-----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, T955cU4DsArDQd6YjgDOXHC+NGr8MZzUP4/unlHkDx4flOtjOb6gknuMWEG10zcM y0MZuGgQNoOYNT12fPUIBw== 0000950134-99-002978.txt : 19990416 0000950134-99-002978.hdr.sgml : 19990416 ACCESSION NUMBER: 0000950134-99-002978 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990415 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/A SEC ACT: SEC FILE NUMBER: 000-22433 FILM NUMBER: 99594701 BUSINESS ADDRESS: STREET 1: 6300 BRIDGE POINT PARKWAY STREET 2: BUILDING TWO, SUITE 500 CITY: AUSTIN STATE: TX ZIP: 78730 BUSINESS PHONE: 512-427-3300 MAIL ADDRESS: STREET 1: 6300 BRIDGE POINT PARKWAY STREET 2: BUILDING TWO, SUITE 500 CITY: AUSTIN STATE: TX ZIP: 78730 10-K/A 1 AMENDMENT NO. 1 TO FORM 10-K - FISCAL END 12/31/98 1 The following items were the subject of a Form 12b-25 and are included herein: (1) financial statements of the Registrant's subsidiaries whose securities are pledged as collateral for the Registrant's Senior Subordinated Secured Notes and (2) the exhibits filed herewith. ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------- FORM 10-K/A AMENDMENT NO. 1 ------------------------- (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, 1998 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 75-2692967 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6300 BRIDGE POINT PARKWAY BUILDING 2, SUITE 500 78730 AUSTIN, TEXAS (Zip Code) (Address of principal executive offices) (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 April 13, 1999, the Registrant had outstanding 14,309,071 shares of Common Stock. 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 April 13, 1999, as reported on The Nasdaq Stock Market(sm), was approximately $35.8 million. DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive proxy statement for the Registrant's 1999 Annual Meeting of Stockholders to be held on May 13, 1999, 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, 1998. ================================================================================ 2 Item 14 of Brigham Exploration Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 is hereby amended in order to file the following items which were the subject of a Form 12b-25 and were omitted from the Company's Form 10-K as filed with the Securities and Exchange Commission on March 31, 1999: (1) financial statements of the Registrant's subsidiaries whose securities are pledged as collateral for the Registrant's Senior Subordinated Secured Notes and (2) the exhibits (other than 23.1) filed herewith. Item 14 is set forth herein in its entirety, as amended. TABLE OF CONTENTS
PAGE ---- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K....................................1 SIGNATURES...................................................................................................7 INDEX TO FINANCIAL STATEMENTS.............................................................................F1-1
- i - 3 BRIGHAM EXPLORATION COMPANY 1998 ANNUAL REPORT ON FORM 10-K PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements: See Index to Financial Statements on page F1-1. 2. Financial Statement Schedules: See Index to Financial Statements on page F1-1. 3. 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). 3.2 -- 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+ -- Indenture dated as of August 20, 1998 between Brigham Exploration Company and Chase Bank of Texas, National Association, as Trustee. 4.2.1++ -- Supplemental Indenture dated as of March 26, 1999 between Brigham Exploration Company and Chase Bank of Texas, National Association, as Trustee. 4.3++ -- Form of Warrant Certificate. 4.4 -- Form of Senior Subordinated Secured Note due 2003 (filed as Exhibit 4.4 to the Company's Registration Statement on Form S-1 (Registration No. 333-53873), and incorporated herein by reference). 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
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Number Description - ------ ----------- 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. 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). 10.6* -- 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 (filed as Exhibit 10.9 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.8.1* -- 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* -- Option Agreement dated as of March 4, 1997, by and between Brigham Exploration Company and Jon L. Glass (filed as Exhibit 10.9.2 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.9* -- 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.
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Number Description - ------ ----------- (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). 10.11 -- 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
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Number Description - ------ ----------- 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).
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Number Description - ------ ----------- 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). 10.32 -- 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. 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. 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
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Number Description - ------ ----------- 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. 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. 10.38+ -- Securities Purchase Agreement dated as of August 20, 1998 among Brigham Exploration Company, Enron Capital & Trade Resources Corp. and Joint Energy Development Investments II Limited Partnership. 10.39+ -- Registration Rights Agreement dated as of August 20, 1998, by and among Brigham Exploration Company, Enron Capital & Trade Resources Corp. and Joint Energy Development Investments II Limited Partnership. 10.39.1++ -- Amendment to Registration Rights Agreement dated as of March 26, 1999, by and among Brigham Exploration Company, Enron Capital & Trade Resources Corp., ECT Merchant Investments Corp. and Joint Energy Development Investments II Limited Partnership. 10.40+ -- Form of Guaranty for subsidiaries. 10.41++ -- Exchange Agreement dated as of March 30, 1999 by and between Brigham Exploration Company and Veritas DGC Land, Inc. 10.42++ -- Registration Rights Agreement dated as of March 30, 1999 by and between Brigham Exploration Company and Veritas DGC Land, Inc. 21+ -- Subsidiaries of the Registrant. 23.1++ -- Consent of Pricewaterhouse Coopers LLP, independent public accountants. 23.2+ -- Consent of Cawley, Gillespie & Associates, Inc., independent petroleum engineers. 27+ -- Financial Data Schedule.
- ---------- * Management contract or compensatory plan. + Previously filed ++ Filed herewith. (b) The following reports on Form 8-K were filed by the Company during the last quarter of the period covered by this Annual Report on Form 10-K: None. - 6 - 9 SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this amendment to be signed on its behalf by the undersigned, hereunder duly authorized, as of April 15, 1999. BRIGHAM EXPLORATION COMPANY By: /s/ Ben M. Brigham ------------------------------------- Ben M. Brigham Chief Executive Officer and President - 7 - 10 INDEX TO FINANCIAL STATEMENTS
PAGE ---- Financial Statements of Brigham Exploration Company Report of Independent Accountants............................................................. F1-2 Consolidated Balance Sheets as of December 31, 1998 and 1997.................................. F1-3 Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997, and 1996.......................................................... F1-4 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1998, 1997, and 1996.......................................................... F1-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997, and 1996.......................................................... F1-6 Notes to the Consolidated Financial Statements................................................ F1-7 Financial Statements of Brigham Exploration Company Subsidiaries Report of Independent Accountants............................................................. F2-1 Balance Sheets as of December 31, 1998........................................................ F2-2 Balance Sheets as of December 31, 1997........................................................ F2-3 Statements of Operations for the Year Ended December 31, 1998................................. F2-4 Statements of Operations for the Year Ended December 31, 1997................................. F2-5 Statements of Equity for the Year Ended December 31, 1998..................................... F2-6 Statements of Equity for the Year Ended December 31, 1997..................................... F2-7 Statements of Cash Flows for the Year Ended December 31, 1998................................. F2-8 Statements of Cash Flows for the Year Ended December 31, 1997................................. F2-9 Notes to the Financial Statements............................................................. F2-10
As all Brigham Exploration Company subsidiaries fully and unconditionally guarantee the Senior Subordinated Secured Notes and the Company has no significant assets other than its investments in its subsidiaries, the consolidated financial statements are substantially the same as the financial statements of the subsidiary guarantors and separate financial statements have been omitted as they would not be meaningful to investors. Financial statements for the wholly owned subsidiaries whose securities are pledged as collateral for the Senior Subordinated Notes are included in the Financial Statements of Brigham Exploration Company Subsidiaries. The financial statements for Brigham Oil & Gas L.P. for the year ended December 31, 1996, whose partnerhsip interests are pledged as collateral for the Notes, are substantially the same as those presented in the Consolidated Financial Statements of Brigham Exploration Company. F1-1 11 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 and changes in stockholders' equity and of cash flows, after the restatement discussed in Note 12, present fairly, in all material respects, the financial position of Brigham Exploration Company and its subsidiaries at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Houston, Texas March 30, 1999 F1-2 12 BRIGHAM EXPLORATION COMPANY CONSOLIDATED BALANCE SHEETS (in thousands)
December 31, -------------------- 1998 1997 -------- -------- ASSETS Current assets: Cash and cash equivalents $ 2,569 $ 1,701 Accounts receivable 7,938 4,909 Prepaid expenses 290 280 -------- -------- Total current assets 10,797 6,890 -------- -------- Natural gas and oil properties, at cost, net 134,317 84,294 Other property and equipment, at cost, net 2,014 1,239 Drilling advances paid 230 78 Other noncurrent assets 3,158 18 -------- -------- $150,516 $ 92,519 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 19,883 $ 11,892 Accrued drilling costs 1,219 2,406 Participant advances received 764 489 Other current liabilities 1,647 726 -------- -------- Total current liabilities 23,513 15,513 -------- -------- Notes payable 59,000 32,000 Senior subordinated notes, net 35,786 -- Other noncurrent liabilities 7,536 507 Deferred income tax liability -- 1,186 Stockholders' equity: Preferred stock, $.01 par value, 10 million shares authorized, none issued and outstanding -- -- Common stock, $.01 par value, 30 million shares authorized, 13,306,206 and 12,253,574 issued and outstanding at December 31, 1998 and 1997, respectively 133 123 Additional paid-in capital 58,838 44,919 Unearned stock compensation (890) (1,674) Accumulated deficit (33,400) (55) -------- -------- Total stockholders' equity 24,681 43,313 -------- -------- $150,516 $ 92,519 ======== ========
The Company uses the full cost method to account for its natural gas and oil properties. See accompanying notes to the consolidated financial statements. F1-3 13 BRIGHAM EXPLORATION COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
Year Ended December 31, ---------------------------------- 1998 1997 1996 ---------- -------- -------- Revenues: Natural gas and oil sales $ 13,799 $ 9,184 $ 6,141 Workstation revenue 390 637 627 ---------- -------- -------- 14,189 9,821 6,768 ---------- -------- -------- Costs and expenses: Lease operating 2,172 1,151 726 Production taxes 850 549 362 General and administrative 4,672 3,570 2,199 Depletion of natural gas and oil properties 8,410 2,743 2,323 Depreciation and amortization 413 306 487 Capitalized ceiling impairment 24,847 -- -- Amortization of stock compensation 372 388 -- ---------- -------- -------- 41,736 8,707 6,097 ---------- -------- -------- Operating income (loss) (27,547) 1,114 671 ---------- -------- -------- Other income (expense): Interest income 136 145 52 Interest expense (7,120) (1,017) (373) Interest expense - related party -- (173) (800) ---------- -------- -------- (6,984) (1,045) (1,121) ---------- -------- -------- Net income (loss) before income taxes (34,531) 69 (450) Income tax benefit (expense) 1,186 (1,186) -- ---------- -------- -------- Net loss $ (33,345) (1,117) $ (450) ========== ======== ======== Net loss per share: Basic/Diluted $ (2.64) $ (0.10) $ (0.05) Common shares outstanding: Basic/Diluted 12,626 11,081 8,929 Unaudited pro forma information (Notes 1 and 2) Net loss $ (450) Pro forma Exchange adjustments 275 -------- Pro forma net loss before income taxes (175) Pro forma income tax benefit 147 -------- Pro forma net loss $ (28) ======== Pro forma net loss per basic/diluted common share $ (0.00) Pro forma weighted average number of common basic/diluted shares outstanding 9,170
See accompanying notes to the consolidated financial statements. F1-4 14 BRIGHAM EXPLORATION COMPANY CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (in thousands)
Common Stock Additional Unearned ---------------------- Paid-in Stock Accumulated Predecessor Shares Amounts Capital Compensation Deficit Capital Total ---------- --------- ---------- ------------ -------------- ------------- ------- Balance, December 31, 1995 -- $ -- $ -- $ -- $ -- $ 3,694 $ 3,694 Net loss -- -- -- -- -- (450) (450) ---------- --------- ---------- ------------ ------------ ------------- ------- Balance, December 31, 1996 -- -- -- -- -- 3,244 3,244 Consummation of the Exchange 8,928,574 90 19,580 -- -- (3,244) 16,426 Issuance of stock options -- -- 2,576 (2,576) -- -- -- Forfeiture of stock options -- -- (69) 69 -- -- -- Issuance of common stock 3,325,000 33 23,894 -- -- -- 23,927 Net loss for period ended February 27, 1997 -- -- (4,869) -- -- -- (4,869) Net income for period from February 27, 1997 to Dec. 31, 1997 -- -- 3,807 -- (55) -- 3,752 Amortization of unearned stock compensation -- -- -- 833 -- -- 833 ---------- --------- ---------- ----------- ------------ ------------- ------- Balance, December 31, 1997 12,253,574 123 44,919 (1,674) (55) -- 43,313 Net loss -- -- -- -- (33,345) -- (33,345) Issuance of common stock 1,052,632 10 9,419 -- -- -- 9,429 Issuance of warrants -- -- 4,500 -- -- -- 4,500 Amortization of unearned stock compensation -- -- -- 784 -- -- 784 ----------- ---------- ---------- ----------- ------------ ------------- ------- Balance, December 31, 1998 13,306,206 $ 133 $ 58,838 $ (890) $ (33,400) $ -- $24,681 =========== ========= ========== =========== ============ ============= =======
See accompanying notes to the consolidated financial statements. F1-5 15 BRIGHAM EXPLORATION COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Year ended December 31, ----------------------------------- 1998 1997 1996 --------- --------- --------- Cash flows from operating activities: Net loss $ (33,345) $ (1,117) $ (450) Adjustments to reconcile net loss to cash provided by operating activities: Depletion of natural gas and oil properties 8,410 2,743 2,323 Depreciation and amortization 413 306 487 Capitalized ceiling impairment 24,847 -- -- Amortization of stock compensation 372 388 -- Amortization of deferred loan fees and debt issuance costs 726 -- -- Amortization of discount on senior subordinated notes 286 -- -- Changes in working capital and other items: Increase in accounts receivable (3,029) (2,213) (1,440) (Increase) decrease in prepaid expenses (10) (128) 25 Increase in accounts payable 7,991 8,955 1,619 Increase (decrease) in participant advances received 275 (648) 804 Increase in interest payable on senior subordinated notes 507 -- -- Increase in other current liabilities 355 50 60 Increase in deferred interest payable - related party -- 53 320 Increase (decrease) in deferred income tax liability (1,186) 1,186 -- Other noncurrent assets 6 281 (224) Other noncurrent liabilities 7,004 (50) 186 --------- --------- --------- Net cash provided by operating activities 13,622 9,806 3,710 --------- --------- --------- Cash flows from investing activities: Additions to natural gas and oil properties (84,055) (57,170) (13,612) Proceeds from the sale of natural gas and oil properties -- 74 2,149 Additions to other property and equipment (868) (545) (41) (Increase) decrease in drilling advances paid (152) 341 (292) --------- --------- --------- Net cash used by investing activities (85,075) (57,300) (11,796) --------- --------- --------- Cash flows from financing activities: Proceeds from issuance of common stock 9,429 23,927 -- Proceeds from issuance of senior subordinated notes payable and warrants 40,000 -- -- Increase in notes payable 105,800 37,250 8,000 Repayment of notes payable (78,800) (13,250) -- Principal payments on capital lease obligations (236) (179) (269) Deferred loan fees and debt issuance costs (3,872) -- -- --------- --------- --------- Net cash provided by financing activities 72,321 47,748 7,731 --------- --------- --------- Net increase (decrease) in cash and cash equivalents 868 254 (355) Cash and cash equivalents, beginning of year 1,701 1,447 1,802 --------- --------- --------- Cash and cash equivalents, end of year $ 2,569 $ 1,701 $ 1,447 ========= ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest $ 5,490 $ 1,679 $ 762 ========= ========= ========= Supplemental disclosure of noncash investing and financing activities: Capital lease asset additions $ 320 $ 403 $ 101 ========= ========= =========
See accompanying notes to the consolidated financial statements. F1-6 16 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND NATURE OF OPERATIONS Brigham Exploration Company is a Delaware corporation formed on February 25, 1997 for the purpose of exchanging its common stock for the common stock of Brigham, Inc. and the partnership interests of Brigham Oil & Gas, L.P. (the "Partnership"). Hereinafter, Brigham Exploration Company and the Partnership are collectively referred to as "the Company." Brigham, Inc. is a Nevada corporation whose only asset is its ownership interest in the Partnership. The Partnership was formed in May 1992 to explore and develop onshore domestic natural gas and oil properties using 3-D seismic imaging and other advanced technologies. Since its inception, the Partnership has focused its exploration and development of natural gas and oil properties primarily in 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. The Exchange has been reflected in the consolidated financial statements of the Company as a reorganization. Principles of Consolidation The accompanying financial statements include the accounts of the Company and its wholly-owned subsidiaries, and its proportionate share of assets, liabilities and income and expenses of the limited partnerships in which the Company, or any of its subsidiaries has a participating interest. All significant intercompany accounts and transactions have been eliminated. F1-7 17 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 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. Property and Equipment The Company uses the full cost method of accounting for its investment in natural gas and oil properties. Under this method, all acquisition, exploration and development costs, including certain payroll and other internal costs, incurred for the purpose of finding natural gas and oil reserves are capitalized. 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. The capitalized costs of the Company's natural gas and oil properties plus future development, dismantlement, restoration and abandonment costs (the "Amortizable Base"), net of estimated of salvage values, are amortized using the unit-of-production method based upon estimates of total proved reserve quantities. The Company's capitalized costs of its natural gas and oil properties, net of accumulated amortization, are limited to the total of estimated future net cash flows from proved natural gas and oil reserves, discounted at ten percent, plus the cost of unevaluated properties. There are many factors, including global events, that may influence the production, processing, marketing and valuation of natural gas and oil. A reduction in the valuation of natural gas and oil properties resulting from declining prices or production could adversely impact depletion rates and capitalized cost limitations. All costs directly associated with the acquisition and evaluation of unproved properties are initially excluded from the Amortizable Base. Upon the interpretation by the Company of the 3-D seismic data associated with unproved properties, the geological and geophysical costs related to acreage that is not specifically identified as prospective are added to the Amortizable Base. Geological and geophysical costs associated with prospective acreage, as well as leasehold costs, are added to the Amortizable Base when the prospects are drilled. Costs of prospective acreage are reviewed annually for impairment on a property-by-property basis. At December 31, 1998, a capitalized ceiling impairment of $24.8 million was recognized. The write down was calculated based on the estimated discounted present value of future net cash flows from proved natural gas and oil reserves using prices in effect at December 31, 1998. 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
F1-8 18 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Betterments and major improvements that extend the useful lives are capitalized, while expenditures for repairs and maintenance of a minor nature are expensed as incurred. Revenue Recognition The Company recognizes natural gas and oil sales from its interests in producing wells under the sales method of accounting. Under the sales method, the Company recognizes revenues based on the amount of natural gas or oil sold to purchasers, which may differ from the amounts to which the Company is entitled based on its interest in the properties. Gas balancing obligations as of December 31, 1996, 1997 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. Derivative Instruments Net realized gains or losses and related cash flows arising from the Company's commodity price swaps (see Note 11) are recognized in the period incurred as a component of natural gas and oil sales. If subsequent to being hedged, underlying transactions are determined not to be likely to occur, the related derivatives gains and losses are recognized in that period as "Other income." Stock Based Compensation The Company measures compensation expense for its stock based incentive plan using the intrinsic value method and has provided in Note 12 the pro forma disclosure of the effect on net loss and net loss per common share as if the fair value based method prescribed by Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock Based Compensation," had been applied in measuring compensation expense. Federal and State Income Taxes Prior to the consummation of the Exchange, there was no income tax provision included in the financial statements as the Partnership was not a taxpaying entity. Income and losses were passed through to its partners on the basis of the allocation provisions established by the partnership agreement. Upon consummation of the Exchange, the Partnership became subject to federal income taxes through its ownership by the Company. In conjunction with the Exchange, the Company recorded a deferred income tax liability of $5 million to recognize the temporary differences between the financial statement and tax bases of the assets and liabilities of the Partnership at the Exchange date, February 27, 1997, given the provisions of enacted tax laws. Subsequent to this date, the Company elected to record a step-up in basis of its assets for tax purposes as a result of the Exchange. Related to this election, the Company recorded a $3.8 million deferred income tax benefit, resulting in a net $1.2 million deferred income tax charge for the year ended December 31, 1997. F1-9 19 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Unaudited Pro Forma Information Pro forma net loss for the year ended December 31, 1996 reflects the Exchange, including income taxes that would have been recorded had the Partnership been a taxable entity. Pro forma exchange adjustments primarily represent the amortization of the compensation expense related to employee stock options granted upon the formation of the Company (see Note 12), and the reduction of interest expense related to the elimination of debt as part of the Exchange. Pro forma income taxes have been included in the Statement of Operations pursuant to the rules and regulations of the SEC for instances when a partnership becomes subject to federal income taxes. Comprehensive Income In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." The standard, which was effective for financial statements issued for periods ending after December 15, 1997, established standards for reporting, in addition to net income, comprehensive income and its components including, as applicable, foreign currency items, minimum pension liability adjustments and unrealized gains and losses on certain investments in debt and equity securities. Adoption of this Standard has no impact on the Company's financial statements. Recent Pronouncements In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, depending on the type of hedge transaction. For fair value hedge transactions in which the Company is hedging changes in an asset's, liability's, or firm commitment's fair value, changes in the fair value of the derivative instrument will generally be offset in the income statement by changes in the hedged item's fair value. For cash flow hedge transactions in which the Company is hedging the variability of cash flows related to a variable-rate asset, liability, or a forecasted transaction, changes in the fair value of the derivative instrument will be reported in other comprehensive income. The gains and losses on the derivative instrument that are reported in other comprehensive income will be reclassified as earnings in the periods in which earnings are impacted by the variability of the cash flows of the hedged item. The ineffective portion of all hedges will be recognized in current period earnings. The Company must adopt SFAS No. 133 effective January 1, 2000. The Company is in the process of analyzing the potential impact of this standard on its financial statements presentation. 3. ACQUISITION On November 12, 1997, the Company acquired a 50% interest in certain producing properties in Grady County, Oklahoma (the "Acquisition"). These properties were formerly owned by Mobil and were acquired by Ward Petroleum. The acquisition was accounted for as a purchase and the results of operations of the properties acquired were included in the Company's results of operations effective September 1, 1997. The purchase price of $13.4 million was financed primarily through the Company's existing revolving credit facility and was based on the Company's determination of the fair value of the assets acquired. F1-10 20 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Pro Forma Information The following unaudited pro forma statement of operations information has been prepared to give effect to the Acquisition as if the transaction had occurred at the beginning of 1996 and 1997. The historical results of operations have been adjusted to reflect (i) the difference between the acquired properties' historical depletion and such expense calculated based on the value allocated to the acquired assets, (ii) the increase in interest expense associated with the debt issued in the transaction, and (iii) the increase in federal income taxes related to historical net income attributable to the properties acquired. The pro forma amounts do not purport to be indicative of the results of operations that would have been reported had the Acquisition occurred as of the dates indicated, or that may be reported in the future (in thousands).
