stock Market, which would violate the rules of the Nasdaq Stock Market if made without stockholder approval; WHEREAS, the Company and the Investors have agreed pursuant to the terms of the Warrants and the Purchase Agreement that the Warrants shall not be exercisable until the stockholders of the Company approve the issuance of the Warrants and the terms thereof, and the Company has agreed to seek such approval at its annual stockholders' meeting to be held on or before May 31, 2001; and WHEREAS, as a condition to the agreement of the Investors to enter into the Purchase Agreement, the Company and the Shareholders have agreed to enter into this Agreement to provide for certain agreements relating to approval of the issuance of the Warrants and the terms thereof; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements set forth herein, the parties to this Agreement hereby agree as follows: 1. Agreement to Vote Shares. Each Shareholder agrees that, at any special or annual meeting of shareholders of the Company, such Shareholder shall vote all shares of Common Stock registered in its, his or her name or beneficially owned by it, him or her as of the date hereof and any and all other capital stock of the Company legally or beneficially acquired by such Shareholder after the date hereof to approve the Warrants and the issuance of the Warrants to the Investors. In the event that the Purchase Agreement is terminated for any reason, then this Agreement shall automatically terminate and none of the parties hereto shall have any liability hereunder. Each Shareholder represents to the Investors that as of the date hereof such Shareholder owns the number of outstanding shares of Common Stock set forth opposite such Shareholder's name on attached Schedule I. 2. Successors, Assigns and Transferees. The terms and provisions of this Agreement shall not bind, inure to the benefit of or be enforceable by or against the successors, assigns or transferees of each of the parties hereto. No party hereto may assign its rights under this Agreement. 3. Entire Agreement; Amendments. This Agreement, and such additional instruments as may be concurrently executed and delivered pursuant to this Agreement, constitutes the entire understanding of the parties with respect to its subject matter. There are no restrictions, agreements, promises, representations, warranties, covenants or undertakings other than those expressly set forth herein or in the documents delivered concurrently herewith. This Agreement may be amended only by a written instrument duly executed by all the parties hereto. 4. Headings. The section headings contained in this Agreement are for reference purposes only and shall not effect in any way the meaning or interpretation of this Agreement. 5. Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given if so given) by hand delivery, facsimile or by mail (registered or certified, postage prepaid, return receipt requested) to the respective parties as follows: 2 If to Brigham: Brigham Exploration Company 6300 Bridge Point Parkway Building Two, Suite 500 Austin, Texas 78730 Attention: Ben M. "Bud" Brigham Fax No: (512) 427-3400 If to ESC, MB or MBP: Donaldson Lufkin & Jenrette 277 Park Avenue New York, New York 10172 Attention: Nicole Arnaboldi, Ivy Dodes Fax No: 212-892-2689 and Mr. Steve Webster 1000 Louisiana, Suite 4900 Houston, Texas 77002 Fax No: (713) 652-6050 with a copy to: Gardere Wynne Sewell, LLP 1000 Louisiana, Suite 3400 Houston, Texas 77002 Attention: N.L. Stevens III Telefax: 713-276-5807 If to DOP: DLJ Offshore Management N.V. John B. Gorsiraweg 14 Willemstad, Curacao Netherlands, Antilles Fax No: 011-599-961-4129 and Mr. Steve Webster 1000 Louisiana, Suite 4900 Houston, Texas 77002 Fax No: (713) 652-6050 with a copy to: Gardere Wynne Sewell, LLP 1000 Louisiana, Suite 3400 Houston, Texas 77002 Attention: N.L. Stevens III Telefax: 713-276-5807 3 If to Ben M. Brigham: Ben M. Brigham Brigham Exploration Company 6300 Bridge Point Parkway Building Two, Suite 500 Austin, Texas 78730 Fax No: (512) 427-3400 If to Anne L. Brigham: Anne L. Brigham Brigham Exploration Company 6300 Bridge Point Parkway Building Two, Suite 500 Austin, Texas 78730 Fax No: (512) 427-3400 If to Harold D. Carter: Harold D. Carter 5949 Sherry Lane, Suite 620 Dallas, Texas 75225 Fax No.: (214) 692-7820 If to General Atlantic Partners III, L.P.: General Atlantic Partners III, L.P. c/o General Atlantic Service Corporation 3 Pickwick Plaza Greenwich, CT 06830 Attention: Mr. Thomas J. Murphy Fax No: (203) 622-8818 If to GAP-Brigham Partners, L.P.: GAP-Brigham Partners, L.P. c/o General Atlantic Service Corporation 3 Pickwick Plaza Greenwich, CT 06830 Attention: Mr. Thomas J. Murphy Fax No: (203) 622-8818 If to GAP Coinvestment Partners II, L.P.: GAP Coinvestment Partners II, L.P. c/o General Atlantic Service Corporation 3 Pickwick Plaza Greenwich, CT 06830 Attention: Mr. Thomas J. Murphy Fax No: (203) 622-8818 4 If to Aspect Resources, LLC: Aspect Resources, LLC 511 16th Street, Suite 300 Denver, CO 80202 Attention: Mr. Alex Cranberg Fax No: (303) 573-7340 If to any of the officers of Brigham: Brigham Exploration Company 6300 Bridge Point Parkway Building Two, Suite 500 Austin, Texas 78730 Attention: [name of officer] Fax No: (512) 427-3400 or to such other address as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. 6. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware, without reference to the conflict of laws principles thereof. 7. Waiver. Any waiver by any party of a breach of any provision of this Agreement shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. 8. Challenges to Agreement. In the event that any part of this Agreement or any transaction contemplated hereby is temporarily, preliminarily or permanently enjoined or restrained by court of competent jurisdiction, the parties hereto shall use their reasonable best efforts to cause any such injunction or restraining order to be vacated or dissolved or otherwise declared or determined to be of no further force or effect. 9. Specific Performance. Each of the Shareholders acknowledges and agrees that irreparable harm would occur if any provision of this Agreement were not performed in accordance with the terms thereof, or were otherwise breached, and that such harm could not be remedied by an award of damages. Accordingly, each of the Shareholders agrees that any non-breaching party shall be entitled to an injunction to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof. 10. Counterparts. This Agreement may be executed in counterparts, each of which shall be an original, but each of which together shall constitute one and the same Agreement; 5 provided that signature pages from separate counterparts may be combined to form one or more fully executed original counterpart(s). * * * * * 6 IN WITNESS WHEREOF, and intending to be legally bound hereby, each of the undersigned parties has executed or caused this Agreement to be executed on the date first above written. BRIGHAM EXPLORATION COMPANY By: /s/ Karen E. Lynch ------------------------------------- Name: Karen E. Lynch -------------------------------- Title: Vice President ------------------------------- /s/ Ben M. Brigham ------------------------------------- Ben M. Brigham /s/ Anne L. Brigham ------------------------------------- Anne L. Brigham /s/ Harold D. Carter ------------------------------------- Harold D. Carter 7 DLJ ESC II, L.P. a Delaware Limited Partnership ("ESC") By: DLJ LBO Plans Management Corporation General Partner By: /s/ Steven A. Webster ------------------------------------- Name: Steven A. Webster ----------------------------------- Title: Attorney-in-Fact ---------------------------------- DLJMB FUNDING III, INC. a Delaware Corporation ("MB") By: /s/ Steven A. Webster ------------------------------------- Name: Steven A. Webster ----------------------------------- Title: Attorney-in-Fact ---------------------------------- DLJ Merchant Banking Partners III, L.P. a Delaware Limited Partnership ("MBP") By: DLJ Merchant Banking III, Inc. Managing General Partner By: /s/ Steven A. Webster ------------------------------------- Name: Steven A. Webster ----------------------------------- Title: Attorney-in-Fact ---------------------------------- DLJ Offshore Partners III, C.V. a Netherlands Antilles Limited Partnership ("DOP") By: DLJ Merchant Banking III, Inc. Managing General Partner By: /s/ Steven A. Webster ------------------------------------- Name: Steven A. Webster ----------------------------------- Title: Attorney-in-Fact ---------------------------------- 7(a) GENERAL ATLANTIC PARTNERS III, L.P. By GAP III Investors, Inc. Its General Partner By: /s/ Stephen P. Reynolds ------------------------------------- Name: Stephen P. Reynolds ----------------------------------- Title: President ---------------------------------- GAP-BRIGHAM PARTNERS, L.P. By: /s/ Stephen P. Reynolds ------------------------------------- Name: Stephen P. Reynolds ----------------------------------- Title: General Partner ---------------------------------- GAP COINVESTMENT PARTNERS II, L.P. By: /s/ Thomas J. Murphy ------------------------------------- Name: Thomas J. Murphy ----------------------------------- Title: Attorney-in-Fact ---------------------------------- ASPECT RESOURCES, LLC By Aspect Management Corporation Its Manager By: /s/ Alex M. Cranberg ------------------------------------- Name: Alex M. Cranberg ----------------------------------- Title: President ---------------------------------- /s/ Curtis F. Harrell ---------------------------------------- Curtis F. Harrell 8 /s/ David T. Brigham ---------------------------------------- David T. Brigham /s/ A. Lance Langford ---------------------------------------- A. Lance Langford /s/ Jeffery E. Larson ---------------------------------------- Jeffery E. Larson /s/ Karen E. Lynch ---------------------------------------- Karen E. Lynch /s/ Christopher A. Phelps ---------------------------------------- Christopher A. Phelps 9 Schedule I Number of Outstanding Shareholder Shares of Common Stock - ----------- ---------------------- Ben M. and Anne L. Brigham, collectively 3,719,792 Harold D. Carter 314,893 General Atlantic Partners III, L.P. 2,679,418 GAP-Brigham Partners, L.P. 127,725 GAP Coinvestment Partners II, L.P. 975,610 Aspect Resources, LLC 487,805 Brigham Officers*: 233,186 (in the aggregate) Curtis F. Harrell David T. Brigham Lance Langford Jeffery E. Larson Karen E. Lynch Christopher A. Phelps * other than Ben M. Brigham EX-10.8.2 10 0010.txt BEC RESTRICTED STOCK AGREEMENT 1997 INCENT. PLAN Exhibit 10.8.2 BRIGHAM EXPLORATION COMPANY 1997 INCENTIVE PLAN RESTRICTED STOCK AGREEMENT THIS AGREEMENT, made as of the 27th day of October, 2000, by and between BRIGHAM EXPLORATION COMPANY, a Delaware corporation (the "Company"), and [See Schedule I attached] ("Employee"); W I T N E S S E T H: WHEREAS, the Compensation Committee of the Board of Directors of the Company (the "Committee"), acting under the Company's 1997 Incentive Plan (the "Plan"), has determined that it is desirable to award shares of restricted stock to Employee under the Plan; and WHEREAS, pursuant to the Plan, the Committee has determined that the shares of restricted stock so awarded shall be subject to the restrictions, terms and conditions of this Agreement; NOW, THEREFORE, in consideration of the premises and mutual covenants and agreements herein contained, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Plan Provisions. Capitalized terms used and not otherwise defined herein shall have the respective meanings given such terms in the Plan. By execution of this Agreement, Employee agrees that the Restricted Stock covered hereby shall be governed by and subject to all applicable provisions of the Plan. This Agreement is subject to the Plan, and the Plan shall govern where there is any inconsistency between the Plan and this Agreement. 2. Restricted Stock. On the terms and conditions and subject to the restrictions, including forfeiture, hereinafter set forth, the Company hereby makes to Employee, and Employee hereby accepts, the awards of Restricted Stock (each such issuance is herein called an "Award") set forth on Exhibit A hereto, which awards are being issued by the Company pursuant to the Plan. The number of shares of Restricted Stock of each Award covered hereby (the "Restricted Shares"), the date of issuance of such shares (the "Issue Date"), and the Restricted Period applicable to such shares, including the date on which such Restricted Period is scheduled to terminate (the "Scheduled Termination Date"), are set forth on Exhibit A attached hereto. A certificate or certificates representing the Restricted Shares shall be issued in the name of Employee as of the applicable Issue Date and delivered to Employee on such Issue Date or as soon thereafter as practicable. Employee shall cause the certificate(s) representing the Restricted Shares, upon receipt thereof by Employee, to be deposited, together with stock powers and any other instrument of transfer reasonably requested by the Company duly endorsed in blank, with the Company, to be held by the Company in escrow for Employee's benefit until such time as any Restricted Shares represented by such certificate(s) are forfeited to the Company or the restrictions thereon terminate. Restricted Shares shall be delivered to Employee upon vesting or assigned and transferred to and reacquired by the Company upon forfeiture, as hereinafter set forth. 3. Vesting/Forfeiture. (a) Subject to Sections 3(b) and 3(c), with respect to each Award of Restricted Shares to Employee, the Restricted Shares subject of such Award shall be forfeited to the Company at no cost to the Company if Employee's employment with the Company or a subsidiary of the Company terminates prior to the termination of the Restricted Period applicable to such Restricted Shares. (b) Upon (i) Employee's termination of employment during the Restricted Period due to death or Disability (as defined below), or (ii) the involuntary termination of Employee's employment with the Company and its subsidiaries by action of the Company (or its subsidiary, if Employee is employed by a subsidiary of the Company) during the Restricted Period for reasons other than Just Cause (as defined below) (each, a "Termination Event"), then, with respect to the Award covered hereby with the earliest Scheduled Termination