PRO FORMA YEAR ENDED DECEMBER 31, ------------------- 1997 1996 -------- ------- Revenues.......................................................................... $ 11,194 $ 8,516 Costs and expenses: Lease operating and production taxes ....................................... 1,864 1,300 General and administrative ................................................. 3,570 2,199 Depletion of natural gas and oil properties ................................ 3,307 2,791 Depreciation and amortization .............................................. 593 487 Interest expense, net ...................................................... 2,235 2,355 -------- ------- Total costs and expenses ................................................... 11,569 9,132 -------- ------- Net loss before income taxes ..................................................... (375) (616) Income tax expense ......................................................... 1,035 -- -------- ------- Net loss......................................................................... $ (1,410) $ (616) ======== ======= Net loss per share: Basic/Diluted.............................................................. $ (0.13) $ (0.07) ======== ======= Common shares outstanding: Basic/Diluted .............................................................. 11,081 8,929 ======== =======
4. PROPERTY AND EQUIPMENT Property and equipment, at cost, are summarized as follows (in thousands):
DECEMBER 31, ---------------------------- 1998 1997 ------------ ------------ Natural gas and oil properties.................................... $ 179,867 $ 96,587 Accumulated depletion............................................. (45,550) (12,293) ------------ ------------ 134,317 84,294 ------------ ------------ Other property and equipment: 3-D seismic interpretation workstations and software.......... 2,186 1,693 Office furniture and equipment................................ 1,774 1,095 Accumulated depreciation...................................... (1,946) (1,549) ------------ ------------ 2,014 1,239 ------------ ------------ $ 136,331 $ 85,533 ============ ============
F1-11 21 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) The accumulated depletion balance for natural gas and oil properties at December 31, 1998, includes the effect of a capitalized ceiling impairment of $24.8 million described at Note 2, "Property and Equipment." The Company sold its interest in certain producing properties for $74,000 during 1997. No gain or loss was recognized on this transaction because the Company applies the full cost method of accounting for its investment in natural gas and oil properties. The Company capitalizes certain payroll and other internal costs directly attributable to acquisition, exploration and development activities as part of its investment in natural gas and oil properties over the periods benefited by these activities. Capitalized costs do not include any costs related to production, general corporate overhead, or similar activities. During the years ended December 31, 1996, 1997 and 1998, these capitalized costs amounted to $1.8 million, $3.5 million and $4.6 million, respectively. 5. NOTES PAYABLE AND SENIOR SUBORDINATED NOTES PAYABLE In April 1996, the Company entered into a revolving credit facility which provided for borrowings up to $25 million. On November 10, 1997, this facility was amended and the amount available under the agreement was increased to $75 million. The Company's borrowings under this facility were limited to a borrowing base determined periodically by the lender. This determination was based upon the proved reserves of the Company's natural gas and oil properties. The amounts outstanding under this facility, excluding a $5.4 million special advance made November 12, 1997, bore interest, at the borrower's option, at the Base Rate or (i) LIBOR plus 1.75% if the principal outstanding was less than or equal to 50% of the borrowing base, (ii) LIBOR plus 2.0% if the principal outstanding was less than or equal to 75% but more than 50% of the borrowing base, and (iii) LIBOR plus 2.25% if the principal outstanding was greater than 75% of the borrowing base. The Base Rate is the fluctuating rate of interest per annum established from time to time by the lender. Interest accrued on the $5.4 million special advance at 11.50% per annum. The Company also paid a quarterly commitment fee of 0.5% per annum for the unused portion of the borrowing base. In January 1998, the Company entered into a new reserve-based revolving credit facility (the "Credit Facility"). The Credit Facility originally provided for borrowings up to $75 million, all of which was immediately available for borrowing to fund capital expenditures. A portion of the funds available under the Credit Facility were used to repay in full the debt outstanding under the Company's previous revolving credit facility. Principal outstanding under the Credit Facility is due at maturity on January 26, 2001 with interest due monthly for base rate tranches or periodically as LIBOR tranches mature. Amounts outstanding under the Credit Facility bore interest at either the lender's Base Rate or LIBOR plus 2.25%, at the Company's option. The Credit Facility contains covenants restricting the Company's ability to declare or pay dividends on its stock. 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's borrowing base was reduced to $65 million upon issuance of the senior subordinated notes in August 1998. F1-12 22 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) In March 1999, the Company and its lenders entered into an amendment to the Credit Facility. Pursuant to this amendment, the borrowing availability under the Credit Facility remains at $65 million and the initial borrowing availability redetermination date was extended from January 31, 1999 to June 1, 1999, when the borrowing availability will be redetermined by the lenders based on the Company's then proved reserve value and cash flows. To the extent that the amounts outstanding under the Credit Facility exceed the borrowing availability at the redetermination date, the Company may be required to repay such excess under provision of the amendment. In addition, certain financial covenants have been amended, additional covenants have been included that place significant restrictions on the Company's ability to make certain capital expenditures, and the annual interest rate for borrowings under the Credit Facility is revised to the lender's base rate or LIBOR plus 3.0% and the Company will pay the lender a $500,000 transaction fee over a ten month period. The Company's obligations under the Credit Facility are secured by substantially all of the natural gas and oil properties and other tangible assets of the Company. In August 1998, upon the filing of a registration statement with the SEC, the Company issued $50 million of debt and equity securities to two affiliated institutional investors. The financing transaction consisted of the issuance of $40 million of senior subordinated secured notes (the "Notes") 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 Notes and common stock of the Company generated proceeds, net of offering costs, of approximately $47.5 million that was used to repay a portion of the then outstanding borrowings under the Company's Credit Facility. The Notes mature in August 2003, with no principal payments required until maturity and quarterly interest payments payable either in cash at an annual rate of 12% or, in limited circumstances, the issuance of additional notes at an annual interest rate of 13% for the first three years. The Company may repay the Notes in full without premium at any time prior to maturity. The indenture governing the Notes contains certain covenants including, but not limited to, limitations or restrictions on indebtedness, distributions, affiliate transactions, liens and sale and leaseback transactions. The indenture prohibits 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 Notes. The Notes are fully and unconditionally guaranteed, on a joint and several basis, by each of the Company's subsidiaries (the "Subsidiary Guarantors"), all of which are directly or indirectly wholly-owned by the Company. The obligations of the Subsidiary Guarantors under the subsidiary guaranty agreements are subordinated to the senior indebtedness of the Subsidiary Guarantors. The assets of the parent, Brigham Exploration Company, consist solely of investments in its subsidiaries. Concurrent with the issuance of the Notes, the Company recorded a discount on the Notes of $4.5 million to reflect the estimated value of the Warrants. Also in connection with the issuance of the Notes, certain fees and expenses totaling approximately $1.8 million were recorded as deferred costs. The Note discount and deferred fees are amortized over the five year term of the Notes. In March 1999, the indenture governing the Notes was amended to provide the Company with the option to pay interest due on the Notes in kind, for any reason, through the second quarter of 2000. In addition, certain financial and other covenants were amended. The amendment also provides for a reduction in the exercise price per share of the Warrants from $10.45 per share to $3.50 per share. F1-13 23 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 6. CAPITAL LEASE OBLIGATIONS Property under capital leases consists of the following (in thousands):
DECEMBER 31, -------------------- 1998 1997 -------- -------- 3-D seismic interpretation workstations and software....................... $ 620 $ 497 Office furniture and equipment............................................. 167 204 -------- -------- 787 701 Accumulated depreciation and amortization.................................. (276) (241) -------- -------- $ 511 $ 460 ======== ========
The obligations under capital leases are at fixed interest rates ranging from 8.7% 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, 1998 are as follows (in thousands): 1999............................................................................................. $ 323 2000............................................................................................. 237 2001............................................................................................. 95 2002............................................................................................. 24 ------ Total minimum lease payments..................................................................... 679 Estimated executory costs included in capital leases......................................... (50) ------ Net minimum lease payments....................................................................... 629 Amounts representing interest................................................................ (90) ------ Present value of net minimum lease payments...................................................... 539 Less: current portion........................................................................... (240) ------ Noncurrent portion............................................................................... $ 299 ======
7. INCOME TAXES The provision for income taxes consists of the following (in thousands):
YEAR ENDED DECEMBER 31, ---------------------------- 1998 1997 ------------ ------------ Current income taxes: Federal...................................................................... $ -- $ -- State........................................................................ -- -- Deferred income taxes: Federal ..................................................................... (1,186) 1,186 State........................................................................ -- -- ------------ ------------ $ (1,186) $ 1,186 ============ ============
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): F1-14 24 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
YEAR ENDED DECEMBER 31, ---------------------------- 1998 1997 ------------ ------------ Tax at statutory rate............................................................ $ (11,740) $ 23 Add (deduct) the effect of: January and February 1997 income, not taxable................................ -- (44) Tax effect of Exchange....................................................... -- 1,193 Nondeductible expenses ...................................................... 10 14 Valuation reserve............................................................ 10,544 -- ------------- ------------ $ (1,186) $ 1,186 ============= ============
The components of deferred income tax assets and liabilities are as follows (in thousands):
DECEMBER 31, --------------------------- 1998 1997 ----------- ------------ Deferred tax assets: Net operating loss carryforwards.............................................. $ 11,219 $ 5,563 Amortization of stock compensation............................................ 258 132 Other......................................................................... 3 3 ----------- ------------ 11,480 5,698 Deferred tax liability: Depreciable and depletable property........................................... (936) (6,884) Valuation reserve............................................................. (10,544) -- ----------- ------------ $ -- $ (1,186) =========== ============
At December 31, 1998, the Company had regular and alternative minimum tax net operating loss carryforwards of approximately $32.9 million and $23.7 million, respectively, each including separate return limitation year carryovers of approximately $1.2 million, which expire by December 31, 2018. 8. NET INCOME (LOSS) PER SHARE Net income (loss) per share is presented in the consolidated financial statements based on a basic EPS calculation as well as a diluted EPS calculation. Basic EPS is computed by dividing net income (loss) applicable to common shareholders by the weighted average number of common shares outstanding during each period. Diluted EPS is computed by dividing net income (loss) applicable to common shareholders by the weighted average number of common shares and common share equivalents outstanding (if dilutive), during each period. The number of common share equivalents outstanding is computed using the treasury stock method. Historical net loss per common share for 1996 is based on shares issued upon consummation of the Exchange, assuming such shares has been outstanding for all periods presented. Net loss per share for 1997 is presented giving effect to the shares issued pursuant to the Exchange as well as shares issued in the initial public offering. At December 31, 1997 and 1998, options and warrants to purchase 628,737 and 1,194,654, respectively, shares of common stock were outstanding but were not included in the computation of diluted EPS due to the anti-dilutive effect they would have on EPS if converted. F1-15 25 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 9. 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, 1998, 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. 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, 1998, are as follows (in thousands): 1999........................................................ $ 868 2000........................................................ 790 2001........................................................ 789 2002........................................................ 395 ------------ $ 2,842 ============
Rental expense for the years ended December 31, 1996, 1997 and 1998 was $253,112, $606,173 and $875,150, respectively. Factors Which May Affect Future Operations Since the Company's major products are commodities, significant changes in the prices of natural gas and oil could have a significant impact on the Company's results of operations for any particular year. Due to an expectation for continuing difficult industry and capital markets conditions, the Company has substantially reduced its planned capital budget for 1999 and has undertaken a number of strategic initiatives in an effort to improve and preserve its capital liquidity in the current environment. The Company has adapted its business strategy in the near-term through the implementation of the following principal strategic initiatives: (i) focusing all of the Company's planned exploration efforts in 1999 towards the drilling of its highest grade 3-D prospects, (ii) eliminating substantially all planned seismic and land expenditures for new projects until its capital resources can support such additional activity, (iii) seeking to divest certain producing natural gas and oil properties in an effort to raise capital to reduce debt borrowings and to redirect capital to drilling projects that have the potential to generate higher investment returns, (iv) restructuring its outstanding senior and subordinated debt agreements to provide the Company with flexibility needed to preserve cash flow to fund its expected near-term exploration activities, (v) implementing an overhead F1-16 26 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) reduction plan to reduce annual general and administrative expenses, and (vi) evaluating opportunities to raise additional equity capital either through the sales of interests in certain of its seismic projects or the issuance of equity securities. The Company believes that the successful execution of these strategic initiatives will provide it with sufficient capital resources to execute its planned 1999 exploration program and position it to realize the significant value it believes it has captured in its inventory of 3-D seismic projects and delineated drilling locations. While the Company has initiated each of these strategic directives in late 1998 and early 1999, and has effected certain of them to date, the successful completion of any or all of these efforts to improve the Company's capital availability within the expected time frame is uncertain and will likely have a material impact on the Company's near-term capital expenditure levels and growth profile. 10. SEGMENT INFORMATION In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which the Company adopted in the first quarter of 1998. The statement supersedes SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise," replacing the "industry segment" approach with the "management" approach. The management approach designates the internal organization that is used by management for making operating decisions and assessing performance as the source of the Company's reportable segments. It also requires disclosures about products and services, geographic areas and major customers. All of the Company's natural gas and oil properties and related operations are located in the United States and management has determined that the Company has one reportable segment. During 1998, approximately 25%, 15%, 11% and 11% of the Company's natural gas and oil production was sold to four separate customers. During 1997, approximately 14% and 12% of the Company's natural gas and oil production was sold to two separate customers. During 1996, approximately 16%, 12% and 10% of the Company's natural gas and oil production was sold to three separate customers. However, due to the availability of other markets, the Company does not believe that the loss of any one of these individual customers would adversely affect the Company's result of operations. 11. FINANCIAL INSTRUMENTS The Company periodically enters into commodity price swap agreements which require payments to (or receipts from) counterparties based on the differential between a fixed price and a variable price for a fixed quantity of natural gas or crude oil without the exchange of the underlying volumes. The notional amounts of these derivative financial instruments are based on planned production from existing wells. The Company uses these derivative financial instruments to manage market risks resulting from fluctuations in commodity prices. Commodity price swaps are effective in minimizing these risks by creating essentially equal and offsetting market exposures. The derivative financial instruments held by the Company are not leveraged and are held for purposes other than trading. In 1996 and 1997, the Company was a party to a crude oil swap arrangement resulting in a fixed price over a period of time for a specified volume of crude oil. Adjustment to the price received for oil under these F1-17 27 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) swap arrangements resulted in a decrease in oil revenues of $301,280 and $6,191 in 1996 and 1997, respectively. In February 1998, the Company entered into a hedging contract whereby 10,000 MMBtu per day of natural gas is purchased and sold subject to a fixed price swap agreement for monthly periods from April 1998 through October 1999. Pursuant to these arrangements the Company exchanges a floating market price for a contract month and payments are received when the fixed price exceeds the floating price. Total natural gas subject to this hedging contract is 2,750,000 MMBtu in 1998 and 3,040,000 MMBtu in 1999. As a result of this natural gas hedging contract, the Company realized an increase in revenues of $555,240 during 1998. In August 1998, the Company entered into a hedging contract whereby 5,000 MMBtu per day of natural gas is 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 exchanges a floating market price for a fixed contract price of $2.015 per MMBtu. Payments are made by the Company when the floating price exceeds the fixed price for a contract month and payments are received when the fixed price exceeds the floating price. Total natural gas subject to this hedging contract is 1,070,000 MMBtu in 1999. In January 1999, the Company entered into a swap agreement with terms similar to existing agreements which relates to production for monthly periods from November 1999 through April 2001. Pursuant to these arrangements, 15,000 MMBtu per day of natural gas is purchased and sold subject to a fixed price swap agreement, and the Company exchanges a floating market price for a fixed contract price of $2.065 per MMBtu. Total natural gas volumes subject to this agreement are 915,000 MMBtu, 5,490,000 MMBtu and 1,800,000 MMBtu in 1999, 2000 and 2001, 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 Company's revolving credit facility (see Note 5) approximates its fair market value since it bears interest at floating market interest rates. The Company's accounts receivable relate to natural gas and oil sales to various industry companies, amounts due from industry participants for expenditures made by the Company on their behalf and workstation revenues. Credit terms, typical of industry standards, are of a short-term nature and the Company does not require collateral. The Company's accounts receivable at December 31, 1998 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. 12. EMPLOYEE BENEFIT PLANS Retirement Savings Plan During 1996 the Company adopted a defined contribution 401(k) plan for substantially all of its employees. Eligible employees may contribute up to 15% of their compensation to this plan. The 401(k) plan provides that the Company may, at its discretion, match employee contributions. The Company has not matched employee contributions in any plan year. F1-18 28 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Stock Compensation In 1994 three employees were granted restricted interests in the Company which vest in increments through July 1999. At the date of grant, the value of these interests was immaterial. On February 26, 1997, in connection with the Exchange (see Note 1), the three employees transferred these company interests to the Company in exchange for 156,250 shares of restricted common stock of the Company. The terms of the restricted stock and the restricted company interests are substantially the same. The shares vest over a three-year period ending in 1999. No compensation expense will result from this exchange. The Company adopted an incentive plan, effective upon completion of the Exchange (see Note 1), which provides for the issuance of stock options, stock appreciation rights, stock, restricted stock, cash or any combination of the foregoing. The objective of this plan is to reward key employees whose performance may have a significant effect on the success of the Company. An aggregate of 1,588,170 shares of the Company's common stock was reserved for issuance pursuant to this plan. The Compensation Committee of the Board of Directors will determine the type of awards made to each participant and the terms, conditions and limitations applicable to each award. 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, in increments, over five to six 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 value of the Company's common stock on the date of grant and generally vest over five years. The following table summarizes activity under the incentive plan for each of the two years ended December 31, 1998:
WEIGHTED AVERAGE EXERCISE SHARES PRICE ------------ ------------ Options outstanding December 31, 1996........................................... -- $ -- Options granted .......................................................... 646,097 5.03 Options forfeited or cancelled............................................ (17,360) 5.00 Options exercised......................................................... -- -- ------------ ------------ 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 ============ ============
On December 14, 1998, the Board of Directors approved a proposal to cancel and reissue outstanding employee stock options which 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 F1-19 29 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 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, 1997 range from $5.00 to $14.375 and remaining contractual lives range from 5.5 years to 6 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 years to 7 years. No options were exercisable at December 31, 1997 and 145,740 were exercisable at December 31, 1998. The weighted average fair value per share of stock compensation issued during 1997 and 1998 was $6.24 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 1997 and 1998: risk free interest rate of 6.24% and 4.70%; volatility of the expected market prices of the Company's common stock of 38% and 77%; expected dividend yield of zero and weighted average expected option lives of 7.3 and 5.0 years, respectively. The Black-Scholes valuation model was developed for use in estimating the fair value of traded options which 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 SFAS No. 123 the Company's net loss and net loss per share for 1998, 1997 and 1996 would have been the pro forma amounts indicated below:
1998 1997 ----------- ----------- Net loss: As reported.............................................................................. $ (33,345) $ (1,117) Pro forma ......................................................................... (33,591) (1,314) Net loss per share: As reported.............................................................................. (2.64) (0.10) Pro forma................................................................................ (2.66) (0.12)
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 which is being recognized over the related vesting period of the options. During 1999, the Company revised the fair market value of its common stock at the date these options were granted from $8.00 to $9.00. As a result, the Company restated its financial statements to reflect the impact of this change in estimate. The impact of the restatement on the 1997 financial statements is presented below: F1-20 30 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
AS PREVIOUSLY AS REPORTED RESTATED -------------- ------------- For the year ended December 31, 1997 Net loss .............................................................. $ (1,036) $ (1,117) Net loss per share: Basic/Diluted....................................................... (0.09) (0.10) As of December 31, 1997 Retained earnings/(accumulated deficit)................................ 26 (55) Total stockholders' equity......................................... 43,153 43,313
13. RELATED PARTY TRANSACTIONS During the years ended December 31, 1996, 1997 and 1998, the Company paid approximately $596,000, $837,000 and $851,000 respectively, in fees for land acquisition services performed by a company owned by a brother of the Company's President and Chief Executive Officer. Other participants in the Company's 3-D seismic projects reimbursed the Company for a portion of these amounts. In 1996 and 1997, the Company paid $110,000 and $18,000 for working interests in natural gas and oil properties owned by affiliates of a member of the Company's board of directors/management committee. The Company billed the affiliates $68,000 in 1996 for their proportionate share of the costs related to this project. 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 $79,200, $86,580 and $100,539 for the twelve month periods ended December 31, 1996, 1997 and 1998, respectively. Additional disbursements totaling approximately $13,000 and $12,000 were made during 1997 and 1998, respectively, for the reimbursement of certain expenses. 14. SUBSEQUENT EVENT 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. F1-21 31 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 15. NATURAL GAS AND OIL EXPLORATION AND PRODUCTION ACTIVITIES The tables presented below provide supplemental information about natural gas and oil exploration and production activities as defined by SFAS No. 69, "Disclosures about Oil and Gas Producing Activities." Results of Operations for Natural Gas and Oil Producing Activities (in thousands)
YEAR ENDED DECEMBER 31, ---------------------------------- 1998 1997 1996 ---------- --------- --------- Natural gas and oil sales............................................... $ 13,799 $ 9,184 $ 6,141 Costs and expenses: Lease operating..................................................... 2,172 1,151 726 Production taxes.................................................... 850 549 362 Depletion of natural gas and oil properties......................... 8,410 2,743 2,323 Capitalized ceiling impairment...................................... 24,847 -- -- Income tax expense (benefit) (a).................................... (7,868) 1,318 -- ---------- --------- --------- Total costs and expenses................................................ 28,411 5,761 3,411 ---------- --------- --------- $ (14,612) $ 3,423 $ 2,730 ========== ========= ========= Depletion per physical unit of production (equivalent Mcf of gas)....... $ 1.27 $ 0.88 $ 1.13 ========== ========= =========
- ------------ (a) The income tax expense (benefit) for 1997 and 1998 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. Natural gas and oil sales reflect the market prices of net production sold or transferred, with appropriate adjustments for royalties, net profits interest and other contractual provisions. Lease operating expenses include lifting costs incurred to operate and maintain productive wells and related equipment, including such costs as operating labor, repairs and maintenance, materials, supplies and fuel consumed. Production taxes include production and severance taxes. No provision was made for income taxes for 1996 since these taxes are the responsibility of the partners (see Note 2). Depletion of natural gas and oil properties relates to capitalized costs incurred in acquisition, exploration and development activities. Results of operations do not include interest expense and general corporate amounts. Costs Incurred and Capitalized Costs The costs incurred in natural gas and oil acquisition, exploration and development activities follow (in thousands):
DECEMBER 31, --------------------------------------- 1998 1997 1996 ----------- ----------- ----------- Costs incurred for the year: Exploration.................................................... $ 67,110 $ 29,516 $ 10,527 Property acquisition........................................... 16,245 26,956 6,195 Development.................................................... 10,427 2,953 1,328 Proceeds from participants..................................... (10,502) (319) (4,111) ----------- ----------- ----------- $ 83,280 $ 59,106 $ 13,939 =========== =========== ===========
F1-22 32 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 natural gas and oil acquisition, exploration and development activities follow (in thousands):
DECEMBER 31, ---------------------------- 1998 1997 ------------ ------------ Cost of natural gas and oil properties at year-end: Proved..................................................................... $ 127,491 $ 67,744 Unproved................................................................... 52,376 28,843 ------------ ------------ Total capitalized costs.................................................... 179,867 96,587 Accumulated depletion...................................................... (45,550) (12,293) ------------ ------------ $ 134,317 $ 84,294 ============ ============
Following is a summary of costs (in thousands) excluded from depletion at December 31, 1998, 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 1998 1997 1996 YEARS TOTAL ---------- ---------- --------- --------- ---------- Property acquisition.......................... $ 9,659 $ 13,161 $ 1,176 $ 1,278 $ 25,274 Exploration................................... 21,577 5,072 320 133 27,102 ---------- ---------- --------- --------- ---------- Total......................................... $ 31,236 $ 18,233 $ 1,496 $ 1,411 $ 52,376 ========== ========== ========= ========= ==========
16. NATURAL GAS AND OIL RESERVES AND RELATED FINANCIAL DATA (UNAUDITED) Information with respect to the Company's natural gas and oil producing activities is presented in the following tables. Reserve quantities as well as certain information regarding future production and discounted cash flows were determined by the Company's independent petroleum consultants and internal petroleum reservoir engineer. Natural Gas and Oil Reserve Data The following tables present the Company's estimates of its proved natural gas and oil reserves. The Company emphasizes that reserve estimates are approximates and are expected to change as additional information becomes available. Reservoir engineering is a subjective process of estimating underground accumulations of natural gas and oil that cannot be measured in an exact way, and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Accordingly, there can be no assurance that the reserves set forth herein will ultimately be produced nor can there be assurance that the proved undeveloped reserves will be developed within the periods anticipated. A substantial portion of the reserve balances were estimated utilizing the volumetric method, as opposed to the production performance method. F1-23 33 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NATURAL GAS OIL (MMCF) (MBBLS) ------------ ------------ Proved reserves at December 31, 1995........................................... 4,257 1,672 Revisions to previous estimates............................................ (1,005) (232) Extensions, discoveries and other additions................................ 7,742 996 Purchase of minerals-in-place.............................................. 260 3 Sales of minerals-in-place................................................. (299) (272) Production................................................................. (698) (227) ------------ ------------ Proved reserves at December 31, 1996........................................... 10,257 1,940 Revisions to previous estimates............................................ (3,044) (447) Extensions, discoveries and other additions................................ 33,721 735 Purchase of minerals-in-place.............................................. 13,718 1,244 Sales of minerals-in-place................................................. (40) -- Production................................................................. (1,382) (291) ------------ ------------ Proved reserves at December 31, 1997........................................... 53,230 3,181 Revisions of 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 ============ ============ Proved developed reserves at December 31: 1996....................................................................... 6,034 1,453 1997....................................................................... 30,677 2,665 1998....................................................................... 38,571 2,935
Proved reserves are estimated quantities of crude natural gas and oil which geological and engineering data indicate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are proved reserves which can be expected to be recovered through existing wells with existing equipment and operating methods. Standardized Measure of Discounted Future Net Cash Inflows and Changes Therein The following table presents a standardized measure of discounted future net cash inflows (in thousands) relating to proved natural gas and oil reserves. Future cash flows were computed by applying year end prices of natural gas and oil relating to the Company's proved reserves to the estimated year-end quantities of those reserves. Future price changes were considered only to the extent provided by contractual agreements in existence at year-end. Future production and development costs were computed by estimating those expenditures expected to occur in developing and producing the proved natural gas and oil reserves at the end of the year, based on year-end costs. Actual future cash inflows may vary considerably and the standardized measure does not necessarily represent the fair value of the Company's natural gas and oil reserves. F1-24 34 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, --------------------------------------- 1998 1997 1996 ----------- ----------- ----------- Future cash inflows................................................ $ 198,082 $ 165,156 $ 84,987 Future development and production costs............................ (61,064) (40,923) (20,998) Future income taxes................................................ (6,972) (22,919) -- ----------- ----------- ----------- Future net cash inflows............................................ $ 130,046 $ 101,314 $ 63,989 =========== =========== =========== Future net cash inflow before income taxes, discounted at 10% per annum............................................... $ 81,741 $ 69,249 $ 44,506 =========== =========== =========== Standardized measure of future net cash inflows discounted at 10% per annum............................................... $ 81,649 $ 64,274 $ 44,506 =========== =========== ===========
The base sales prices for the Company's reserves were $3.71 per Mcf for natural gas and $25.37 per Bbl for oil as of December 31, 1996, $2.27 per Mcf for natural gas and $15.50 per Bbl for oil as of December 31, 1997, 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. Changes in the future net cash inflows discounted at 10% per annum follow:
DECEMBER 31, --------------------------------------- 1998 1997 1996 ----------- ----------- ----------- Beginning of period................................................ $ 64,274 $ 44,506 $ 18,222 Sales of natural gas and oil produced, net of production costs..................................................... (10,776) (7,484) (5,053) Development costs incurred..................................... 5,423 1,955 246 Extensions and discoveries..................................... 52,389 38,016 29,457 Purchases of minerals-in-place................................. 687 16,965 384 Sales of minerals-in-place..................................... -- (94) (2,380) Net change of prices and production costs...................... (11,921) (20,466) 7,023 Change in future development costs............................. (656) 319 303 Changes in production rates and other.......................... (6,109) (1,954) (342) Revisions of quantity estimates................................ (23,470) (6,964) (5,176) Accretion of discount.......................................... 6,925 4,450 1,822 Change in income taxes ........................................ 4,883 (4,975) -- ----------- ----------- ----------- End of period...................................................... $ 81,649 $ 64,274 $ 44,506 =========== =========== ===========
F1-25 35 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Brigham Exploration Company In our opinion, the accompanying balance sheets and the related statements of operations, of cash flows and of changes in equity present fairly, in all material respects, the financial position of Brigham Oil & Gas, L.P., and Brigham, Inc. at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Additionally, in our opinion, the accompanying balance sheets and the related statements of operations, of cash flows and of changes in equity present fairly, in all material respects, the financial position of Brigham Holdings I, LLC and Brigham Holdings II, LLC at December 31, 1998 and for the year then ended, in conformity with generally accepted accounting principles. These financial statements are the responsibility of management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Houston, Texas April 14, 1999 F2-1 36 BRIGHAM EXPLORATION COMPANY SUBSIDIARIES BALANCE SHEETS AS OF DECEMBER 31, 1998 (in thousands)
BRIGHAM BRIGHAM BRIGHAM OIL & BRIGHAM, HOLDINGS HOLDINGS GAS, L.P. INC. I, LLC II, LLC ASSETS Current assets: Cash and cash equivalents $ 2,549 $ 2,563 $ 5 $ 6 Accounts receivable 7,938 7,938 -- -- Prepaid expenses 290 290 -- -- --------- --------- --------- --------- Total current assets 10,777 10,791 5 6 --------- --------- --------- --------- Natural gas and oil properties, at cost, net 134,317 134,317 -- -- Other property and equipment, at cost, net 2,014 2,014 -- -- Investment in subsidiaries and intercompany advances 115 16 11,714 46,913 Drilling advances paid 231 231 -- -- Other noncurrent assets 1,409 1,409 -- -- --------- --------- --------- --------- $ 148,863 $ 148,778 $ 11,719 $ 46,919 ========= ========= ========= ========= LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 19,883 $ 19,883 $ -- $ -- Accrued drilling costs 1,219 1,219 -- -- Participant advances received 764 764 -- -- Other current liabilities 1,647 1,647 -- -- --------- --------- --------- --------- Total current liabilities 23,513 23,513 -- -- --------- --------- --------- --------- Notes payable 59,000 59,000 -- -- Other noncurrent liabilities 7,536 7,536 -- -- Intercompany accounts payable 1,690 1,616 -- 1,707 Intercompany notes payable 40,000 40,000 -- 40,000 Minority interest -- 11,730 -- -- Equity Partners' capital 17,124 -- 11,719 5,212 Common stock, $1.00 par value, 1,000 shares authorized, issued and outstanding -- 1 -- -- Additional paid-in capital -- 16,109 -- -- Accumulated deficit -- (10,727) -- -- --------- --------- --------- --------- Total equity 17,124 5,383 11,719 5,212 --------- --------- --------- --------- $ 148,863 $ 148,778 $ 11,719 $ 46,919 ========= ========= ========= =========
Natural gas and oil properties are accounted for using the full cost method. See accompanying notes to the financial statements. F2-2 37 BRIGHAM EXPLORATION COMPANY SUBSIDIARIES BALANCE SHEETS AS OF DECEMBER 31, 1997 (in thousands)
BRIGHAM OIL & BRIGHAM, GAS, L.P. INC. ASSETS Current assets: Cash and cash equivalents $ 1,701 $ 1,701 Accounts receivable 4,909 4,909 Prepaid expenses 280 280 -------- -------- Total current assets 6,890 6,890 -------- -------- Natural gas and oil properties, at cost, net 84,294 84,294 Other property and equipment, at cost, net 1,239 1,239 Drilling advances paid 78 78 Other noncurrent assets 18 18 -------- -------- $ 92,519 $ 92,519 ======== ======== LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 11,892 $ 11,892 Accrued drilling costs 2,406 2,406 Participant advances received 489 489 Other current liabilities 726 726 -------- -------- Total current liabilities 15,513 15,513 -------- -------- Notes payable 32,000 32,000 Other noncurrent liabilities 507 507 Deferred income tax liability -- 5,088 Intercompany accounts payable 834 834 Minority interest -- 29,910 Equity Partners' capital 43,665 -- Common stock, $1.00 par value, 1,000 shares authorized, issued and outstanding -- 1 Additional paid-in capital -- 13,732 Accumulated deficit -- (5,066) -------- -------- Total equity 43,665 8,667 -------- -------- $ 92,519 $ 92,519 ======== ========
Natural gas and oil properties are accounted for using the full cost method. See accompanying notes to the financial statements. F2-3 38 BRIGHAM EXPLORATION COMPANY SUBSIDIARIES STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 (in thousands)
BRIGHAM BRIGHAM BRIGHAM OIL & BRIGHAM, HOLDINGS HOLDINGS GAS, L.P. INC. I, LLC II, LLC Revenues: Natural gas and oil sales $ 13,799 $ 13,799 $ -- $ -- Workstation revenue 390 390 -- -- ------------- ------------- ------------- ------------- 14,189 14,189 -- -- ------------- ------------- ------------- ------------- Costs and expenses: Lease operating 2,172 2,172 -- -- Production taxes 850 850 -- -- General and administrative 4,650 4,661 11 11 Depletion of natural gas and oil properties 8,410 8,410 -- -- Depreciation and amortization 413 413 -- -- Capitalized ceiling impairment 24,847 24,847 -- -- Amortization of stock compensation 372 372 -- -- ------------- ------------- ------------- ------------- 41,714 41,725 11 11 ------------- ------------- ------------- ------------- Operating loss (27,525) (27,536) (11) (11) ------------- ------------- ------------- ------------- Other income (expense): Interest income 136 136 -- -- Interest expense (4,993) (4,993) -- -- Interest expense - intercompany (1,707) (1,707) -- (1,707) ------------- ------------- ------------- ------------- (6,564) (6,564) -- (1,707) ------------- ------------- ------------- ------------- Minority interest in net loss -- (23,351) -- -- ------------- ------------- ------------- ------------- Net loss before income taxes (34,089) (10,749) (11) (1,718) Income tax expense -- 5,088 -- -- Equity in net loss of investee -- -- (23,351) (8,690) ------------- ------------- ------------- ------------- Net loss $ (34,089) $ (5,661) $ (23,362) $ (10,408) ============= ============= ============= =============
See accompanying notes to the financial statements. F2-4 39 BRIGHAM EXPLORATION COMPANY SUBSIDIARIES STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (in thousands)
BRIGHAM OIL & BRIGHAM, GAS, L.P. INC. Revenues: Natural gas and oil sales $ 9,184 $ 9,184 Workstation revenue 637 637 ------- ------- 9,821 9,821 ------- ------- Costs and expenses: Lease operating 1,151 1,151 Production taxes 549 549 General and administrative 3,570 3,570 Depletion of natural gas and oil properties 2,743 2,743 Depreciation and amortization 306 306 Amortization of stock compensation 388 388 ------- ------- 8,707 8,707 ------- ------- Operating income 1,114 1,114 ------- ------- Other income (expense): Interest income 145 145 Interest expense (1,017) (1,017) Interest expense - related party (173) (173) ------- ------- (1,045) (1,045) ------- ------- Minority interest in net income -- 47 ------- ------- Net income before income taxes 69 22 Income tax benefit -- (5,088) ------- ------- Net income (loss) $ 69 $(5,066) ======= =======
See accompanying notes to the financial statements. F2-5 40 BRIGHAM EXPLORATION COMPANY SUBSIDIARIES STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998 (in thousands)
BRIGHAM BRIGHAM BRIGHAM OIL & BRIGHAM, HOLDINGS HOLDINGS GAS, L.P. INC. I, LLC II, LLC Cash flows from operating activities: Net loss $ (34,089) $ (5,661) $ (23,362) $ (10,408) Adjustments to reconcile net loss to cash provided by operating activities: Depletion of natural gas and oil properties 8,410 8,410 -- -- Depreciation and amortization 413 413 -- -- Capitalized ceiling impairment 24,847 24,847 -- -- Amortization of stock compensation 372 372 -- -- Amortization of deferred loan fees and debt issuance costs 593 593 -- -- Minority interest in net loss -- (23,351) -- -- Equity in net loss of investee -- -- 23,351 8,690 Changes in working capital and other items: Increase in accounts receivable (3,029) (3,029) -- -- Increase in prepaid expenses (10) (10) -- -- Increase in accounts payable 7,991 7,991 -- -- Increase in participant advances received 275 275 -- -- Increase in other current liabilities 862 862 -- -- Decrease in deferred income tax liability -- (5,088) -- -- Increase in intercompany accounts payable -- -- -- 1,707 Other noncurrent assets 6 6 -- -- Other noncurrent liabilities 7,004 7,004 -- -- --------- --------- --------- --------- 13,645 13,634 (11) (11) --------- --------- --------- --------- Cash flows from investing activities: Natural gas and oil properties (84,056) (84,056) -- -- Other property and equipment (868) (868) -- -- Investment in subsidiaries and intercompany advances (42) (17) (5,154) (42,285) Change in drilling advances paid (153) (153) -- -- --------- --------- --------- --------- (85,119) (85,094) (5,154) (42,285) --------- --------- --------- --------- Cash flows from financing activities: Capital contribution received 7,548 7,548 5,170 2,302 Increase in intercompany notes payable 40,000 40,000 -- 40,000 Increase in notes payable 105,800 105,800 -- -- Repayment of notes payable (78,800) (78,800) -- -- Principal payments on capital lease obligations (236) (236) -- -- Deferred loan fees (1,990) (1,990) -- -- --------- --------- --------- --------- 72,322 72,322 5,170 42,302 --------- --------- --------- --------- Net increase in cash and cash equivalents 848 862 5 6 Cash and cash equivalents, beginning of year 1,701 1,701 -- -- --------- --------- --------- --------- Cash and cash equivalents, end of year $ 2,549 $ 2,563 $ 5 $ 6 ========= ========= ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest $ 4,878 $ 4,878 $ -- $ -- Supplemental disclosure of noncash investing and financing activities: Capital lease asset additions $ 320 $ 320 $ -- $ -- Intercompany capital contributions $ -- $ -- $ 29,911 $ 13,318
See accompanying notes to the financial statements. F2-6 41 BRIGHAM EXPLORATION COMPANY SUBSIDIARIES STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1997 (in thousands)
BRIGHAM OIL & BRIGHAM, GAS, L.P. INC. Cash flows from operating activities: Net income (loss) $ 69 $ (5,066) Adjustments to reconcile net income (loss) to cash provided by operating activities: Depletion of natural gas and oil properties 2,743 2,743 Depreciation and amortization 306 306 Amortization of stock compensation 388 388 Minority interest in net income -- 47 Changes in working capital and other items: Increase in accounts receivable (2,213) (2,213) Increase in prepaid expenses (128) (128) Increase in accounts payable 8,955 8,955 Decrease in participant advances received (648) (648) Increase in other current liabilities 50 50 Increase in deferred interest payable - related party 53 53 Increase in deferred income tax liability -- 5,088 Other noncurrent assets 281 281 Other noncurrent liabilities (50) (50) ------------ ------------ 9,806 9,806 ------------ ------------ Cash flows from investing activities: Natural gas and oil properties (57,170) (57,170) Proceeds from the sale of natural gas and oil properties 74 74 Other property and equipment (545) (545) Change in drilling advances paid 341 341 ------------ ------------ (57,300) (57,300) ------------ ------------ Cash flows from financing activities: Capital contribution received 23,927 23,927 Increase in notes payable 37,250 37,250 Repayment of notes payable (13,250) (13,250) Principal payments on capital lease obligations (179) (179) ------------ ------------ 47,748 47,748 ------------ ------------ Net increase in cash and cash equivalents 254 254 Cash and cash equivalents, beginning of year 1,447 1,447 ------------ ------------ Cash and cash equivalents, end of year $ 1,701 $ 1,701 ============ ============ Supplemental disclosure of cash flow information: Cash paid during the year for interest $ 1,679 $ 1,679 Supplemental disclosure of noncash investing and financing activities: Capital lease asset additions $ 403 $ 403 Intercompany capital contributions $ 16,425 $ -- Increase resulting from the Exchange and the Offering in ownership interest in the Partnership $ -- $ 13,703
See accompanying notes to the financial statements. F2-7 42 BRIGHAM EXPLORATION COMPANY SUBSIDIARIES STATEMENTS OF CHANGES IN EQUITY (in thousands, except shares)
Retained Common Stock Additional Earnings/ ------------------------- Paid-in Accumulated Partners' Shares Amounts Capital Deficit Capital Total ----------- ----------- ----------- ----------- ----------- ----------- BRIGHAM OIL & GAS, L.P. Balance, December 31, 1997 -- $ -- $ -- $ -- $ 43,665 $ 43,665 Capital contribution -- -- -- -- 7,548 7,548 Net loss -- -- -- (34,089) (34,089) ----------- ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1998 -- $ -- $ -- $ -- $ 17,124 $ 17,124 =========== =========== =========== =========== =========== =========== BRIGHAM INC. Balance, December 31, 1997 1,000 $ 1 $ 13,732 $ (5,066) $ -- $ 8,667 Capital contribution -- -- 2,377 -- -- 2,377 Net loss -- -- -- (5,661) -- (5,661) ----------- ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1998 1,000 $ 1 $ 16,109 $ (10,727) $ -- $ 5,383 =========== =========== =========== =========== =========== =========== BRIGHAM HOLDING I, LLC Balance, December 31, 1997 -- $ -- $ -- $ -- $ -- $ -- Partnership interest contributed -- -- -- -- 29,911 29,911 Capital contribution -- -- -- -- 5,170 5,170 Net loss -- -- -- -- (23,362) (23,362) ----------- ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1998 -- $ -- $ -- $ -- $ 11,719 $ 11,719 =========== =========== =========== =========== =========== =========== BRIGHAM HOLDINGS II, LLC Balance, December 31, 1997 -- $ -- $ -- $ -- $ -- $ -- Partnership interest contributed -- -- -- -- 13,318 13,318 Capital contribution -- -- -- -- 2,302 2,302 Net loss -- -- -- -- (10,408) (10,408) ----------- ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1998 -- $ -- $ -- $ -- $ 5,212 $ 5,212 =========== =========== =========== =========== =========== ===========