Date after such Termination Event, (A) a ratable portion of the number of Restricted Shares applicable to such Scheduled Termination Date (the "Next Vested Shares") shall be deemed to have vested as of the date of such Termination Event, determined by multiplying the number of Next Vested Shares by a fraction with a numerator equal to the number of full months which have then elapsed since the last date of termination of a Restricted Period pursuant to this Agreement (or Issue Date in the event that no shares had previously vested) and a denominator equal to the total number of months between the last date of termination of a Restricted Period pursuant to this Agreement (or Issue Date in the event that no shares had previously vested) and the next Scheduled Termination Date under this Agreement, and rounding to the closest whole number, and (B) the Restricted Period applicable to such ratable portion of Next Vested Shares shall terminate. (c) If as a result of any merger or acquisition transaction involving the Company or any transaction involving the issuance or redemption of equity interests in the Company, more than fifty percent (50%) of such equity interests is owned by parties other than those listed on Exhibit B attached hereto (such event is referred to herein as a "Fundamental Change"), then immediately before the consummation of the Fundamental Change, the Restricted Shares shall become fully vested and all Restricted Periods shall terminate. (d) Unless and until Restricted Shares are delivered to Employee upon vesting, such Restricted Shares shall not be sold, assigned, transferred, discounted, exchanged, pledged, or otherwise encumbered or disposed of by Employee in any manner. Transfer of employment without interruption of service between or among the Company and any of its subsidiaries shall not be considered a termination of employment. (e) With respect to each Award of Restricted Shares to Employee, upon the termination of the Restricted Period applicable to such shares, the restrictions applicable to the Restricted Shares that have not theretofore been forfeited shall terminate, and as soon as practicable thereafter a stock certificate for the number of Restricted Shares with respect to which the restrictions have terminated, together with any dividends or other distributions with respect to such shares then being held by the 2 Company pursuant to the provisions of this Agreement, shall be delivered, free of all such restrictions, to Employee or Employee's beneficiary or estate, as the case may be. (f) Notwithstanding anything contained herein to the contrary, the Committee shall have the right to cancel all or any portion of any outstanding restrictions prior to the termination of such restrictions with respect to any or all of the Restricted Shares on such terms and conditions as the Committee may, in writing, deem appropriate. (g) For purposes of this Agreement, the following terms shall have the indicated meanings: Disability: The "Disability" of Employee shall be deemed to have occurred if, in the good faith judgment of the Committee, Employee shall become unable to continue the proper performance of Employee's duties as an employee of the Company or a subsidiary thereof on a full-time basis as a result of Employee's physical or mental incapacity. Just Cause: The term "Just Cause" shall mean any of the following: (i) conduct by Employee that constitutes willful misconduct or gross negligence in the performance of his duties; (ii) conduct by the Employee that constitutes fraud, dishonesty, or a criminal act, whether or not with respect to the Company; (iii) embezzlement of funds or misappropriation of other property by Employee, (iv) any act or conduct by Employee that, in the good faith opinion of the Board of Directors or the President of the Company, is materially detrimental to the Company or reflects unfavorably on the Company or the Employee to such an extent that the Company's best interests reasonably require the Employee's discharge. 4. Rights as Stockholder. Upon the issuance of a certificate or certificates representing any Restricted Shares to Employee, Employee shall become the owner thereof for all purposes and shall have all rights as a stockholder, including voting rights and the right to receive dividends and distributions, with respect to such Restricted Shares, subject to the provisions hereof. If the Company shall pay or declare a dividend or make a distribution of any kind, whether due to a reorganization, recapitalization or otherwise, with respect to the shares of Common Stock constituting Restricted Shares, then the Company shall pay or make such dividend or other distribution with respect to such Restricted Shares; provided, however, that the cash, stock or other securities and other property