See accompanying notes to the financial statements. F2-8 43 BRIGHAM EXPLORATION COMPANY SUBSIDIARIES STATEMENTS OF CHANGES IN EQUITY (in thousands)
Retained Common Stock Additional Earnings/ --------------------------- Paid-in Accumulated Partners' Shares Amounts Capital Deficit Capital Total ------------ ------------ ------------ ------------ ------------ ------------ BRIGHAM OIL & GAS, L.P. Balance, December 31, 1996 -- $ -- $ -- $ -- $ 3,244 $ 3,244 Capital contribution from Brigham Exploration Company at consummation of Exchange -- -- -- -- 16,425 16,425 Capital contribution from Brigham Exploration Company of proceeds from Offering -- -- -- -- 23,927 23,927 Net income -- -- -- -- 69 69 ------------ ------------ ------------ ------------ ------------ ------------ Balance, December 31, 1997 should be -- $ -- $ -- $ -- $ 43,665 $ 43,665 ============ ============ ============ ============ ============ ============ BRIGHAM INC. Balance, December 31, 1996 1,000 $ 1 $ 29 $ -- $ -- $ 30 Increase in equity due to change in ownership in the Partnership resulting from the Exchange and the Offering -- -- 13,703 -- -- 13,703 Net loss -- -- -- (5,066) -- (5,066) ------------ ------------ ------------ ------------ ------------ ------------ Balance, December 31, 1997 1,000 $ 1 $ 13,732 $ (5,066) $ -- $ 8,667 ============ ============ ============ ============ ============ ============
See accompanying notes to the financial statements. F2-9 44 BRIGHAM EXPLORATION COMPANY SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS 1. ORGANIZATION AND BACKGROUND In August 1998, upon the filing of a registration statement with the SEC, Brigham Exploration Company, a Delaware corporation, (the "Company") issued $50 million of debt and equity securities to two affiliated institutional investors. The financing transaction consisted of the issuance of $40 million of senior subordinated secured notes (the "Notes"). The Notes are fully and unconditionally guaranteed, on a joint and several basis, by each of the Company's directly or indirectly wholly-owned subsidiaries which are Brigham Oil & Gas, L.P. (the "Partnership"), Brigham, Inc., Brigham Holdings I, LLC ("Holdings I"), and Brigham Holdings II, LLC ("Holdings II"). Furthermore, these subsidiaries have pledged their respective stock and partnership interests as collateral for the Notes. These financial statements include the financial statements for the wholly owned subsidiaries whose securities and partnership interests comprise substantially all of the collateral pledged for the Notes. The Partnership was formed in May 1992 to explore and develop onshore domestic natural gas and oil properties using 3-D seismic imaging and other advanced technologies. Since its inception, the Partnership has focused its exploration and development of natural gas and oil properties primarily in West Texas, the Anadarko Basin and the onshore Gulf Coast. Brigham, Inc. is a Nevada corporation whose only asset prior to the Exchange was its less than 1% ownership interest in the Partnership. Brigham, Inc. is the managing general partner of the Partnership. On February 25, 1997, the Company was formed for the purpose of exchanging its common stock for the common stock of Brigham, Inc. and the partnership interests of the Partnership. Pursuant to an exchange agreement dated February 26, 1997 (the "Exchange Agreement") and upon the initial filing on February 27, 1997 of a registration statement with the Securities and Exchange Commission (the "SEC") for the public offering of common stock (the "Offering"), the shareholders of Brigham, Inc. transferred all of the outstanding stock of Brigham, Inc. to the Company in exchange for 3,859,821 shares of common stock of the Company. Pursuant to the Exchange Agreement, the Partnership's other general partner and the limited partners also transferred all of their partnership interests to the Company in exchange for 3,314,286 shares of common stock of the Company. Furthermore, the holders of the Partnership's subordinated convertible notes transferred these notes to the Company in exchange for 1,754,464 shares of common stock. These transactions are referred to as "the Exchange." In completing the Exchange, the Company issued 8,928,571 shares of common stock to the stockholders of Brigham, Inc., the partners of the Partnership and the holder of the Partnership's subordinated notes payable. In May 1997, the Company sold 3,325,000 shares of its common stock in the Offering at a price of $8.00 per share. As a result of the Exchange and the Offering, the Company owns a 68.5% partnership interest in the Partnership and all of the outstanding shares of Brigham, Inc. Brigham, Inc. owns the remainder of the Partnership interest in the Partnership. The proceeds of the Offering were contributed to the Partnership by the Company. Subsequent to the Exchange and the Offering, the Company owned a 68.5% interest in the Partnership and Brigham, Inc. owned a 31.50% interest in the Partnership. Effective January 1, 1998, Brigham, Inc. contributed 30.5% of its 31.5% interest in the Partnership to Holdings II, a newly formed Nevada LLC and wholly owned subsidiary of Brigham, Inc., whose only asset is its investment in the Partnership. Also effective January 1, 1998 the Company contributed its 68.5% interest in the Partnership to Holdings I, a newly formed Nevada LLC and wholly owned subsidiary of the Company whose only asset is its investment in the Partnership. F2-10 45 BRIGHAM EXPLORATION COMPANY SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED) 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 Partnership, Brigham, Inc., Holdings I and Holdings II (collectively referred to as the "Subsidiaries"). Holdings II accounts for its interest in the Partnership under the equity method. Brigham, Inc. consolidates its interests in the Partnership and Holdings II as a result of its general partner interest in the Partnership and its 100% ownership of Holdings II. Holdings I accounts for its 68.5% investment in the Partnership under the equity method and its ownership in the Partnership is reflected as the minority interest in the consolidated results of Brigham, Inc. All entities are either directly or indirectly wholly-owned subsidiaries of the Company. All significant intercompany accounts and transactions have been eliminated. Substantially all of the Subsidiaries' assets are held by and all operations conducted through the Partnership and its subsidiaries. All references in these financial statements to assets held by the Partnership and transactions entered into by the Partnership are applicable to Brigham, Inc. through its consolidation of the Partnership. Cash and Cash Equivalents The Subsidiaries consider all highly liquid financial instruments with an original maturity of three months or less to be cash equivalents. Property and Equipment All natural gas and oil properties are held by the Partnership which uses the full cost method of accounting for its investment in natural gas and oil properties. Under this method, all acquisition, exploration and development costs, including certain payroll and other internal costs, incurred for the purpose of finding natural gas and oil reserves are capitalized. 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 and administrative activities are expensed in the period incurred. The capitalized costs of the Partnership's natural gas and oil properties plus future development, dismantlement, restoration and abandonment costs (the "Amortizable Base"), net of estimated of salvage values, are amortized using the unit-of-production method based upon estimates of total proved reserve quantities. The Partnership's capitalized costs of its natural gas and oil properties, net of accumulated amortization, are limited to the total of estimated future net cash flows from proved natural gas and oil reserves, discounted at ten percent, plus the cost of unevaluated properties. There are many factors, including global events, that may influence the production, processing, marketing and valuation of natural gas and oil. A reduction in the valuation of natural gas and oil properties resulting from declining prices or production could adversely impact depletion rates and capitalized cost limitations. All costs directly associated with the acquisition and evaluation of unproved properties are initially excluded from the Amortizable Base. Upon the interpretation by the Partnership of the 3-D seismic data associated with unproved properties, the geological and geophysical costs related to acreage that is not specifically identified as F2-11 46 BRIGHAM EXPLORATION COMPANY SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED) prospective are added to the Amortizable Base. Geological and geophysical costs associated with prospective acreage, as well as leasehold costs, are added to the Amortizable Base when the prospects are drilled. Costs of prospective acreage are reviewed annually for impairment on a property-by-property basis. At December 31, 1998, a capitalized ceiling impairment of $24.8 million was recognized by the Partnership. The write down was calculated based on the estimated discounted present value of future net cash flows from proved natural gas and oil reserves using prices in effect at December 31, 1998. 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 Partnership recognizes natural gas and oil sales from its interests in producing wells under the sales method of accounting. Under the sales method, the Partnership recognizes revenues based on the amount of natural gas or oil sold to purchasers, which may differ from the amounts to which the Partnership is entitled based on its interest in the properties. Gas balancing obligations as of December 31, 1997 and 1998 were not significant. Industry participants in the Partnership's seismic programs are charged on an hourly basis for the work performed by the Partnership on its 3-D seismic interpretation workstations. The Partnership recognizes workstation revenue as service is provided. Derivative Instruments Net realized gains or losses and related cash flows arising from the Partnership's commodity price swaps (see Note 10) are recognized in the period incurred as a component of natural gas and oil sales. If subsequent to being hedged, underlying transactions are determined not to be likely to occur, the related derivatives gains and losses are recognized in that period as "Other income." Federal and State Income Taxes The Subsidiaries other than Brigham, Inc. are not taxable entities and as a result, no income tax provision has been recorded. However, the taxable income or loss resulting from their operations will ultimately be included in the federal and state income tax returns of the Company and may vary substantially from the income or loss reported for financial reporting purposes. F2-12 47 BRIGHAM EXPLORATION COMPANY SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED) Brigham, Inc., which is included in the Company's consolidated income tax return, is subject to federal corporate income taxation and utilizes an asset and liability approach for accounting for income taxes that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities. Resulting tax liabilities, if any, are borne by the Company. Comprehensive Income In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." The standard, which was effective for financial statements issued for periods ending after December 15, 1997, established standards for reporting, in addition to net income, comprehensive income and its components including, as applicable, foreign currency items, minimum pension liability adjustments and unrealized gains and losses on certain investments in debt and equity securities. Adoption of this Standard has no impact on the Subsidiaries' financial statements. Recent Pronouncements In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, depending on the type of hedge transaction. For fair value hedge transactions in which the Partnership is hedging changes in an asset's, liability's, or firm commitment's fair value, changes in the fair value of the derivative instrument will generally be offset in the income statement by changes in the hedged item's fair value. For cash flow hedge transactions in which the Partnership is hedging the variability of cash flows related to a variable-rate asset, liability, or a forecasted transaction, changes in the fair value of the derivative instrument will be reported in other comprehensive income. The gains and losses on the derivative instrument that are reported in other comprehensive income will be reclassified as earnings in the periods in which earnings are impacted by the variability of the cash flows of the hedged item. The ineffective portion of all hedges will be recognized in current period earnings. The Partnership must adopt SFAS No. 133 effective January 1, 2000. The Partnership is in the process of analyzing the potential impact of this standard on its financial statement presentation. 3. ACQUISITION On November 12, 1997, the Partnership acquired a 50% interest in certain producing properties in Grady County, Oklahoma (the "Acquisition"). These properties were formerly owned by Mobil and were acquired by Ward Petroleum. The acquisition was accounted for as a purchase and the results of operations of the properties acquired were included in the Partnership's results of operations effective September 1, 1997. The purchase price of $13.4 million was financed primarily through the Partnership's existing revolving credit facility and was based on the Partnership's determination of the fair value of the assets acquired. Pro Forma Information The following unaudited pro forma statement of operations information has been prepared to give effect to the Acquisition as if the transaction had occurred at the beginning of 1997. The Partnership's historical results of F2-13 48 BRIGHAM EXPLORATION COMPANY SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED) operations have been adjusted to reflect (i) the difference between the acquired properties' historical depletion and such expense calculated based on the value allocated to the acquired assets, and (ii) the increase in interest expense associated with the debt issued in the transaction. The pro forma amounts do not purport to be indicative of the results of operations that would have been reported had the Acquisition occurred as of the dates indicated, or that may be reported in the future (in thousands).
PRO FORMA YEAR ENDED DECEMBER 31, 1997 ------------ Revenues .............................................. $ 11,194 Costs and expenses: Lease operating and production taxes ........... 1,864 General and administrative ..................... 3,570 Depletion of natural gas and oil properties .... 3,307 Depreciation and amortization .................. 593 Interest expense, net .......................... 2,235 -------- Total costs and expenses ....................... 11,569 -------- Net loss .............................................. $ (375) ========
Upon consolidation with Brigham, Inc., pro-forma income tax expense would be $5,040. 4. PROPERTY AND EQUIPMENT Property and equipment (held by the Partnership), at cost, are summarized as follows (in thousands):
DECEMBER 31, ---------------------- 1998 1997 --------- --------- Natural gas and oil properties ............................. $ 179,867 $ 96,587 Accumulated depletion ...................................... (45,550) (12,293) --------- --------- 134,317 84,294 --------- --------- Other property and equipment: 3-D seismic interpretation workstations and software ... 2,186 1,693 Office furniture and equipment ......................... 1,774 1,095 Accumulated depreciation ............................... (1,946) (1,549) --------- --------- 2,014 1,239 --------- --------- $ 136,331 $ 85,533 ========= =========
The accumulated depletion balance for natural gas and oil properties at December 31, 1998, includes the effect of a capitalized ceiling impairment of $24.8 million described at Note 2, "Property and Equipment." The Partnership sold its interest in certain producing properties for $74,000 during 1997. No gain or loss was recognized on this transaction because the Partnership applies the full cost method of accounting for its investment in natural gas and oil properties. F2-14 49 BRIGHAM EXPLORATION COMPANY SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED) The Partnership capitalizes certain payroll and other internal costs directly attributable to acquisition, exploration and development activities as part of its investment in natural gas and oil properties over the periods benefited by these activities. Capitalized costs do not include any costs related to production, general corporate overhead, or similar activities. During the years ended December 31, 1997 and 1998, these capitalized costs amounted to $3.5 million and $4.6 million, respectively, were capitalized. 5. NOTES PAYABLE AND SENIOR SUBORDINATED NOTES PAYABLE In April 1996, the Partnership entered into a revolving credit facility which provided for borrowings up to $25 million. On November 10, 1997, this facility was amended and the amount available under the agreement was increased to $75 million. The Partnership's borrowings under this facility were limited to a borrowing base determined periodically by the lender. This determination was based upon the proved reserves of the Partnership's natural gas and oil properties. The amounts outstanding under this facility, excluding a $5.4 million special advance made November 12, 1997, bore interest, at the borrower's option, at the Base Rate or (i) LIBOR plus 1.75% if the principal outstanding was less than or equal to 50% of the borrowing base, (ii) LIBOR plus 2.0% if the principal outstanding was less than or equal to 75% but more than 50% of the borrowing base, and (iii) LIBOR plus 2.25% if the principal outstanding was greater than 75% of the borrowing base. The Base Rate is the fluctuating rate of interest per annum established from time to time by the lender. Interest accrued on the $5.4 million special advance at 11.50% per annum. The Partnership also paid a quarterly commitment fee of 0.5% per annum for the unused portion of the borrowing base. In January 1998, the Partnership entered into a new reserve-based revolving credit facility (the "Credit Facility"). The Credit Facility originally provided for borrowings up to $75 million, all of which was immediately available for borrowing to fund capital expenditures. A portion of the funds available under the Credit Facility were used to repay in full the debt outstanding under the Partnership's previous revolving credit facility. Principal outstanding under the Credit Facility is due at maturity on January 26, 2001 with interest due monthly for base rate tranches or periodically as LIBOR tranches mature. Amounts outstanding under the Credit Facility bore interest at either the lender's Base Rate or LIBOR plus 2.25%, at the Partnership's option. The Credit Facility contains covenants restricting the Company's ability to declare or pay dividends on its stock. 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's borrowing base was reduced to $65 million upon issuance of the senior subordinated notes in August 1998. In March 1999, the Partnership and its lenders entered into an amendment to the Credit Facility. Pursuant to this amendment, the borrowing availability under the Credit Facility remains at $65 million and the initial borrowing availability redetermination date was extended from January 31, 1999 to June 1, 1999, when the borrowing availability will be redetermined by the lenders based on the Partnership's then proved reserve value and cash flows. To the extent that the amounts outstanding under the Credit Facility exceed the borrowing availability at the redetermination date, the Partnership may be required to repay such excess under provision of the amendment. In addition, certain financial covenants have been amended, additional covenants have been included that place significant restrictions on the Partnership's ability to make certain capital expenditures, and the annual interest rate for borrowings under the Credit Facility is revised to the lender's base rate or LIBOR plus 3.0% F2-15 50 BRIGHAM EXPLORATION COMPANY SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED) and the Partnership will pay the lender a $500,000 transaction fee over a ten month period. The Partnership's obligations under the Credit Facility are secured by substantially all of the natural gas and oil properties and other tangible assets of the Partnership. In August 1998, upon the filing of a registration statement with the SEC, the Company issued $50 million of debt and equity securities to two affiliated institutional investors. The financing transaction consisted of the issuance of $40 million of senior subordinated secured notes (the "Notes") 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 Notes and common stock of the Company generated proceeds, net of offering costs, of approximately $47.5 million that was used to repay a portion of the then outstanding borrowings under the Partnership's Credit Facility. The Notes mature in August 2003, with no principal payments required until maturity and quarterly interest payments payable either in cash at an annual rate of 12% or, in limited circumstances, the issuance of additional notes at an annual interest rate of 13% for the first three years. The Company may repay the Notes in full without premium at any time prior to maturity. The indenture governing the Notes contains certain covenants including, but not limited to, limitations or restrictions on indebtedness, distributions, affiliate transactions, liens and sale and leaseback transactions. The indenture prohibits 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 Notes. The Notes are fully and unconditionally guaranteed, on a joint and several basis, by each of the Subsidiaries all of which are directly or indirectly wholly-owned by the Company. The obligations of the Subsidiaries under the subsidiary guaranty agreements are subordinated to the senior indebtedness of the Partnership. Furthermore, all Subsidiaries have pledged their respective stock and Partnership interests as collateral for the Notes. Concurrent with the issuance of the Notes, the Company recorded a discount on the Notes of $4.5 million to reflect the estimated value of the Warrants. Also in connection with the issuance of the Notes, certain fees and expenses totaling approximately $1.8 million were recorded as deferred costs. The Note discount and deferred fees are amortized over the five year term of the Notes. The $40 million in proceeds from the Notes and Warrants were transferred through a series of intercompany notes from the Company to Brigham, Inc.; from Brigham, Inc. to Holdings II; and from Holdings II to the Partnership. Principal on the intercompany notes is due at the maturity of the Notes and intercompany interest accrues at rates corresponding to those applicable to the Notes. Approximately $7.6 million of the proceeds from the common stock was transferred through a series of intercompany capital contributions from the Company to Holdings I ($5.2 million) and Brigham, Inc. ($2.4 million); from Holdings I to the Partnership ($5.2 million); from Brigham, Inc. to Holdings II ($2.3 million) and the Partnership ($75,000); and from Holdings II to the Partnership ($2.3 million). In March 1999, the indenture governing the Notes was amended to provide the Company with the option to pay interest due on the Notes in kind, for any reason, through the second quarter of 2000. In addition, certain financial and other covenants were amended. The amendment also provides for a reduction in the exercise price per share of the Warrants from $10.45 per share to $3.50 per share. F2-16 51 BRIGHAM EXPLORATION COMPANY SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED) 6. CAPITAL LEASE OBLIGATIONS Property under capital leases held by the Partnership consists of the following (in thousands):
DECEMBER 31, -------------- 1998 1997 ----- ----- 3-D seismic interpretation workstations and software ... $ 620 $ 497 Office furniture and equipment ......................... 167 204 ----- ----- 787 701 Accumulated depreciation and amortization .............. (276) (241) ----- ----- $ 511 $ 460 ===== =====
The obligations under capital leases are at fixed interest rates ranging from 8.7% 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, 1998 are as follows (in thousands): 1999 ........................................................................................... $ 323 2000 ........................................................................................... 237 2001 ........................................................................................... 95 2002 ........................................................................................... 24 ------------ Total minimum lease payments...................................................................... 679 Estimated executory costs included in capital leases.......................................... (50) ------------ Net minimum lease payments........................................................................ 629 Amounts representing interest................................................................. (90) ------------ Present value of net minimum lease payments....................................................... 539 Less: current portion............................................................................ (240) ------------ Noncurrent portion................................................................................ $ 299 ============
7. INCOME TAXES The provision for income taxes consists of the following (in thousands):
YEAR ENDED DECEMBER 31, ------------------ 1998 1997 ------- ------- Current income taxes: Federal................................ $ -- $ -- State ................................. -- -- Deferred income taxes: Federal ............................... (5,088) 5,088 State ................................. -- -- ------- ------- $(5,088) $ 5,088 ======= =======
F2-17 52 BRIGHAM EXPLORATION COMPANY SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED) 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, ---------------------------- 1998 1997 ------------ ------------ Tax at statutory rate ............. $ (3,655) $ 7 Add (deduct) the effect of: Tax effect of Exchange ........ (1,433) 5,081 ------------ ------------ $ (5,088) $ 5,088 ============ ============
The components of deferred income tax assets and liabilities are as follows (in thousands):
DECEMBER 31, ---------------------------- 1998 1997 ------------ ------------ Deferred tax assets: Net operating loss carryforwards ........ $ 4,767 $ 1,496 Deferred tax liability: Depreciable and depletable property ..... (4,767) (6,584) ------------ ------------ $ -- $ (5,088) ============ ============
At December 31, 1998, Brigham, Inc. had regular and alternative minimum tax net operating loss carryforwards of approximately $14 million and $11 million, respectively, each including separate return limitation year carryovers of approximately $1.2 million, which expire by December 31, 2018. 8. CONTINGENCIES, COMMITMENTS AND FACTORS WHICH MAY AFFECT FUTURE OPERATIONS Litigation The Subsidiaries are, 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 Subsidiaries. As of December 31, 1998, there were no known environmental or other regulatory matters related to the Subsidiaries' operations which are reasonably expected to result in a material liability to the Subsidiaries. Compliance with environmental laws and regulations has not had, and is not expected to have, a material adverse effect on their capital expenditures, earnings or competitive position. Lease Commitments The Partnership 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, 1998, are as follows (in thousands): F2-18 53 BRIGHAM EXPLORATION COMPANY SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED) 1999............................................... $ 868 2000............................................... 790 2001............................................... 789 2002............................................... 395 --------- $ 2,842 =========
Rental expense for the years ended December 31, 1997 and 1998 was $606,173 and $875,150, respectively. Factors Which May Affect Future Operations Since the Partnership's major products are commodities, significant changes in the prices of natural gas and oil could have a significant impact on the Company's results of operations for any particular year. Due to an expectation for continuing difficult industry and capital markets conditions, the Company and the Subsidiaries have substantially reduced their planned capital budget for 1999 and have undertaken a number of strategic initiatives in an effort to improve and preserve capital liquidity in the current environment. The Company and the Subsidiaries have adapted their business strategy in the near-term through the implementation of the following principal strategic initiatives: (i) focusing all of the Partnership's planned exploration efforts in 1999 towards the drilling of its highest grade 3-D prospects, (ii) eliminating substantially all planned seismic and land expenditures for new projects until its capital resources can support such additional activity, (iii) seeking to divest certain producing natural gas and oil properties in an effort to raise capital to reduce debt borrowings and to redirect capital to drilling projects that have the potential to generate higher investment returns, (iv) restructuring outstanding senior and subordinated debt agreements to provide the Company and the Partnership with flexibility needed to preserve cash flow to fund its expected near-term exploration activities, (v) implementing an overhead reduction plan to reduce annual general and administrative expenses, and (vi) evaluating opportunities to raise additional equity capital either through the sales of interests in certain of its seismic projects or the issuance of equity securities. The Company and the Subsidiaries believe that the successful execution of these strategic initiatives will provide sufficient capital resources to execute their planned 1999 exploration program and position them to realize the significant value they believe the Partnership has captured in its inventory of 3-D seismic projects and delineated drilling locations. While the Company and the Subsidiaries have initiated each of these strategic directives in late 1998 and early 1999, and have effected certain of them to date, the successful completion of any or all of these efforts to improve capital availability within the expected time frame is uncertain and will likely have a material impact on the Company's and the Subsidiaries' near-term capital expenditure levels and growth profiles. 9. SEGMENT INFORMATION In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which the Subsidiaries adopted in the first quarter of 1998. The statement supersedes SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise," replacing the "industry segment" approach with the "management" approach. The management approach designates the internal organization that is used by management for making operating decisions and assessing performance as the source of the reportable segments. It also requires disclosures about products and services, geographic areas and major customers. F2-19 54 BRIGHAM EXPLORATION COMPANY SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED) All of the Partnership's natural gas and oil properties and related operations are located in the United States and management has determined that each Subsidiary has one reportable segment. During 1998, approximately 25%, 15%, 11% and 11% of the Partnership's natural gas and oil production was sold to four separate customers. During 1997, approximately 14% and 12% of the Partnership's natural gas and oil production was sold to two separate customers. However, due to the availability of other markets, the Partnership does not believe that the loss of any one of these individual customers would adversely affect its result of operations. 10. FINANCIAL INSTRUMENTS The Partnership 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 Partnership uses these derivative financial instruments to manage market risks resulting from fluctuations in commodity prices. Commodity price swaps are effective in minimizing these risks by creating essentially equal and offsetting market exposures. The derivative financial instruments held by the Partnership are not leveraged and are held for purposes other than trading. In 1997, the Partnership was a party to a crude oil swap arrangement resulting in a fixed price over a period of time for a specified volume of crude oil. Adjustment to the price received for oil under these swap arrangements resulted in a decrease in oil revenues of $6,191 in 1997. In February 1998, the Partnership entered into a hedging contract whereby 10,000 MMBtu per day of natural gas is purchased and sold subject to a fixed price swap agreement for monthly periods from April 1998 through October 1999. Pursuant to these arrangements the Partnership exchanges a floating market price for a contract month and payments are received when the fixed price exceeds the floating price. Total natural gas subject to this hedging contract is 2,750,000 MMBtu in 1998 and 3,040,000 MMBtu in 1999. As a result of this natural gas hedging contract, the Partnership realized an increase in revenues of $555,240 during 1998. In August 1998, the Partnership entered into a hedging contract whereby 5,000 MMBtu per day of natural gas is purchased and sold subject to a fixed price swap agreement for monthly periods from April 1999 through October 1999. Pursuant to these arrangements the Partnership exchanges a floating market price for a fixed contract price of $2.015 per MMBtu. Payments are made by the Partnership when the floating price exceeds the fixed price for a contract month and payments are received when the fixed price exceeds the floating price. Total natural gas subject to this hedging contract is 1,070,000 MMBtu in 1999. In January 1999, the Partnership entered into a swap agreement with terms similar to existing agreements which relates to production for monthly periods from November 1999 through April 2001. Pursuant to these arrangements, 15,000 MMBtu per day of natural gas is purchased and sold subject to a fixed price swap agreement, and the Partnership exchanges a floating market price for a fixed contract price of $2.065 per MMBtu. Total natural gas volumes subject to this agreement are 915,000 MMBtu, 5,490,000 MMBtu and 1,800,000 MMBtu in 1999, 2000 and 2001, respectively. F2-20 55 BRIGHAM EXPLORATION COMPANY SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED) The Partnership's non-derivative financial instruments include cash and cash equivalents, accounts receivable, accounts payable and long-term debt. The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of their immediate or short maturities. The carrying value of the Partnership's revolving credit facility (see Note 5) approximates its fair market value since it bears interest at floating market interest rates. The Partnership's accounts receivable relate to natural gas and oil sales to various industry companies, amounts due from industry participants for expenditures made by the Partnership on their behalf and workstation revenues. Credit terms, typical of industry standards, are of a short-term nature and the Partnership do not require collateral. The Partnership's accounts receivable at December 31, 1998 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. 11. EMPLOYEE BENEFIT PLANS Retirement Savings Plan During 1996 the Partnership adopted a defined contribution 401(k) plan for substantially all of its employees. In 1997 Brigham, Inc. succeeded to the 401(k) plan when the employees of the Partnership became employees of Brigham, Inc. Eligible employees may contribute up to 15% of their compensation to this plan. The 401(k) plan provides that the employer may, at its discretion, match employee contributions. The employer has not matched employee contributions in any plan year. Stock Compensation In 1994 three employees were granted restricted interests in the Partnership which vest in increments through July 1999. At the date of grant, the value of these interests was immaterial. On February 26, 1997, in connection with the Exchange (see Note 1), the three employees transferred these Partnership interests to the Company in exchange for 156,250 shares of restricted common stock of the Company. The terms of the restricted stock and the restricted company interests are substantially the same. The shares vest over a three-year period ending in 1999. No compensation expense will result from this exchange. The Company adopted an incentive plan, effective upon completion of the Exchange (see Note 1), which provides for the issuance of stock options, stock appreciation rights, stock, restricted stock, cash or any combination of the foregoing. The objective of this plan is to reward key employees whose performance may have a significant effect on the success of the Company. Non-cash compensation expense related to certain stock options granted under the incentive plan by the Company on behalf of the Partnership has been allocated to the Partnerships's results of operations. Compensation expense allocated to the Partnership totaled $833,710 and $782,544 in 1997 and 1998, respectively. 12. SUBSEQUENT EVENT In February 1999, the Partnership entered into a project financing arrangement with Duke Energy Financial Services, Inc. ("Duke") to fund the continued exploration of five projects covered by approximately 200 square F2-21 56 BRIGHAM EXPLORATION COMPANY SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED) miles of 3-D seismic data acquired in 1998. In this transaction, the Partnership conveyed 100% of its working interest in land and seismic in these project areas to a newly formed limited liability company (the "Duke LLC") for a total consideration of $10 million. The Partnership is the managing member of the Duke LLC with a 1% interest, and Duke is the sole remaining member with a 99% interest. Pursuant to the terms of the Duke LLC agreement, the Partnership pays 100% of the drilling and completion costs for all wells drilled by the Duke LLC in exchange for a 70% working interest in the wells and their associated drilling and spacing units and allocable seismic data. Upon 100% project payout, the Partnership has certain rights to back-in for up to a 94% effective working interest in the Duke LLC properties. 13. NATURAL GAS AND OIL EXPLORATION AND PRODUCTION ACTIVITIES The tables presented below provide supplemental information about natural gas and oil exploration and production activities as defined by SFAS No. 69, "Disclosures about Oil and Gas Producing Activities." All natural gas and oil properties are held by the Partnership. The Partnership's natural gas and oil properties are included in the consolidated results of Brigham, Inc., subject to the minority interest of 68.5% held by the Company in 1997 and by Holdings I in 1998. Results of Operations for Natural Gas and Oil Producing Activities (in thousands)
YEAR ENDED DECEMBER 31, ---------------------------- 1998(a) 1997(a) ------------ ------------ Natural gas and oil sales......................................................... $ 13,799 $ 9,184 Costs and expenses: Lease operating............................................................... 2,172 1,151 Production taxes.............................................................. 850 549 Depletion of natural gas and oil properties................................... 8,410 2,743 Capitalized ceiling impairment................................................ 24,847 - ------------ ------------ Total costs and expenses.......................................................... 36,279 4,443 ------------ ------------ $ (22,480) $ 4,741 ============ ============ Depletion per physical unit of production (equivalent Mcf of gas)................. $ 1.27 $ 0.88 ============ ============
- ---------- (a) The income tax expense (benefit) related to Brigham, Inc. for 1997 and 1998 is calculated at the statutory rate and determined without regard to deduction for general and administrative expenses, interest costs and other income tax deductions and credits. Upon consolidation of the Partnership interest into Brigham, Inc. for 1997 and 1998, the income tax expense (benefit) related to results of operations for natural gas and oil producing activities for Brigham, Inc. would be $(2,478) and $523, respectively. Natural gas and oil sales reflect the market prices of net production sold or transferred, with appropriate adjustments for royalties, net profits interest and other contractual provisions. Lease operating expenses include lifting costs incurred to operate and maintain productive wells and related equipment, including such costs as operating labor, repairs and maintenance, materials, supplies and fuel consumed. Production taxes include F2-22 57 BRIGHAM EXPLORATION COMPANY SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED) production and severance taxes. Depletion of natural gas and oil properties relates to capitalized costs incurred in acquisition, exploration and development activities. Results of operations do not include interest expense and general corporate amounts. Costs Incurred and Capitalized Costs The costs incurred in natural gas and oil acquisition, exploration and development activities follow (in thousands):
DECEMBER 31, -------------------- 1998 1997 -------- -------- Costs incurred for the year: Exploration ................... $ 67,110 $ 29,516 Property acquisition .......... 16,245 26,956 Development ................... 10,427 2,953 Proceeds from participants .... (10,502) (319) -------- -------- $ 83,280 $ 59,106 ======== ========
Costs incurred represent amounts incurred by the Partnership for exploration, property acquisition and development activities. Periodically, the Partnership will receive proceeds from participants subsequent to project initiation for an assignment of an interest in the project. These payments are represented by "Proceeds from participants" in the table above. Capitalized costs related to natural gas and oil acquisition, exploration and development activities follow (in thousands):
DECEMBER 31, ---------------------- 1998 1997 --------- --------- Cost of natural gas and oil properties at year-end: Proved ............................................ $ 127,491 $ 67,744 Unproved .......................................... 52,376 28,843 --------- --------- Total capitalized costs ........................... 179,867 96,587 Accumulated depletion ............................. (45,550) (12,293) --------- --------- $ 134,317 $ 84,294 ========= =========
Following is a summary of costs (in thousands) excluded from depletion at December 31, 1998, by year incurred. At this time, the Partnership is unable to predict either the timing of the inclusion of these costs and the related natural gas and oil reserves in its depletion computation or their potential future impact on depletion rates.
DECEMBER 31, -------------------------------- Prior 1998 1997 1996 Years Total ------- ------- ------ ------ ------- Property acquisition $ 9,659 $13,161 $1,176 $1,278 $25,274 Exploration 21,577 5,072 320 133 27,102 ------- ------- ------ ------ ------- Total $31,236 $18,233 $1,496 $1,411 $52,376 ======= ======= ====== ====== =======
F2-23 58 BRIGHAM EXPLORATION COMPANY SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED) 16. NATURAL GAS AND OIL RESERVES AND RELATED FINANCIAL DATA (UNAUDITED) Information with respect to the Partnership's natural gas and oil producing activities is presented in the following tables. Reserve quantities as well as certain information regarding future production and discounted cash flows were determined by the Partnership's independent petroleum consultants and internal petroleum reservoir engineer. Natural Gas and Oil Reserve Data The following tables present the Partnership's estimates of its proved natural gas and oil reserves. The Partnership emphasizes that reserve estimates are approximates and are expected to change as additional information becomes available. Reservoir engineering is a subjective process of estimating underground accumulations of natural gas and oil that cannot be measured in an exact way, and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Accordingly, there can be no assurance that the reserves set forth herein will ultimately be produced nor can there be assurance that the proved undeveloped reserves will be developed within the periods anticipated. A substantial portion of the reserve balances were estimated utilizing the volumetric method, as opposed to the production performance method.
NATURAL GAS Oil (MMCF) (MBbls) ------- ------- Proved reserves at December 31, 1996 .................. 10,257 1,940 Revisions to previous estimates ................... (3,044) (447) Extensions, discoveries and other additions ....... 33,721 735 Purchase of minerals-in-place ..................... 13,718 1,244 Sales of minerals-in-place ........................ (40) -- Production ........................................ (1,382) (291) ------- ------- Proved reserves at December 31, 1997 .................. 53,230 3,181 Revisions of 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 ======= ======= Proved developed reserves at December 31: 1997 .............................................. 30,677 2,665 1998 .............................................. 38,571 2,935
Proved reserves are estimated quantities of crude natural gas and oil which geological and engineering data indicate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are proved reserves which can be expected to be recovered through existing wells with existing equipment and operating methods. F2-24 59 BRIGHAM EXPLORATION COMPANY SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED) Standardized Measure of Discounted Future Net Cash Inflows and Changes Therein The following table presents a standardized measure of discounted future net cash inflows (in thousands) relating to proved natural gas and oil reserves. Future cash flows were computed by applying year end prices of natural gas and oil relating to the Partnership's proved reserves to the estimated year-end quantities of those reserves. Future price changes were considered only to the extent provided by contractual agreements in existence at year-end. Future production and development costs were computed by estimating those expenditures expected to occur in developing and producing the proved natural gas and oil reserves at the end of the year, based on year-end costs. Actual future cash inflows may vary considerably and the standardized measure does not necessarily represent the fair value of the Partnership's natural gas and oil reserves.
DECEMBER 31, ---------------------------- 1998 1997 ------------ ------------ Future cash inflows................................................................ $ 198,082 $ 165,156 Future development and production costs............................................ (61,064) (40,923) ------------ ------------ Future net cash inflows............................................................ $ 137,018 $ 124,233 ============ ============ Standardized measure of future net cash inflows discounted at 10% per annum............................................................... $ 81,741 $ 69,249 ============ ============
Estimated future income tax expense as of December 31, 1997 and 1998 attributable to Brigham, Inc.'s interest in the Partnership was $7.2 million and $2.2 million, respectively. The standardized measure of future net cash inflows discounted at 10% per annum as of December 31, 1997 and 1998 after estimated income taxes attributable to Brigham, Inc.'s interest in the Partnership was $67.7 million and $81.7 million, respectively. The base sales prices for the Partnership's reserves were $3.71 per Mcf for natural gas and $25.37 per Bbl for oil as of December 31, 1996, $2.27 per Mcf for natural gas and $15.50 per Bbl for oil as of December 31, 1997, 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 Partnership's reserves at these dates. F2-25 60 BRIGHAM EXPLORATION COMPANY SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED) Changes in the future net cash inflows discounted at 10% per annum follow:
DECEMBER 31, -------------------- 1998 1997 -------- -------- Beginning of period .................................................. $ 69,249 $ 44,506 Sales of natural gas and oil produced, net of production costs ....................................................... (10,776) (7,484) Development costs incurred ....................................... 5,423 1,955 Extensions and discoveries ....................................... 52,389 38,016 Purchases of minerals-in-place ................................... 687 16,965 Sales of minerals-in-place ....................................... -- (94) Net change of prices and production costs ........................ (11,921) (20,466) Change in future development costs ............................... (656) 319 Changes in production rates and other ............................ (6,109) (1,954) Revisions of quantity estimates .................................. (23,470) (6,964) Accretion of discount ............................................ 6,925 4,450 -------- -------- End of period ........................................................ $ 81,741 $ 69,249 ======== ========
The estimated change in future net cash inflows discounted at 10% per annum attributable to income taxes for the years ended December 31, 1997 and 1998 attributable to Brigham, Inc.'s interest in the Partnership was $(1.6) million and $1.5 million, respectively. F2-26 61 INDEX TO EXHIBITS
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). 3.2 -- 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+ -- Indenture dated as of August 20, 1998 between Brigham Exploration Company and Chase Bank of Texas, National Association, as Trustee. 4.2.1++ -- Supplemental Indenture dated as of March 26, 1999 between Brigham Exploration Company and Chase Bank of Texas, National Association, as Trustee. 4.3++ -- Form of Warrant Certificate. 4.4 -- Form of Senior Subordinated Secured Note due 2003 (filed as Exhibit 4.4 to the Company's Registration Statement on Form S-1 (Registration No. 333-53873), and incorporated herein by reference). 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
62
Number Description - ------ ----------- 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. 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). 10.6* -- 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 (filed as Exhibit 10.9 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.8.1* -- 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* -- Option Agreement dated as of March 4, 1997, by and between Brigham Exploration Company and Jon L. Glass (filed as Exhibit 10.9.2 to the Company's Registration Statement on Form S-1 (Registration No. 333-22491), and incorporated herein by reference). 10.9* -- 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.
63
Number Description - ------ ----------- (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). 10.11 -- 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
64
Number Description - ------ ----------- 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).
65
Number Description - ------ ----------- 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). 10.32 -- 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. 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. 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
66
Number Description - ------ ----------- 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. 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. 10.38+ -- Securities Purchase Agreement dated as of August 20, 1998 among Brigham Exploration Company, Enron Capital & Trade Resources Corp. and Joint Energy Development Investments II Limited Partnership. 10.39+ -- Registration Rights Agreement dated as of August 20, 1998, by and among Brigham Exploration Company, Enron Capital & Trade Resources Corp. and Joint Energy Development Investments II Limited Partnership. 10.39.1++ -- Amendment to Registration Rights Agreement dated as of March 26, 1999, by and among Brigham Exploration Company, Enron Capital & Trade Resources Corp., ECT Merchant Investments Corp. and Joint Energy Development Investments II Limited Partnership. 10.40+ -- Form of Guaranty for subsidiaries. 10.41++ -- Exchange Agreement dated as of March 30, 1999 by and between Brigham Exploration Company and Veritas DGC Land, Inc. 10.42++ -- Registration Rights Agreement dated as of March 30, 1999 by and between Brigham Exploration Company and Veritas DGC Land, Inc. 21+ -- Subsidiaries of the Registrant. 23.1++ -- Consent of Pricewaterhouse Coopers LLP, independent public accountants. 23.2+ -- Consent of Cawley, Gillespie & Associates, Inc., independent petroleum engineers. 27+ -- Financial Data Schedule.