constituting such dividend or other distribution shall be held by the Company subject to the restrictions applicable to any Restricted Shares until such Restricted Shares with respect to which such dividend or other distribution was paid or made are either vested or forfeited. If any Restricted Shares with respect to which such dividend or distribution was paid or made do not vest but instead are forfeited pursuant to the provisions hereof, then Employee shall not be entitled to receive such dividend or distribution with respect to such forfeited shares and such dividend or distribution with respect to such forfeited shares shall likewise be forfeited and automatically transferred to and reacquired by the Company. If any Restricted Shares with respect to which such dividend or distribution was paid or made become vested pursuant to the provisions hereof, then Employee shall be entitled to receive such dividend or distribution with respect to such vested shares, without interest, and such dividend or distribution with respect to such vested shares shall likewise be delivered to Employee. 3 5. Withholding Taxes. (a) With respect to each Award of shares of Restricted Stock to Employee, Employee may elect, within 30 days of the Issue Date of such shares and on notice to the Company, to realize income for federal income tax purposes equal to the fair market value of the shares on the Issue Date. In such event, Employee shall make arrangements satisfactory to the Compensation Committee to pay in the year of the Award any federal, state, or local taxes required to be withheld with respect to such shares. If Employee fails to make such payments, then any provision of this Agreement to the contrary notwithstanding, the Company and its subsidiaries shall, to the extent permitted by law, have the right to deduct from any payments of any kind otherwise due from the Company or its subsidiaries to or with respect to Employee, whether or not pursuant to this Agreement or the Plan and regardless of the form of payment, any federal, state, or local taxes of any kind required by law to be withheld with respect to such shares. (b) (i) No later than the date of the termination of the restrictions on any of the shares of Restricted Stock covered hereby, Employee will pay to the Company or its subsidiaries, or make arrangements satisfactory to the Compensation Committee regarding payment of, any federal, state, or local taxes of any kind required by law to be withheld with respect to the shares of Restricted Stock with respect to which such restrictions have terminated. (ii) Employee shall, to the extent permitted by law, have the right to deliver to the Company or its subsidiaries shares of Restricted Stock to which Employee shall be entitled upon the vesting thereof (or other unrestricted shares of Common Stock owned by Employee), valued at the fair market value of such shares at the time of such delivery to the Company or its subsidiaries, to satisfy the obligation of Employee under Section 5(b)(i) hereof. (iii) Any provision of this Agreement to the contrary notwithstanding, if Employee does not otherwise satisfy the obligation of Employee under Section 5(b)(i) hereof, then the Company and its subsidiaries shall, to the extent permitted by law, have the right to deduct from any payments of any kind otherwise due from the Company or its subsidiaries to or with respect to Employee, whether or not pursuant to this Agreement or the Plan and regardless of the form of payment, any federal, state, or local taxes of any kind required by law to be withheld with respect to the shares of Restricted Stock with respect to which the restrictions on the Restricted Stock have terminated. 6. Legend. Each certificate representing shares of Restricted Stock covered hereby shall conspicuously set forth on the face or back thereof, in addition to any legends required by applicable law or other agreement, a legend in substantially the following form: 4 THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ASSIGNED AND TRANSFERRED TO THE RECORD HOLDER HEREOF PURSUANT TO THE TERMS OF THE BRIGHAM EXPLORATION COMPANY 1997 INCENTIVE PLAN AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, DISCOUNTED, EXCHANGED, PLEDGED, OR OTHERWISE ENCUMBERED OR DISPOSED OF IN ANY MANNER EXCEPT AS SET FORTH IN THE TERMS OF THE AGREEMENT EMBODYING THE AWARD OF SUCH SHARES DATED OCTOBER 27, 2000. A COPY OF SUCH PLAN AND AGREEMENT IS ON FILE IN THE OFFICES OF THE CORPORATION. 7. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Texas, without regard to the principles of conflicts of laws thereof. 8. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors, and permitted assigns; provided, however, that Employee shall not assign or otherwise transfer this Agreement or any of Employee's rights or obligations hereunder. 