- ---------- * Management contract or compensatory plan. + Previously filed ++ Filed herewith. EX-4.2.1 2 SUPPLEMENTAL INDENTURE - 3/26/1999 1 Exhibit 4.2.1 FIRST AMENDMENT TO INDENTURE This FIRST AMENDMENT TO INDENTURE, dated as of March 26, 1999 ("this Amendment"), is among BRIGHAM EXPLORATION COMPANY, a corporation duly organized and existing under the laws of the State of Delaware (the "Borrower"), and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, a national banking association existing under the laws of the United States, as trustee (the "Trustee"). PRELIMINARY STATEMENT All covenants and agreement made by the Borrower herein are for the benefit and security of the holders of the Borrower's Senior Subordinated Secured Notes due 2003. RECITALS The Borrower and the Trustee are parties to that certain Indenture dated as of August 20, 1998 (the "Indenture"). Capitalized terms used and not otherwise defined herein are used with the meanings ascribed thereto in the Indenture. The Borrower has advised the Noteholders and the Trustee that it desires to amend certain provisions of the Indenture, and the Borrower has requested that the Trustee and the Noteholders agree to various amendments to certain provisions of the Indenture. The Trustee, upon the consent and authorization of the Noteholders, has agreed to so amend certain provisions of the Indenture upon the terms and subject to the conditions and limitations of this Amendment. NOW, THEREFORE, in consideration of the premises, covenants and agreements contained herein, the parties hereto agrees as follows: Section 1. Definitions. The following capitalized terms shall have the following respective meanings when used herein: A. "Duke Consent Letter" shall mean that certain Letter Agreement dated as of February 18, 1999 executed by the Borrower and the Trustee. B. "Duke Transaction" shall mean the transactions contemplated by the Duke Consent Letter. C. "Lending Relationship" shall refer to the Indenture and the other Loan Documents, including, without limitation, this Amendment, together with any and all negotiations, discussions, acts, omissions, renewals, extensions, and other agreements or events related to the Indenture and such other Loan Documents, the parties' obligations thereunder and the transactions contemplated 2 thereby, including, without limitation, any such negotiations, discussions, acts, omissions, renewals, extensions, other agreements or events that (a) occurred prior to the date hereof, (b) may occur on the date hereof, or (c) occurred prior to the execution of this Amendment and the instruments and documents executed and delivered in connection herewith or relating hereto. D. "New Mortgage" shall mean that certain Mortgage, Deed of Trust, Assignment of Production, Security Agreement and Financing Statement (Non-Producing Properties) dated effective as of the date hereof from Brigham Oil & Gas, L.P. to Gray H. Muzzy, as Trustee, for the benefit of Trustee. E. "RELEASED CLAIMS" SHALL MEAN ANY AND ALL CLAIMS (INCLUDING WITHOUT LIMITATION ANY LIABILITIES, DAMAGES, DEMANDS AND CAUSES OF ACTION ARISING THEREFROM), WHETHER (A) AT LAW OR IN EQUITY, (B) ON THE ALLEGED COMMISSION OF A TORT, (C) ON THE ALLEGED BREACH (OR ANTICIPATORY BREACH OR REPUDIATION) OF ANY CONTRACT, DUTY, OR WARRANTY (WHETHER ORAL OR WRITTEN, EXPRESS OR IMPLIED), (D) ON THE ALLEGED VIOLATION OF ANY STATUTE, TARIFF, OR REGULATION (WHETHER PROMULGATED BY THE UNITED STATES, ANY STATE THEREOF, ANY FOREIGN STATE OR COUNTRY, OR ANY OTHER GOVERNMENTAL AGENCY OR ENTITY, WHEREVER LOCATED), OR (E) ON ANY OTHER FACTUAL, LEGAL OR EQUITABLE THEORY, INCLUDING, WITHOUT LIMITATION, ANY CLAIM FOR DAMAGES OF ANY TYPE OR NATURE, FOR INJUNCTIVE OR OTHER RELIEF, FOR ATTORNEYS' FEES, INTEREST OR ANY OTHER LIABILITY WHATSOEVER ON ANY THEORY, INCLUDING WITHOUT LIMITATION ANY LOSS, COST OR DAMAGE IN CONNECTION WITH OR BASED UPON "LENDER LIABILITY", UNFAIR DEALING, DURESS, COERCION, CONTROL OR UNDUE INFLUENCE, EXTORTION OR COMMERCIAL BRIBERY, BREACH OF AN IMPLIED COVENANT OR DUTY OF GOOD FAITH AND FAIR DEALING, MATERIAL MISREPRESENTATION OR OMISSION, OVERREACHING, UNCONSCIONABILITY, CONFLICT OF INTEREST, BAD FAITH, MALPRACTICE, DISPARATE BARGAINING POSITION, DETRIMENTAL RELIANCE, PROMISSORY ESTOPPEL, ESTOPPEL BY DEED, WAIVER, LACHES, OR ANY OTHER EQUITABLE THEORY, EQUITABLE SUBORDINATION, BREACH OF FIDUCIARY DUTY OR ANY OTHER DUTY, OR TORTIOUS INDUCEMENT TO COMMIT SUCH BREACH, TORTIOUS INTERFERENCE WITH CONTRACT OR PROSPECTIVE BUSINESS RELATIONS, NEGLIGENT PERFORMANCE OF CONTRACTUAL OBLIGATIONS, OR OTHER THEORIES OF NEGLIGENCE, NEGLIGENT OR INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS, SLANDER, LIBEL, OTHER DEFAMATION, FRAUDULENT TRANSFER, CONVERSION, TRESPASS TO (OR CLOUDING THE TITLE OF) PROPERTY, USURY, VIOLATIONS OF THE RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS ACT, DECEPTIVE TRADE PRACTICES, CONSPIRACY, OR ANY THEORY OF LIABILITY AS PARTNERS OR JOINT VENTURERS, THAT ANY RELEASING PARTY MAY HAVE AS OF THE DATE HEREOF AGAINST ANY RELEASED PARTY WITH RESPECT TO THE LENDING RELATIONSHIP. -2- 3 F. "Released Party" shall mean each of the Trustee, the Noteholders and their respective predecessors, successors, assigns, directors, officers, partners, employees, agents, attorneys, principals and Affiliates and all other Persons liable or who might be claimed to be liable on their behalf (collectively, the "Released Parties"). G. "Releasing Party" shall mean each of the Borrower and the Guarantors and their respective predecessors, successors, assigns, directors, officers, partners, employees, agents, attorneys, principals, Affiliates and all other Persons who might have a claim against any Released Party (collectively, the "Releasing Parties"). Section 2. Amendments to Indenture. The Indenture is amended hereby as follows: A. Section 1.01 is amended hereby as follows: (i) by deleting the definition of the term "Basic Documents" in its entirety and substituting the following therefor: ""Basic Documents" means, collectively, this Indenture, the Securities Purchase Agreement and the other Loan Documents, as each may be amended, supplemented or restated from time to time."; (ii) by inserting the following new definitions: ""First Borrowing Base Determination Date" means June 1, 1999."; ""Measurement Date" has the meaning set forth in the last paragraph of Section 9.02(a)" (iii) by inserting in the definition of the term "Guarantors" after the reference to "Brigham Holdings II, LLC", the reference "Sooner Production LLC"; and (iv) by deleting the reference "Section 7.09" in the definition of the term "Mortgage" and substituting the reference "Section 7.09(a)" therefor. B. Section 4.01(a) of the Indenture is amended hereby as follows: (i) by inserting in clause (ii) following the reference "and BOG", the phrase ", Sooner Production LLC and Quest Resources LLC"; and (ii) by inserting at the end of Section 4.01(a) the following: "; and (v) a Security Agreement substantially in the form of Exhibit D duly executed by BOG in favor of the Trustee for the ratable benefit of the Noteholders granting a security interest in all of BOG's right, title and interest in and to the Capital Stock of DND Oil & Gas, L.P. and Quest Resources LLC, together with proper UCC-1 Financing Statements duly filed -3- 4 in Texas; and (vi) a Security Agreement substantially in the form of Exhibit D duly executed by Sooner Production LLC in favor of the Trustee for the ratable benefit of the Noteholders granting a security interest in all of BOG's right, title and interest in and to the Capital Stock of Quest Resources LLC, together with proper UCC-1 Financing Statements duly filed in Texas, in each case as such Security Agreements may be amended, modified or supplemented from time to time." C. Section 4.01(c) of the Indenture is amended hereby as follows: (i) by deleting the word "A" from the beginning of such section and inserting the phrase "One or more". D. Section 4.01 (d) of the Indenture is amended hereby as follows: (i) by deleting the words "BOG, Brigham, Inc., Brigham Holdings I, LLC and Brigham Holding II, LLC" and replacing them with the words "the Guarantors". E. Section 7.01 of the Indenture is amended hereby as follows: (i) by inserting the following new subsection (c): "(c) Monthly Financial Statements. As soon as available and in any event within thirty (30) days after the end of each calendar month that is not also the end of one of the Borrower's first three fiscal quarterly periods or of the Borrower's fiscal year, consolidated statements of income and changes in financial position of the Borrower 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 March 31, 2000, statements setting forth in each case in comparative form the corresponding figures for the corresponding period in the preceding fiscal year, accompanied by the certificate of a Responsible Officer, which certificate shall state that such financial statements fairly present the consolidated financial condition and results of operations of the Borrower and its Consolidated Subsidiaries in accordance with GAAP, as at the end of, and for, such period (subject to normal year-end audit adjustments)."; (ii) by relettering the existing subsections (c) through (i) as subsections (d) through (j); (iii) by deleting in subsection (i), as relettered by (ii) above, the reference "Concurrent with the First Reserve Report and each January 1 Reserve Report thereafter" and substituting therefor the reference "On or before January 31 of each year"; and (iv) by inserting after the reference "paragraph (a) or (b)" in the final paragraph of Section 7.01 the reference "or (c)" and by inserting the phrase "(and for each June 30 quarter end -4- 5 and December 31 year end, commencing June 30, 2000, calculating the ratio described in the last paragraph of Section 9.02(a) for such Measurement Date). F. Section 7.07 of the Indenture is amended hereby by deleting each reference to "January 1" in subsection (b) and substituting therefor the reference "January 31". G. Section 7.09(a) of the Indenture is amended to add the following proviso at the end thereof: "; provided that, with respect to any non-proved properties, the phrase "second-priority" as found in the fifth line of this subsection 7.09(a) shall be replaced with the word "perfected" and the phrase "previous Collateral Documents" as found in the twelfth line of subsection 7.09(a) shall be replaced with the phrase "New Mortgage and any associated financing statements"." H. Section 8.01 of the Indenture is amended hereby as follows: (i) by deleting the reference "1.5 to 1.0" in the first sentence of subsection (a) and substituting therefore the reference "(A) for any Debt incurred on or after July 1, 1999 and on or before December 31, 1999, 1.3 to 1.0 and (B) for any Debt incurred on on or after January 1, 2000, 1.5 to 1.0."; and (ii) by deleting the sum "$75,000,000," from the last sentence of subsection (a) and replacing it with the phrase "the lesser of (i) $75,000,000 and (ii) the loan commitments available from time to time under such refinanced Senior Loan,". I. Section 8.16 of the Indenture is amended hereby deleting the section in its entirety and substituting the following therefor: "Section 8.16 Consolidated Interest Coverage Ratio. As of the last day of each fiscal quarter, beginning December 31, 1999, the Borrower will not permit the Consolidated Interest Coverage Ratio to be less than (i) 1.5 to 1.0 as of December 31, 1999, (ii) 1.75 to 1.0 as of March 31, 2000, and (iii) 2.0 to 1.0 as of the end of each fiscal quarter thereafter." J. Section 8.17 of the Indenture is amended hereby by deleting the reference "The" from the beginning of the first sentence and substituting therefore the reference "On and after December 31, 1999, the". K. Section 9.02 of the Indenture is amended hereby as follows: (i) by adding to the end of subsection (a) the following: "Notwithstanding the foregoing (i) if, as of any June 30 or December 31, commencing with June 30, 2000 (each such date being a "Measurement Date"), the ratio of (A) the Borrower's -5- 6 Adjusted Consolidated Net Tangible Assets as of such Measurement Date to (B) the sum of (1) Borrower's Consolidated Indebtedness as of such Measurement Date plus (2) past due interest on Debt as of such Measurement Date, is less than 2.0 to 1.0, the applicable rate of interest specified in this Section 9.01(a) as then in effect (including after giving effect to increases that may have occurred prior to the applicable Measurement Date, if any) shall increase by 0.5% effective as of such Measurement Date. Any such increase shall be effective from the applicable Measurement Date and remain effective (subject to subsequent additional increases pursuant to this paragraph, if any) until the Obligations are paid in full, subject to the provisions of Section 9.02(c) and 9.02(f)."; and (ii) by deleting the first five (5) sentences of subsection (b) and substituting the following therefore: "The Borrower shall have the option to pay accrued interest on the Notes in kind on each of the six (6) consecutive Interest Payment Dates commencing with and following February 20, 1999, as provided in this Section 9.02(b). In such event the accrued interest due on such Interest Payment Dates shall be calculated at the rates set forth in this Section 9.02(b) and the interest due (calculated at the rates set forth in this Section 9.02(b)) shall be deemed an advance of principal on the Notes and, as of the applicable Interest Payment Date, shall be added to the outstanding principal balance of the Notes (notwithstanding the outstanding principal balance may exceed, in the aggregate, the face amount of the Notes). In order to not exercise its option under this Section 9.02(b), the Borrower must, on or before the applicable Interest Payment Date, deliver written notice to the Agent executed by a Responsible Officer notifying Agent of its election to not pay interest in kind. Should Borrower fail to deliver such written notice in a timely fashion, Borrower shall be deemed to have irrevocably elected to make payment of accrued interest in kind on the next applicable Interest Payment Date. Should Borrower deliver such notice in a timely fashion, Borrower shall be deemed to have irrevocably elected to make payment of accrued interest in cash and any subsequent failure to do so in a timely fashion (subject to the thirty (30) day grace period provided in Section 10.01(a)) shall constitute an Event of Default hereunder." L. Exhibit D to the Indenture is amended in its entirety to read as set forth in Exhibit D attached hereto. Section 3. Covenants. The Borrower covenants and agrees that during the period from February 1, 1999 through and including June 1, 1999: A. The Borrower shall deliver weekly cash budgets reasonably satisfactory to the Agent in the form attached hereto as Exhibit B, and weekly cash flow statements reasonably satisfactory to the Agent based on such form, with variance analysis to budget (including accounts receivables and accounts payables reporting) not later than the Friday following the week to which such budgets and statements relate. B. The Borrower shall provide to the Agent from time to time upon request by the Agent the certificate of a Responsible Officer of the Borrower stating that, except as disclosed in a schedule -6- 7 thereto, the Borrower has not received written notice that any mechanics' liens have been filed or will be filed on the Mortgaged Properties; provided that mere receipt of an invoice for services rendered shall not constitute written notice that a mechanics' lien will be filed. C. The Borrower shall cause its Subsidiary, DND Oil & Gas, LLP, to transfer all assets held by it to BOG and, thereafter, to dissolve on or before June 1, 1999. D. The Borrower will not, and will not allow any of its Subsidiaries to, (i) transfer any assets to Quest Resources LLC or (ii) make any investments in or loans or advances to Quest Resources LLC. E. The Borrower shall deliver within 30 days after the date of this Agreement a First Amendment to Security Agreement executed by Brigham Holdings I, LLC and a First Amendment to Security Agreement executed by Brigham Holdings II, LLC, in each case in favor of the Agent, together with (a) evidence that all other actions necessary or, in the opinion of the Agent, desirable to perfect and protect the security interests and Liens granted thereby have been taken, and (b) an opinion of the Borrower's counsel in form reasonably satisfactory to the Agent. Breach by the Borrower and its Subsidiaries of any of the foregoing covenants (regardless of the reason therefor) shall constitute an Event of Default under the Indenture. Section 4. Conditions Precedent. This Amendment shall become binding upon receipt by the Agent of the following documents and satisfaction of the other conditions provided in this Section 4, each of which must be satisfactory to the Agent in form and substance: A. counterparts of this Amendment executed by the Borrower and the Trustee; B. The Borrower shall have satisfied all of its obligations under Section 7.09(a) of the Indenture, including the delivery to the Agent of all Mortgages required thereby; C. evidence that all new Mortgages (including the New Mortgage) and the related UCC-1 financing statements delivered pursuant to Section 7.09(a) of the Indenture have been filed in all jurisdictions necessary to perfect and protect the security interests, assignments and Liens created thereby; D. certificates of the Secretary or an Assistant Secretary of the Borrower and each of the Guarantors setting forth for each of them (i) the resolutions of its board of directors or managers (or if such Guarantor is a partnership, resolutions of the general partner of such partnership), as applicable, with respect to the authorization to execute and deliver this Amendment and consummate the transactions contemplated hereby; (ii) the Responsible Officer of such entity authorized to sign this Amendment, and (iii) the signature of such authorized Responsible Officer of such entity; E. a monthly cash budget for 1999 of the Borrower and its Subsidiaries, which shall include projected revenues, expenses and capital expenditures; -7- 8 F. a First Amendment to Security Agreement executed by the Borrower in favor of the Trustee and evidence that all other actions necessary or, in the opinion of the Agent desirable to perfect and protect the security interests and Liens granted thereby have been taken; G. a First Amendment to Security Agreement executed by Brigham, Inc. in favor of the Trustee granting, among other things, a second priority security interest in all of Brigham, Inc.'s right, title and interest in its ownership interests in Quest Resources LLC, and evidence that all other actions necessary or, in the opinion of the Agent, desirable to perfect and protect the security interests and Liens granted thereby have been taken; H. a First Amendment to Security Agreements executed by BOG in favor of the Trustee granting, among other things, a second priority security interest in all of BOG's right, title and interest in its ownership interests in Quest Resources LLC, and evidence that all other actions necessary or, in the opinion of the Agent, desirable to perfect and protect the security interests and Liens granted thereby have been taken; I. a First Amendment to Security Agreement executed by Brigham Holdings I, LLC in favor of the Trustee and evidence that all other actions necessary or, in the opinion of the Agent, desirable to perfect and protect the security interests and Liens granted thereby have been taken; J. a First Amendment to Security Agreement executed by Brigham Holdings II, LLC in favor of the Trustee and evidence that all other actions necessary or, in the opinion of the Agent, desirable to perfect and protect the security interests and Liens granted thereby have been taken; K. a First Amendment to Security Agreement executed by Sooner Production LLC in favor of the Trustee and evidence that all other actions necessary or, in the opinion of the Agent, desirable to perfect and protect the security interests and Liens granted thereby have been taken; L. a Consent and Acknowledgment executed by each of the Guarantors; M. an opinion of counsel to Borrower substantially in the form attached hereto as Exhibit C; N. duly executed warrants issued by the Borrower to ECT and JEDI-II in their respective Participations in substitution for the original Warrants issued pursuant to Section 2.03 of the Securities Purchase Agreement, for the purchase of an aggregate of 1,000,000 shares of Common Stock, and which warrants shall constitute the "Warrants" under the Indenture and the Securities Purchase Agreement for all purposes; O. payment of the expenses of the Agent and the Noteholders in accordance with Section 7 hereof; and P. such other documents as Agent or its counsel may reasonably request. -8- 9 Section 5. Representations and Warranties. A. Except as provided in subsection (iii) of this Section 5.A., the Borrower hereby reaffirms that, as of the date of this Amendment, the representations and warranties made by the Borrower in the Securities Purchase Agreement are true and correct as though made on and as of the date hereof, and further, the Borrower represents that, (i) as of the date hereof, no Default or Material Adverse Effect has occurred and is continuing except as previously disclosed to the Agent in writing; (ii) the execution, delivery and performance by the Borrower or the Guarantors of this Amendment and the other Loan Documents and all instruments and documents to be delivered by the Borrower or the Guarantors, to the extent a party thereto, hereunder and thereunder and the creation of all Liens provided for herein and therein: (a) are within the Borrower's or such Guarantor's corporate power; (b) have been duly authorized by all necessary or proper corporate action, including the consent of stockholders, members and/or partners therein or thereof; (c) are not in contravention of any provision of the Borrower's or such Guarantor's certificate of incorporation, bylaws or similar organizational and/or governing documents; (d) will not violate (1) any law or regulation or (2) any order or decree of any court or governmental instrumentality; (e) will not conflict with or result in the breach or termination of, constitute a default under or accelerate any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which the Borrower or any of the Guarantors is a party or by which the Borrower or any of the Guarantors or any of their respective property is bound; (f) will not result in the creation or imposition of any Lien upon any of the property of the Borrower or the Guarantors other than those in favor of the Agent pursuant to the terms of this Amendment and the other Loan Documents to be delivered in connection herewith; and (g) do not require the consent or approval of any governmental body, agency, authority or any other Person that has not been duly obtained, made or complied with prior to the date hereof. At or prior to the date hereof, each of this Amendment and the other Loan Documents to be delivered in connection herewith shall have been duly executed and delivered for the benefit of or on behalf of the Borrower or the Guarantors, in each case to the extent a party thereto, and each shall then constitute a legal, valid and binding obligation of the Borrower or such Guarantor, enforceable against it in accordance with its terms; and (iii) notwithstanding the foregoing, the representations and warranties contained in the last sentence of Section 4.10(a) of the Securities Purchase Agreement (and not those contained in the first two sentences) are reaffirmed with respect to the Mortgaged Property covered by or described in the New Mortgage. B. Each of the Borrower and the Guarantors further represents and warrants, for itself only that it (i) is executing this Amendment, and the documents executed in connection herewith to which it is a party, after consultation with counsel of its own choosing, (ii) has read and understands the release granted by Section 6 hereof, (iii) desires to execute this Amendment and such documents to which it is a party and (iv) has the requisite authority to enter into and be bound by this Amendment and such documents to which it is a party, including the release granted by Section 6 hereof. -9- 10 Section 6. Release. A. EACH OF THE RELEASING PARTIES DESIRES AND INTENDS FULLY TO COMPROMISE, RELEASE AND SETTLE ANY AND ALL OF THE RELEASED CLAIMS; AND EACH OF THE RELEASING PARTIES HEREBY COVENANTS, WARRANTS AND REPRESENTS UNTO EACH OF THE RELEASED PARTIES THAT SUCH RELEASING PARTY DOES HEREBY FOREVER RELEASE, ACQUIT, WAIVE AND DISCHARGE EACH OF THE RELEASED PARTIES OF AND FROM THE RELEASED CLAIMS AND EACH OF THE RELEASING PARTIES HEREBY DECLARES THE SAME FOREVER RELEASED, ACQUITTED, WAIVED, SETTLED AND DISCHARGED. THIS RELEASE IS EFFECTIVE WITHOUT REGARD TO WHETHER (I) SUCH RELEASED CLAIMS ARE KNOWN OR UNKNOWN, (II) DAMAGES ARISING OUT OF SUCH RELEASED CLAIMS HAVE YET ACCRUED, (III) SUCH RELEASED CLAIMS AROSE COLLATERALLY, DIRECTLY, DERIVATIVELY, OR OTHERWISE BETWEEN THE PARTIES HERETO OR (IV) AN ORDINARY PERSON IN THE SAME OR SIMILAR CIRCUMSTANCES WOULD OR WOULD NOT, THROUGH THE EXERCISE OF DUE CARE, HAVE DISCOVERED SUCH CLAIMS BY THE DATE OF THIS AMENDMENT. IN CONNECTION WITH THE FOREGOING RELEASE: B. Borrower and each of the Guarantors represents and warrants that it has the full power and authority to perform the release granted in this Section 6 and that it has not in any manner made any assignment of any Released Claim to any third party. C. The release granted in this Section 6 will be effective upon execution of this Amendment by all of the parties hereto. D. Each party executing this Amendment understands and agrees that the release granted in this Section 6 is a full, final and complete release of the Released Claims and that such release may be pleaded as an absolute and final bar to any or all suits which may hereafter be filed or prosecuted by any one or more of the Releasing Parties or anyone claiming by, through or under any one or more of the Releasing Parties in respect of any of the matters released hereby, and that no recovery on account of the Released Claims may hereafter be had from any of the Released Parties; and that the consideration given for such release is not an admission of liability or fault on the part of any of the Released Parties (it being the express intent of the parties hereto to obtain peace of mind and avoid the expense and uncertainty of potential litigation), and that none of the Releasing Parties or those claiming by, through or under any of them will ever claim that it is. E. The parties hereto acknowledge that the release granted by this Section 6 does not have any effect with respect to relationships between the Borrower and each of the Guarantors and the Noteholders and the Agent other than in connection with the Lending Relationship. Section 7. Payment of Fees and Expenses; Form of Payment. A. The Borrower agrees, whether or not the transactions contemplated hereby are consummated, to pay all reasonable expenses of the Agent and the Noteholders (including, without -10- 11 limitation, all reasonable fees and disbursements of counsel and other outside consultants for the Agent and/or the Noteholders) in connection with the negotiation, investigation, preparation, execution and delivery of, recording and filing of, preservation of rights under and enforcement of this Amendment and the other Loan Documents to be delivered in connection herewith. B. All payments to be made by the Borrower under this Amendment shall be made in Dollars, in immediately available funds, to the Agent at such account as the Agent shall specify. Section 