9. Entire Agreement; Amendment. This Agreement, together with the exhibits hereto and any other writings referred to herein or delivered pursuant hereto, constitute the entire agreement between the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings, whether written or oral, between the parties with respect to the subject matter hereof. To the fullest extent provided by applicable law, this Agreement may be amended, modified, and supplemented by mutual consent of the parties hereto at any time, with respect to any of the terms contained herein, in such manner as may be agreed upon in writing by such parties. 10. Notices. All notices and other communications hereunder shall be in writing and shall be deemed given: (a) If to the Company, when delivered by hand or on the third business day after being deposited in the United States mail (certified mail with postage prepaid) to: Brigham Exploration Company 6300 Bridge Point Parkway Building 2, Suite 500 Austin, Texas 78730 Attention: Vice President Administration (b) If to Employee, when delivered by hand or on the third business day after being deposited in the United States mail (certified mail with postage prepaid) to the address for Employee contained in the Company's records. 5 Either party may at any time give to the other notice in writing of any change of address of the party giving such notice and from and after the giving of such notice the address or addresses therein specified will be deemed to be the address of such party for the purposes of giving notice hereunder. 11. Counterparts. This Agreement may be executed by the parties hereto in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement. Each counterpart may consist of a number of copies hereof each signed by less than all, but together signed by all, the parties hereto. IN WITNESS WHEREOF, the Company and Employee have executed this Agreement as of the date first above written. BRIGHAM EXPLORATION COMPANY By: /s/ Ben M. Brigham ------------------------------------- Name: Ben M. Brigham ----------------------------------- Title: President ---------------------------------- /s/ [See Schedule I attached] ---------------------------------------- [See Schedule I attached] 6 EXHIBIT A RESTRICTED STOCK AWARDS
Number of Shares of Duration of Restricted Restricted Scheduled Award Stock Issue Date Period Termination Date ----- ---------- ---------- ----------- ---------------- 1. [See Schedule I] October 27, 2000 Commencing on October 27, Midnight on October 26, 2001 2000 and ending at midnight on October 26, 2001 2. [See Schedule I] October 27, 2000 Commencing on October 27, Midnight on October 26, 2002 2000 and ending at midnight on October 26, 2002 3. [See Schedule I] October 27, 2000 Commencing on October 27, Midnight on October 26, 2003 2000 and ending at midnight on October 26, 2003 4. [See Schedule I] October 27, 2000 Commencing on October 27, Midnight on October 26, 2004 2000 and ending at midnight on October 26, 2004
EXHIBIT B BRIGHAM EXPLORATION COMPANY, A Delaware corporation BRIGHAM OIL & GAS, L.P., A Delaware limited partnership BRIGHAM, INC. (f/k/a Brigham Exploration Company), a Nevada corporation GENERAL ATLANTIC PARTNERS III, L.P., a Delaware limited partnership GAP-BRIGHAM PARTNERS, L.P., a Delaware limited partnership BEN M. BRIGHAM ANNE L. BRIGHAM HAROLD D. CARTER RIMCO PARTNERS, L.P. II RIMCO PARTNERS, L.P. III RIMCO PARTNERS, L.P. IV SCHEDULE I Name of Employee Award 1 Award 2 Award 4 Award 5 - ---------------- ------- ------- ------- ------- David T. Brigham 15,664 15,663 15,663 15,663 Alan Lance Langford 14,873 14,873 14,873 14,872 Karen E. Lynch 5,000 5,000 5,000 5,000 EX-21 11 0011.txt SUBSIDIARIES Exhibit 21 SUBSIDIARIES Brigham Oil & Gas, L.P., a Delaware limited partnership EX-23.1 12 0012.txt CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-85435 and 333-37558) and Form S-8 (Nos. 333-56961 and 333-70137) of Brigham Exploration Company of our report dated February 23, 2001, which appears on page F1-2 of this Form 10-K. /s/ PricewaterhouseCoopers LLP - ----------------------------------- PricewaterhouseCoopers LLP Dallas, Texas March 22, 2001 EX-23.2 13 0013.txt CONSENT OF INDEPENDENT PETROLEUM CONSULTANTS Exhibit 23.2 CONSENT OF INDEPENDENT PETROLEUM CONSULTANTS As independent petroleum consultants, we hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-85435 and 333-37558) and Form S-8 (Nos. 333-56961 and 333-70137) of Brigham Exploration Company of our estimates of reserves, included in this Annual Report on Form 10-K, and to all references to our firm included in this Annual Report. /s/ CAWLEY, GILLESPIE & ASSOCIATES, INC. - ---------------------------------------- CAWLEY, GILLESPIE & ASSOCIATES, INC. Fort Worth, Texas March 22, 2001 -----END PRIVACY-ENHANCED MESSAGE-----