8. Limitations. The amendments set forth herein are limited precisely as written and shall not be deemed to (a) be a consent to, or waiver or modification of, any other term or condition of the Securities Purchase Agreement or the Indenture or any of the other Loan Documents, or (b) prejudice any right or rights which the Noteholders or the Agent may now have or may have in the future under or in connection with the Securities Purchase Agreement or the Indenture or any of the other Loan Documents. Except as expressly supplemented, amended or modified hereby, the terms and provisions of the Securities Purchase Agreement or the Indenture or any other Loan Documents are and shall remain in full force and effect. In the event of a conflict between this Amendment and any of the foregoing documents, the terms of this Amendment shall be controlling. Section 9. Governing Law. This Amendment and the rights and obligations of the parties hereunder and under the Indenture shall be construed in accordance with and be governed by the laws of the State of Texas and the United States of America. Section 10. Descriptive Headings, etc. The descriptive headings of the several Sections of this Amendment are inserted for convenience only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. Section 11. Counterparts. This Amendment may be executed in any number of counterparts and by different parties on separate counterparts and all of such counterparts shall together constitute one and the same instrument. -11- 12 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first written above. NOTICE PURSUANT TO TEX. BUS. & COMM. CODE SECTION 26.02 THIS AMENDMENT AND OTHER LOAN DOCUMENTS EXECUTED BY ANY OF THE PARTIES BEFORE OR SUBSTANTIALLY CONTEMPORANEOUSLY WITH THE EXECUTION HEREOF TOGETHER CONSTITUTE A WRITTEN LOAN AGREEMENT AND REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENT BETWEEN THE PARTIES. BORROWER: BRIGHAM EXPLORATION COMPANY By: /s/ Karen E. Lynch --------------------------------------- Karen E. Lynch Vice President TRUSTEE: CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as Trustee By: /s/ Mauri J. Cowen ---------------------------------------- Mauri J. Cowen Vice President and Trust Officer -12- 13 GUARANTORS: BRIGHAM INC., a Nevada corporation By: /s/ Karen E. Lynch --------------------------------------- Karen E. Lynch Vice President BRIGHAM OIL & GAS, L.P. By: Brigham, Inc. a Nevada corporation, its General Partner By: /s/ Karen E. Lynch ---------------------------------------- Karen E. Lynch Vice President BRIGHAM HOLDINGS I, LLC By: /s/ Ben M. Brigham ---------------------------------------- Name: Ben M. Brigham -------------------------------------- Title: President ------------------------------------ BRIGHAM HOLDINGS II, LLC By: /s/ Ben M. Brigham ---------------------------------------- Name: Ben M. Brigham -------------------------------------- Title: President ------------------------------------- DND OIL & GAS, L.P., a Texas limited partnership By: Sooner Production Company, LLC, a Texas limited liability company, its General Partner By: /s/ Karen E. Lynch ---------------------------- Karen E. Lynch Vice President -13- 14 SOONER PRODUCTION COMPANY, LLC, a Texas limited liability company By: /s/ Karen E. Lynch ---------------------------------------- Karen E. Lynch Vice President -14- 15 The Noteholders have joined herein solely for the purpose of evidencing their (i) consent to the foregoing, and (ii) authorization to the Trustee to execute this Amendment: JOINT ENERGY DEVELOPMENT INVESTMENTS II LIMITED PARTNERSHIP, a Delaware limited partnership, as Purchaser By: Enron Capital Management II Limited Partnership, its General Partner By: Enron Capital II Corp., its General Partner By: /s/ Mark J. Warner ------------------------------- Mark J. Warner Agent and Attorney-in-Fact ENRON CAPITAL & TRADE RESOURCES CORP., a Delaware corporation By: /s/ Mark J. Warner ------------------------------------ Mark J. Warner Agent and Attorney-in-Fact EX-4.3 3 FORM OF WARRANT CERTIFICATE 1 Exhibit 4.3 FORM WARRANT CERTIFICATE Number of Warrants: See Schedule I Warrant No. See Schedule I This warrant certificate ("Warrant Certificate") certifies that, for value received, See Schedule I 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. The Warrants constitute, as of the initial Issuance Date, 4.9206% of the outstanding Common Stock on a fully diluted basis including, for purposes of such calculation, the Acquired Shares and the Warrant Shares. Initially capitalized terms used but not defined herein shall have the meanings ascribed to them in the Securities Purchase Agreement. This Warrant Certificate amends and restates Warrant No. [see Schedule I] issued to [See Schedule I] on August 20, 1998. "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 Funding Date, as defined in the Securities Purchase Agreement 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 $3.50. "Expiration Date" means August 22, 2008. "Funding Date" is defined in the Securities Purchase Agreement. "IPO" shall mean the initial public offering of securities of the Company consummated on May 24, 1997, pursuant to a registration statement filed under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Issuance Date" means August 20, 1998. 2 "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. "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 "high" and "low" 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 "high" and "low" 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, or, in all other cases, the Estimated Private Market Equity Value divided by the number of outstanding shares (on a fully diluted basis using the treasury stock method). 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 August 20, 1998, among the Company, Enron Capital & Trade Resources Corp. and Joint Energy Development Investments II Limited Partnership, individually and as agent. 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 presentation and surrender to the Company at its address set forth in Section 9 of (i) this Warrant Certificate with the Election To Exercise, attached hereto as Exhibit A, duly completed and executed, and (ii) payment of the Exercise Price, by bank draft or cashier's check, for the number of Warrants being exercised. If the holder of this Warrant Certificate at any time exercises less than all the Warrants, the Company shall issue to such 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 9 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. -2- 3 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: (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 subsection 2(b) applies), or in case of any consolidation or merger of the Company with or into another 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 subsection 2(a). The provisions of this subsection 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 -3- 4 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. (d) Certain Issuances of Securities. If the Company at any time after the Issuance Date shall issue any additional shares of Common Stock (otherwise than as provided in paragraphs (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, 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 paragraph (d) upon the issuance of any additional shares of Common Stock that (y) are issued pursuant to thrift plans, stock purchase plans, stock bonus plans, stock option plans, employee stock ownership plans and other incentive or profit sharing arrangements for the benefit of employees ("Employee Benefit Plans") that otherwise would cause an adjustment under this paragraph (d); provided that the aggregate number of shares of Common Stock so issued (including the shares issued pursuant to any options, rights or warrants or convertible or exchangeable securities issued under such Employee Benefit Plans containing the right to purchase shares of Common Stock) pursuant to Employee Benefit Plans after the closing date of the IPO, as adjusted for any stock splits, stock dividends or subdivisions or combinations of Common Stock prior to the Expiration Date, shall not in the aggregate exceed 5% of the Company's outstanding Common Stock at the time of such issuance; or (z) 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 paragraph (e) of this Section 2 or (ii) if no adjustment was required pursuant to paragraph (e) of this Section 2. (e) Common Stock Equivalents. If the Company shall, after the Issuance Date, issue any security or evidence of indebtedness which is convertible into or exchangeable for -4- 5 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"), or if, after any such issuance, the price per share for which additional shares of Common Stock may be issuable thereunder is amended, then the Exercise Price upon each such issuance or amendment shall be adjusted as provided in subsection (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 earlier of (a) the date on which the Company shall enter into a firm contract for the issuance of such Common Stock Equivalent, or (b) the date of actual 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; provided, however, that no adjustment shall be made pursuant to this subsection (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 subsection (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 subsection (e). (f) 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, -5- 6 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 subsection (c) above) consideration equal to the amount of such dividend so paid or satisfied. 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 subsection (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 subparagraph (i) of this paragraph (f)) 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. For the purposes 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 subsection (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. (g) 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. -6- 7 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. 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. 5. 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 a 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; 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 of stock; or -7- 8 (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. 6. REPORTS TO WARRANT HOLDERS. The Company will cause to be delivered, by first-class mail, postage prepaid, to the 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. 7. 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, free from preemptive rights, 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 any stockholders agreement. (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 Company; provided, that the Company shall not be required to pay any tax or charge imposed -8- 9 in connection with any transfer involved in the issuance of any certificate 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 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"), but in any event no later than the 10th business day after receipt of such notice, the Company will (i) prepare and file with the 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 the request of the holder, request early termination of the waiting period imposed by the HSR Act, (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, (iv) use its best efforts to take, or cause to be taken, all reasonable action and to do, or cause to be done, all things necessary and appropriate to permit the issuance to the holder of the shares of Common Stock issuable upon the exercise of the warrants with respect to which any filing is required under the HSR Act, and (v) reimburse the holder for the entire amount of any filing fee or any other costs and expenses incurred by the holder in connection therewith (including legal fees), or as required to be paid under the HSR Act. (f) QUOTATION ON NASDAQ. The Company shall maintain the designation and quotations, or listing, of its Common Stock on the NASDAQ national market (or on the New York Stock Exchange or the American Stock Exchange) until the date on which none of the Warrants or Warrant Shares remain outstanding. 8. 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. 9. NOTICES. All notices provided for hereunder shall be in writing and may be given by registered or certified mail, return receipt requested, telex, telegram, telecopier, air courier guaranteeing overnight delivery of personal delivery, if to the holder at the following address: -9- 10 ----------------------- ----------------------- ----------------------- ----------------------- Attention: ------------- Telecopier: ------------ and, if to the Company: Brigham Exploration Company 6300 Bride Point Parkway Building 2, Suite 500 Austin, Texas 78730 Attention: Craig M. Fleming Telecopier: (512) 472-3400 10. GOVERNING LAW. This Warrant Certificate shall be governed by and construed in accordance with the laws of the State of Texas without regard to principles of conflict of laws. 11. 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. 12. ASSIGNMENT. The holder of this Warrant Certificate shall be entitled, without obtaining the consent of the Company, to transfer or assign its rights, title and interest in (and rights, title and interest under) this Warrant Certificate in whole or in part to any Person or Persons. Upon surrender of this Warrant Certificate to the Company, with the Transfer Form annexed hereto as Exhibit B duly executed, the Company shall, without charge, execute and deliver a new warrant certificate or warrant certificates, identical in form to this Warrant Certificate, evidencing the number of Warrants being transferred pursuant to the Transfer Form in the name of the assignee or assignees named in such Transfer Form. If the holder's entire interest is not being assigned, the Company shall, without charge, execute and deliver one or more new warrant certificates 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 being transferred pursuant to the Transfer Form, and this Warrant Certificate shall promptly be canceled. The terms and provisions of this Warrant Certificate shall inure to the benefit of the holder and its successors and assigns and shall be binding upon the Company and its successors and assigns, including, without limitation, any Person succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets. -10- 11 IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be executed as of March 26, 1999, by the undersigned, thereunto duly authorized. BRIGHAM EXPLORATION COMPANY By: /s/ Karen E. Lynch ---------------------------------------- Karen E. Lynch Vice President -11- 12 EXHIBIT A ELECTION TO EXERCISE [To be executed on exercise of the Warrants evidenced by this Warrant Certificate] TO: Brigham Exploration Company The undersigned, the holder of the Warrants evidenced by the attached Warrant Certificate, hereby irrevocably elects to exercise Warrants, and herewith makes payment of ($______) representing the aggregate Exercise Price thereof, and requests that the certificate representing the securities issuable hereunder be issued in the name of _____________________ and delivered to , whose address is ___________________________________________. Dated: --------------------- Name of Registered Holder: ------------------- Signature: --------------------------------- Title: ------------------------------------- Address: ----------------------------------- NOTICE: The above signature(s) must correspond with the name as written on the face of the Warrant Certificate in every detail, without alteration or enlargement or any change whatsoever. -12- 13 EXHIBIT B TRANSFER FORM [To be executed only upon transfer of the Warrants evidenced by this Warrant Certificate] FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ______________________________________________________ the Warrants represented by the within Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint _____________________________________ Attorney-in-Fact, to transfer same on the books of the Company with full power of substitution in the premises. Dated: -------------------- Name of Registered Holder: ---------------- Signature: --------------------------------- Title: ------------------------------------- Address: ----------------------------------- WITNESS: - ---------------------------------- NOTICE: The above signature(s) must correspond with the name as written on the face of the Warrant Certificate in every detail, without alteration or enlargement or any change whatsoever. -13- 14 SCHEDULE I ----------
Warrant Number Issued To Number of Warrants - -------------- --------- ------------------ A-3 ECT MERCHANT INVESTMENTS CORP. 250,000 A-4 JOINT ENERGY DEVELOPMENT 750,000 INVESTMENTS II LIMITED PARTNERSHIP
Warrant No. A-3 amends and restates Warrant No. 1 issued to Enron Capital & Trade Resources Corp; and Warrant No. A-4 amends and restates Warrant No. A-2 issued to Joint Energy Development Investments II Limited Partnership. -14- EX-10.36.2 4 2ND AMENDMENT TO CREDIT AGREEMENT - 3/26/1999 1 EXHIBIT 10.36.2 SECOND AMENDMENT TO CREDIT AGREEMENT SECOND AMENDMENT TO CREDIT AGREEMENT, dated as of March 26, 1999 ("this Amendment"), among Brigham Oil & Gas, L.P., a limited partnership formed under the laws of the State of Delaware (the "Borrower"), the financial institutions party to the Credit Agreement referred to below (each a "Lender" and collectively the "Lenders") and Bank of Montreal, a Canadian bank, as agent for Lenders under the Credit Agreement (in such capacity, the "Agent"). RECITALS WHEREAS, the Borrower, the Lenders and the Agent are parties to that certain Credit Agreement, dated as of January 26, 1998, as amended by that certain First Amendment to Credit Agreement, dated as of August 20, 1998 (as so amended, the "Credit Agreement"); and WHEREAS, the Borrower has advised the Lenders and the Agent that it desires to amend certain provisions of the Credit Agreement, and the Borrower has requested that the Lenders and the Agent agree to various amendments to certain provisions of the Credit Agreement; and WHEREAS, the Lenders and the Agent have agreed to so amend certain provisions of the Credit Agreement upon the terms and subject to the conditions and limitations of this Amendment; NOW, THEREFORE, in consideration of the premises, covenants and agreements contained herein, the parties hereto hereby agrees as follows: Section 1. Definitions. Capitalized terms used and not otherwise defined herein are used with the meanings ascribed thereto in the Credit Agreement. The following capitalized terms shall have the following respective meanings when used herein: A. "Duke Consent Letter" shall mean that certain Letter Agreement dated as of February 18, 1999 executed by the Borrower and the Lenders, a copy of which is attached hereto as Exhibit A. B. "Duke Transaction" shall mean the transactions contemplated by the Duke Consent Letter. C. "Lending Relationship" shall refer to the Credit Agreement and the other Loan Documents, including, without limitation, this Amendment, together with any and all negotiations, discussions, acts, omissions, renewals, extensions, and other agreements or events related to the Credit Agreement and such other Loan Documents, the parties' obligations thereunder and the transactions contemplated thereby, including, without limitation, any such negotiations, discussions, acts, omissions, renewals, extensions, other agreements or events that (a) occurred prior to the date hereof, (b) may 1 2 occur on the date hereof, or (c) occurred prior to the execution of this Amendment and the instruments and documents executed and delivered in connection herewith or relating hereto. D. "New Mortgage" shall mean that certain Mortgage, Deed of Trust, Assignment of Production, Security Agreement and Financing Statement dated as of the date hereof from Brigham Oil & Gas, L.P. to Thomas McGraw, as Trustee, for the benefit of Bank of Montreal, as Agent. E. "Released Claims" shall mean any and all claims (including without limitation any liabilities, damages, demands and causes of action arising therefrom), whether (a) at law or in equity, (b) on the alleged commission of a tort, (c) on the alleged breach (or anticipatory breach or repudiation) of any contract, duty, or warranty (whether oral or written, express or implied), (d) on the alleged violation of any statute, tariff, or regulation (whether promulgated by the United States, any state thereof, any foreign state or country, or any other governmental agency or entity, wherever located), or (e) on any other factual, legal or equitable theory, including, without limitation, any claim for damages of any type or nature, for injunctive or other relief, for attorneys' fees, interest or any other liability whatsoever on any theory, including without limitation any loss, cost or damage in connection with or based upon "lender liability", unfair dealing, duress, coercion, control or undue influence, extortion or commercial bribery, breach of an implied covenant or duty of good faith and fair dealing, material misrepresentation or omission, overreaching, unconscionability, conflict of interest, bad faith, malpractice, disparate bargaining position, detrimental reliance, promissory estoppel, estoppel by deed, waiver, laches, or any other equitable theory, equitable subordination, breach of fiduciary duty or any other duty, or tortious inducement to commit such breach, tortious interference with contract or prospective business relations, negligent performance of contractual obligations, or other theories of negligence, negligent or intentional infliction of emotional distress, slander, libel, other defamation, fraudulent transfer, conversion, trespass to (or clouding the title of) property, usury, violations of the Racketeer Influenced and Corrupt Organizations Act, deceptive trade practices, conspiracy, or any theory of liability as partners or joint venturers, that any Releasing Party may have as of the date hereof against any Released Party with respect to the Lending Relationship. F. "Released Party" shall mean each of the Agent, the Lenders and their respective predecessors, successors, assigns, directors, officers, partners, employees, agents, attorneys, principals and Affiliates and all other Persons liable or who might be claimed to be liable on their behalf (collectively, the "Released Parties"). G. "Releasing Party" shall mean each of the Borrower and the Guarantors and their respective predecessors, successors, assigns, directors, officers, partners, employees, agents, attorneys, principals, Affiliates and all other Persons who might have a claim against any Released Party (collectively, the "Releasing Parties"). 2 3 Section 2. Amendments to Credit Agreement. The Credit Agreement is amended hereby as follows: A. Section 1.02 is amended hereby: (i) by deleting the definition of the term "Aggregate Maximum Credit Amounts" in its entirety and substituting the following therefor: "'Aggregate Maximum Credit Amounts' at any time shall equal the sum of the Maximum Credit Amounts of the Lenders ($65,000,000), as the same may be reduced pursuant to Section 2.03(b) and Section 2.07(d)."; (ii) by deleting the definition of the term "Applicable Margin" in its entirety and substituting the following therefor: "'Applicable Margin' shall mean (i) 2% with respect to Base Rate Loans and (ii) 3% with respect to Eurodollar Loans."; (iii) by deleting the reference "and to participate in the Letters of Credit as provided in Section 2.01(b)" in the definition of the term "Commitment"; (iv) by deleting the reference "January 31, 1999" in the definition of the term "First Borrowing Base Determination Date" and substituting therefor the reference "June 1, 1999"; (v) by inserting in the definition of the term "Guaranty Agreements" after the reference to "Brigham Holdings II, LLC", the reference "Sooner Production LLC"; (vi) by deleting all text after the word "Loans" in the definition of the term "Initial Funding" and inserting a period after the word "Loans"; (vii) by deleting the first paragraph of the definition of the term "Interest Period" in its entirety and substituting therefor the following new definition: "'Interest Period' shall mean, with respect to (i) any Eurodollar Loan made prior to the First Borrowing Base Determination Date, the period commencing on the date such Eurodollar Loan is made and ending on the numerically corresponding day in the first month thereafter, and (ii) any Eurodollar Loan made after the First Borrowing Base Determination Date, the period commencing on the date such Eurodollar Loan is made and ending on the numerically corresponding day in the first or third calendar month thereafter, as Borrower may select as provided in Section 2.02, except that each Interest Period which commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month."; 3 4 (viii) by deleting the definition of the term "Issuing Bank" in its entirety; (ix) by deleting the definition of the term "LC Commitment" in its entirety; (x) by deleting the definition of the term "LC Exposure" in its entirety; (xi) by deleting the definition of the term "Letter of Credit Agreements" in its entirety; (xii) by deleting the definition of the term "Letters of Credit" in its entirety; (xiii) by deleting the reference "the Letters of Credit, the Letter of Credit Agreements," and the reference ", or reimbursement obligations under the Letters of Credit," in the definition of the term "Loan Documents"; and (xiv) by deleting the reference "Section 8.09(a)" in the definition of the term "Mortgage" and substituting the reference "Section 8.09(b)" therefor. B. Section 2.01 of the Credit Agreement is amended hereby as follows: (i) by deleting the reference "and Letters of Credit" in the section title; (ii) by deleting the reference "together with the LC Exposure" in subsection (a); and (iii) by deleting the text of subsection (b) in its entirety and substituting therefor the reference "Intentionally left blank." C. Section 2.02 of the Credit Agreement is amended hereby as follows: (i) by deleting the reference "and Letters of Credit" in the section title; (ii) by deleting the reference "All" in the third sentence of subsection (d) and substituting the following therefor: "So long as the Borrowing Base is equal to or greater than the outstanding principal amount of the Loans, all"; and (iii) by deleting the reference "All" in the third sentence of subsection (e) and substituting the following therefor: "So long as the Borrowing Base is equal to or greater than the outstanding principal amount of the Loans, all"; and 4 5 (iv) by deleting subsection (g) in its entirety. D. Section 2.03 of the Credit Agreement is amended hereby by deleting the text of subsection (a) in its entirety, and substituting the following therefor: "The Aggregate Commitments shall at all times be equal to $65,000,000 until the First Borrowing Base Determination Date after which date the Aggregate Commitments shall be equal to the lesser of (i) the Aggregate Maximum Credit Amounts or (ii) the Borrowing Base as determined from time to time.". E. Section 2.04 of the Credit Agreement is amended hereby by deleting the title and text of subsection (b) in their entirety and substituting therefor the reference "Intentionally left blank." F. Section 2.05 of the Credit Agreement is amended hereby by deleting the reference "or to provide funds for disbursements or reimbursements under Letters of Credit". G. Section 2.07 of the Credit Agreement is amended hereby as follows: (i) by deleting the reference to "plus the LC Exposure" in subsection (b); (ii) by deleting the text of subsection (c) in its entirety and substituting the following therefor: "Upon any redetermination of the amount of the Borrowing Base in accordance with Section 2.08, if the redetermined Borrowing Base is less than the aggregate outstanding principal amount of the Loans then, within ninety (90) days (or such shorter period as hereinafter provided) of receipt of written notice of the redetermined Borrowing Base, the Borrower shall prepay the Loans in an aggregate principal amount equal to such excess, together with interest on the principal amount paid accrued to the date of such prepayment; provided however, that following the first Borrowing Base determination such required prepayment shall be made on or before thirty (30) days after such first Borrowing Base determination if the amount of the required payment equals or exceeds an amount equal to 10% of the redetermined Borrowing Base."; and (iii) by inserting the following reference before the last sentence of subsection (d): "Prior to the initial Borrowing Base determination, all prepayments on the Loans shall reduce the Maximum Credit Amounts pro tanto; provided that immediately following any such prepayment the Maximum Credit Amounts shall be automatically reinstated pro tanto in an aggregate amount equal to the lesser of (i) $5,000,000 and (ii) the amount of such prepayment." 5 6 H. Section 2.08 of the Credit Agreement is amended hereby by as follows: (i) by deleting the reference "or any LC Exposure" in subsection (a); (ii) by deleting the text of subsection (c) in its entirety and substituting the following therefor: "The Agent may exclude any Oil and Gas Property or portion of production therefrom or any income from any other Property from the Borrowing Base, at any time, because title information is not reasonably satisfactory, such Property is not Mortgaged Property or such Property is not assignable. No Property of the Borrower subject to the New Mortgage nor any production or income therefrom shall be included in the Borrowing Base until such time as an amendment or supplement to the New Mortgage in form satisfactory to the Agent is filed of record, which shall contain with respect to such Property such representations, warranties and covenants as to title, defense of title, revenue and cost bearing interest, rentals paid and leases in effect, and such other provisions, as the Agent may request." I. Section 2.09 of the Credit Agreement is amended hereby by deleting the title and text of such section in its entirety and substituting therefor the reference "Intentionally left blank." J. Section 2.10 of the Credit Agreement is amended hereby by deleting the title and text of such section in its entirety and substituting therefor the reference "Intentionally left blank." K. Section 3.02 of the Credit Agreement is amended hereby by deleting the paragraph beginning "Accrued interest on Base Rate Loans" in its entirety and substituting the following therefor: "Accrued interest on Base Rate Loans shall be payable on the last day of each calendar month, and accrued interest on each Eurodollar Loan shall be payable on the last day of the Interest Period therefor and, if such Interest Period is longer than one month at one-month intervals following the first day of each Interest Period, except that interest payable at the Post-Default Rate shall be payable from time to time on demand and interest on any Eurodollar Loan that is converted into a Base Rate Loan (pursuant to Section 5.04) shall be payable on the date of conversion (but only to the extent so converted)." L. Section 4.02 of the Credit Agreement is amended hereby as follows: (i) by inserting the word "and" before the reference "(iii)"; and 6 7 (ii) by deleting the reference "and (iv) each reimbursement by the Borrower of disbursements under Letters of Credit shall be made for the account of the Issuing Bank or, if funded by the Lenders, pro rata for the account of the Lenders, in accordance with the amounts of reimbursement obligations due and payable to each respective Lender". M. Section 4.04 of the Credit Agreement is amended hereby by deleting the reference "or a payment under a Letter of Credit to be made by it hereunder". N. Section 4.05 of the Credit Agreement is amended hereby by deleting the following references in subsection (b): (i) "(or reimbursement as to any Letter of Credit)"; (ii) "(or reimbursement)"; (iii) "(or participants in Letters of Credit)"; (iv) "(or reimbursements of Letters of Credit)"; and (v) "(or Letters of Credit)". O. Section 5.01 of the Credit Agreement is amended hereby by deleting all references to "Letters of Credit" in subsections (a), (c) and (d). P. Section 5.06 of the Credit Agreement is amended hereby by deleting the reference "and participation interests in Letters of Credit (if any)" in subsection (d). Q. Section 6.02 of the Credit Agreement is amended hereby as follows: (i) by deleting the reference "and Letters of Credit" in the section title; (ii) by deleting the reference "and to issue, renew, extend or reissue Letters of Credit for the account of the Borrower" in the introductory paragraph of such section; and (iii) by deleting all references "or issuance, renewal, extension or reissuance of a Letter of Credit" in subsection (c). R. The introductory language to Article VII of the Credit Agreement is amended hereby by deleting the reference "and issuance, renewal, extension or reissuance of a Letter of Credit". S. Section 8.01 of the Credit Agreement is amended hereby as follows: (i) by inserting the following new subsection (c): 7 8 "(c) Monthly Financial Statements. As soon as available and in any event within thirty (30) days after the end of each calendar month that is not also the end of one of Brigham Exploration's first three fiscal quarterly periods or of Brigham Exploration's fiscal year, consolidated statements of income and changes in financial position of Brigham Exploration 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 March 31, 2000, statements setting forth in each case in comparative form the corresponding figures for the corresponding period in the preceding fiscal year, accompanied by the certificate of a Responsible Officer, which certificate shall state that such financial statements fairly present the consolidated financial condition and results of operations of Brigham Exploration and its Consolidated Subsidiaries in accordance with GAAP, as at the end of, and for, such period (subject to normal year-end audit adjustments)."; (ii) by relettering the existing subsections (c) through (i) as subsections (d) through (j); (iii) by deleting in subsection (i), as relettered by (ii) above, the reference "Concurrent with the First Reserve Report and each January 1 Reserve Report thereafter" and substituting therefor the reference "On or before January 31 of each year"; and (iv) by inserting after the reference "paragraph (a) or (b)" in the final paragraph of Section 8.01 of the reference "or (c)". T. Section 8.07 of the Credit Agreement is amended hereby as follows: (i) by deleting the text of subsection (a) in its entirety and substituting therefor the reference "Intentionally left blank"; and (ii) by deleting the reference "January 31, 1999 " in the first sentence of subsection (b) and substituting therefor the reference "June 1, 1999"; and; (ii) by deleting each reference to "January 1" in subsection (b) and substituting therefor the reference "January 31". U. Section 8.09 of the Credit Agreement is amended hereby as follows: (i) by deleting the text of subsection (a) in its entirety and substituting the following therefor: "The Borrower will grant and will cause each of its Subsidiaries to grant to the Agent as security for the Indebtedness a perfected Lien on the Borrower's or such Subsidiary's interest in any Oil and Gas Properties 8 9 acquired after the date hereof at the cash acquisition cost to the Borrower or such Subsidiary equal to or exceeding $1,000,000, which Lien will be created and perfected by and in accordance with the provisions of deeds of trust, security agreements and financing statements, or other Loan Documents, all in form substantially the same as the New Mortgage (subject to such changes as are necessary as a result of, to reflect and/or to account for changes in applicable law) and in sufficient executed (and acknowledged where necessary or appropriate) counterparts for recording purposes."; (ii) by inserting the following new subsection (b): "(b) The Borrower will grant and will cause each of its Subsidiaries to grant to the Agent as security for the Indebtedness a first-priority Lien interest (subject only to Excepted Liens and the matters set forth on Schedule 7.10 hereto) on the Borrower's or such Subsidiary's interest in any Oil and Gas Properties identified after the Closing Date as containing proved Hydrocarbon reserves, which Lien will be created and perfected by and in accordance with the provisions of deeds of trust, security agreements and financing statements, or other Loan Documents, all in form substantially the same as the previous Mortgages (subject to such changes as are necessary as a result of, to reflect and/or to account for changes in applicable law) and in sufficient executed (and acknowledged where necessary or appropriate) counterparts for recording purposes."; (iii) by relettering subsections (b) and (c) as subsections (c) and (d); (iv) by deleting in subsection (c), as relettered by (iii) above, the reference "Section 8.09(a)" and substituting therefor the reference "Section 8.09(b)"; (v) by deleting the reference "80%" in subsection (c) (as relettered by (iii) above) and substituting therefor the reference "90%"; and (vi) by inserting after the reference "Loan Document in any state" in subsection (d), as relettered by (iii) above, the following reference: "other than the New Mortgage and any other mortgage filed pursuant to subsection (a) of this Section 8.09 or any other mortgage substantially in the form of the New Mortgage." V. Section 9.01 of the Credit Agreement is amended hereby by deleting the text of subsection (h) in its entirety and substituting the following therefor: "Debt of the Borrower described on Schedule 9.01(h) and such other Debt of the Borrower related to the acquisition of software and licensing rights related thereto that does not exceed $100,000 at any one time outstanding." 9 10 W. Section 9.13 of the Credit Agreement is amended hereby by deleting the reference "and (iv) during any consecutive four fiscal quarters, sales of Hydrocarbon Interests containing identified proved Hydrocarbon reserves which shall not exceed $2,500,000 in the aggregate". X. Section 9.16 of the Credit Agreement is amended hereby as follows: (i) by inserting a period after the reference "investment in a Subsidiary"; and (ii) by deleting the reference ", unless such Subsidiary is or becomes a Guarantor and provided further, that all" and substituting therefor the reference "All". Y. Section 10.01 of the Credit Agreement is amended hereby as follows: (i) by deleting in subsection (a) the reference ", or any reimbursement obligation for a disbursement made under any Letter of Credit"; and (ii) by deleting subsection (k) it its entirety and relettering subsections (l) through (o) as subsections (k) through (n). Z. Section 10.02 of the Credit Agreement is amended hereby as follows: (i) by deleting in subsections (a) and (b) the reference "(including without limitation the payment of cash collateral to secure the LC Exposure as provided in Section 2.10(b) hereof)"; and (ii) by deleting in subsection (c) the reference "fifth to serve as cash collateral to be held by the Agent to secure the LC Exposure;". AA. Section 11.03 of the Credit Agreement is amended hereby by deleting the reference "or failure to reimburse for Letter of Credit drawings". BB. Section 11.04 of the Credit Agreement is amended hereby by deleting the reference "and its participation in the issuance of Letters of Credit". CC. Section 12.03 of the Credit Agreement is amended hereby as follows: (i) by deleting the reference "OR LETTERS OF CREDIT" in subsection (b); and (ii) by deleting the reference "THE ISSUANCE, EXECUTION AND DELIVERY OR TRANSFER OF OR PAYMENT OR FAILURE TO PAY UNDER ANY LETTER OF CREDIT," in subsection (b). DD. Section 12.06 of the Credit Agreement is amended hereby as follows: 10 11 (i) by deleting the reference "or any Letters of Credit" in subsection (a); (ii) by deleting the first three sentences of subsection (b) in their entirety and substituting the following therefor: "Any Lender may sell, assign, transfer or negotiate to one or more other lenders, commercial banks, insurance companies, other financial institutions or any other Person all or any portion of its rights and obligations hereunder, and acceptance of such assignment by any assignee shall constitute the agreement of such assignee to be bound by the terms of this Agreement applicable to the assigning Lender. Promptly after receiving evidence of an assignment under this Section 12.06(b), the Agent shall send a notice of such assignment to the Borrower. Upon receipt of such notice and of the Notes that are the subject thereof, the Borrower will, at its own expense, execute and deliver new Notes to the assignor and/or assignee, as appropriate, in accordance with their respective interests."; (iii) by deleting the reference "no such participant to which the Borrower has not consented (such consent not to be unreasonably withheld) shall be given any non-public information provided by the Borrower or the Guarantors under the Loan Documents, and (iii)" in subsection (c); (iv) by deleting all references "or Letters of Credit" in subsection (c); (v) by deleting the reference "to which the Borrower has consented (such consent not to be unreasonably withheld)" in subsection (d); and (vi) by deleting the last sentence of subsection (d) in its entirety. EE. the Credit Agreement is amended hereby by deleting all references to "the Issuing Bank" in: (i) the definition of the term "Indebtedness"; (ii) subsections (a) and (c) of Section 4.06; and (iii) Section 11.05. FF. the Credit Agreement is amended hereby by adding Schedule 9.01(h) - - Certain Agreements thereto. Section 3. Covenants. The Borrower or Brigham Exploration, as the case may be, covenants and agrees that during the period from February 1, 1999 through and including June 1, 1999: 11 12 A. Brigham Exploration shall deliver weekly cash budgets reasonably satisfactory to the Agent in the form attached hereto as Exhibit B, and weekly cash flow statements reasonably satisfactory to the Agent based on such form, with variance analysis to budget (including accounts receivables and accounts payables reporting) not later than the Friday following the week to which such budgets and statements relate. B. The Borrower shall not spud any wells or conduct any other drilling operations (other than routine workovers normally expensed in accordance with past practice) without the prior written consent of the Agent and the Lenders, and shall not use any amounts advanced by the Lenders under the Credit Agreement to acquire acreage, leases or seismic data or to pay any drilling costs or expenses other than for wells for which drilling had commenced on or before January 1, 1999; provided that the Borrower may use the Escrow Cash (as defined in the Duke Consent Letter) to spud, drill, complete, operate and maintain wells contemplated thereby; provided further that, notwithstanding the foregoing, the Borrower may incur up to $300,000, in the aggregate, in discretionary new commitments during the period from the date hereof through and including June 1, 1999 to acquire leases and seismic data (or licenses thereto) if, and only if, the Borrower shall grant the Agent, for the benefit of the Lenders, a perfected Lien on its interest in any new leases acquired pursuant to this proviso within thirty (30) days or, upon request by the Agent, within fifteen (15) days, of any such acquisition under a form of mortgage substantially identical to that of the New Mortgage. C. The Borrower shall prepay the Loans in an amount equal to the cash proceeds of sale of any equity or equity derivative securities and the proceeds of any asset sales requiring the consent of the Agent under the Credit Agreement as amended hereby; provided however nothing herein shall be deemed to constitute a consent by the Agent or any Lender to any such asset sale. D. The Borrower shall use all amounts, other than the Escrow Cash, received by it in connection with the Duke Transaction as working capital. E. The Borrower shall provide to the Agent from time to time upon request by the Agent the certificate of a Responsible Officer of the Borrower stating that, except as disclosed in a schedule thereto, the Borrower has not received written notice that any mechanics' liens have been filed or will be filed on the Mortgaged Properties; provided that mere receipt of an invoice for services rendered shall not constitute written notice that a mechanics' lien will be filed. F. The Borrower shall cause its Subsidiary, DND Oil & Gas, LLP to transfer all assets held by it to the Borrower and, thereafter, to dissolve on or before June 1, 1999. G. The Borrower will not, and will not allow any of its Subsidiaries to, (i) transfer any assets to Quest Resources LLC or (ii) make any investments in or loans or advances to Quest Resources LLC. Section 4. Conditions Precedent. This Amendment shall become binding upon receipt by the Agent of the following documents and satisfaction of the 12 13 other conditions provided in this Section 4, each of which must be satisfactory to the Agent in form and substance: A. counterparts of this Amendment executed by the Borrower, the Agent and the Lenders; B. counterparts of the New Mortgage executed by the Borrower; C. evidence that the New Mortgage and the related UCC-1 financing statements have been filed in all jurisdictions necessary to perfect and protect the security interests, assignments and Liens created thereby; D. certificates of the Secretary or an Assistant Secretary of the Borrower and each of the Guarantors setting forth for each of them (i) the resolutions of its board of directors or managers (or if such Guarantor is a partnership, resolutions of the general partner of such partnership), as applicable, with respect to the authorization to execute and deliver this Amendment and consummate the transactions contemplated hereby; (ii) the Responsible Officer of such entity authorized to sign this Amendment, and (iii) the signature of such authorized Responsible Officer of such entity; E. a monthly cash budget for 1999 of Brigham Exploration and its Subsidiaries, which shall include projected revenues, expenses and capital expenditures; F. a Third Amendment to Guaranty Agreement executed by Brigham Exploration Company; G. a First Amendment to Security Agreement executed by the Borrower in favor of the Agent granting, among other things, a first priority security interest in all of the Borrower's right, title and interest in its ownership interests in Quest Resources LLC, and evidence that all other actions necessary or, in the opinion of the Agent, desirable to perfect and protect the security interests and Liens granted thereby have been taken; H. a First Amendment to Security Agreement executed by Brigham, Inc. in favor of the Agent granting, among other things, a first priority security interest in all of Brigham, Inc.'s right, title and interest in its ownership interests in Sooner Production LLC and Quest Resources LLC, and evidence that all other actions necessary or, in the opinion of the Agent, desirable to perfect and protect the security interests and Liens granted thereby have been taken; I. a First Amendment to Intercreditor and Subordination Agreement executed by Brigham Exploration Company, Enron Capital & Trade Resources Corp. and Joint Energy Development Investments II Limited Partnership, individually and as agent for the subordinated Lender as defined therein; J. a Consent and Acknowledgement executed by each of the Guarantors; K. an opinion of counsel to Borrower substantially in the form attached hereto as Exhibit C; 13 14 L. evidence that Brigham Exploration has obtained the consent and agreement of the holders of the Notes (as defined in the Indenture) to convert all interest payments due under such Notes in 1999 to in kind payments as provided in Section 1X. 2(2) of the Indenture; M. payment to the Agent for the ratable benefit of the Lenders of all accrued and unpaid Interest outstanding under the Credit Agreement and the Notes; N. payment of a $50,000 installment of the Amendment Fee in accordance with Section 8.A(i) hereof; O. payment of the expenses of the Agent and the Lenders in accordance with Section 8.B hereof; and P. such other documents as Agent or its counsel may reasonably request. Section 5. Representations and Warranties. A. Except as provided in subsection (iii) of this Section 5.A., the Borrower hereby reaffirms that, as of the date of this Amendment, the representations and warranties made by the Borrower and Brigham Exploration in the Credit Agreement are true and correct as though made on and as of the date hereof, and further, the Borrower represents that, (i) as of the date hereof, no Default or Material Adverse Effect has occurred and is continuing except as previously disclosed to the Agent in writing; (ii) the execution, delivery and performance by the Borrower or the Guarantors of this Amendment and the other Loan Documents and all instruments and documents to be delivered by the Borrower or the Guarantors, to the extent a party thereto, hereunder and thereunder and the creation of all Liens provided for herein and therein: (a) are within the Borrower's or such Guarantor's corporate power; (b) have been duly authorized by all necessary or proper corporate action, including the consent of stockholders, members and/or partners therein or thereof; (c) are not in contravention of any provision of the Borrower's or such Guarantor's certificate of incorporation, bylaws or similar organizational and/or governing documents; (d) will not violate (1) any law or regulation or (2) any order or decree of any court or governmental instrumentality; (e) will not conflict with or result in the breach or termination of, constitute a default under or accelerate any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which the Borrower or any of the Guarantors is a party or by which the Borrower or any of the Guarantors or any of their respective property is bound; (f) will not result in the creation or imposition of any Lien upon any of the property of the Borrower or the Guarantors other than those in favor of the Agent pursuant to the terms of this Amendment and the other Loan Documents to be delivered in connection herewith; and (g) do not require the consent or approval of any governmental body, agency, authority or any other Person that has not been duly obtained, made or complied with prior to the date hereof. At or prior to the date hereof, each of this Amendment and the other Loan Documents to be delivered in connection 14 15 herewith shall have been duly executed and delivered for the benefit of or on behalf of the Borrower or the Guarantors, in each case to the extent a party thereto, and each shall then constitute a legal, valid and binding obligation of the Borrower or such Guarantor, enforceable against it in accordance with its terms; and (iii) notwithstanding the foregoing, the representations and warranties contained in the last sentence of Section 7.10(a) of the Credit Agreement (and not those contained in the first two sentences) are reaffirmed with respect to the Mortgaged Property covered by or described in the New Mortgage. B. Each of the Borrower and the Guarantors further represents and warrants, for itself only that he or it (i) is executing this Amendment after consultation with counsel of his or its own choosing, (ii) has read and understands the release granted by Section 6 hereof, (iii) desires to execute this Amendment and (iv) has the requisite authority to enter into and be bound by this Amendment, including the release granted by Section 6 hereof. Section 6. Release. A. Each of the Releasing Parties desires and intends fully to compromise, release and settle any and all of the Released Claims; and each of the Releasing Parties hereby covenants, warrants and represents unto each of the Released Parties that such Releasing Party does hereby FOREVER RELEASE, ACQUIT, WAIVE AND DISCHARGE each of the Released Parties of and from the Released Claims and each of the Releasing Parties hereby declares the same FOREVER RELEASED, ACQUITTED, WAIVED, SETTLED AND DISCHARGED. This release is effective without regard to whether (i) such Released Claims are known or unknown, (ii) damages arising out of such Released Claims have yet accrued, (iii) such Released Claims arose collaterally, directly, derivatively, or otherwise between the parties hereto or (iv) an ordinary person in the same or similar circumstances would or would not, through the exercise of due care, have discovered such claims by the date of this Amendment. In connection with the foregoing release: B. Borrower and each of the Guarantors represents and warrants that it has the full power and authority to perform the release granted in this Section 6 and that it has not in any manner made any assignment of any Released Claim to any third party. C. The release granted in this Section 6 will be effective upon execution of this Amendment by all of the parties hereto. D. Each party executing this Amendment understands and agrees that the release granted in this Section 6 is a full, final and complete release of the Released Claims and that such release may be pleaded as an absolute and final bar to any or all suits which may hereafter be filed or prosecuted by any one or more of the Releasing Parties or anyone claiming by, through or under any one or more of the Releasing Parties in respect of any of the matters released hereby, and that no recovery on account of the Released Claims may hereafter be had from any of the Released Parties; and that the consideration given for such release is not an admission of liability or fault on the part of 15 16 any of the Released Parties (it being the express intent of the parties hereto to obtain peace of mind and avoid the expense and uncertainty of potential litigation), and that none of the Releasing Parties or those claiming by, through or under any of them will ever claim that it is. E. The parties hereto acknowledge that the release granted by this Section 6 does not have any effect with respect to relationships between the Borrower and each of the Guarantors and the Lenders and the Agent other than in connection with the Lending Relationship. Section 7. Events of Default and Remedies. A. The occurrence of any one or more of the following events (regardless of the reason therefor) shall constitute an "Event of Default" hereunder: (i) The Borrower shall fail to deliver within 30 days after closing a First Amendment to Security Agreement executed by Brigham Holdings I, LLC in favor of the Agent, and evidence that all other actions necessary or, in the opinion of the Agent, desirable to perfect and protect the security interests and Liens granted thereby have been taken; (ii) The Borrower shall fail to deliver within 30 days after closing a First Amendment to Security Agreement executed by Brigham Holdings II, LLC in favor of the Agent, and evidence that all other actions necessary or, in the opinion of the Agent, desirable to perfect and protect the security interests and Liens granted thereby have been taken; and (iii) The Borrower shall fail to deliver within 30 days after closing a legal opinion of Borrower's counsel in form reasonably satisfactory to the Agent. B. The occurrence and continuation of an Event of Default hereunder shall constitute an Event of Default under the Credit Agreement as amended hereby. Section 8. Payment of Fees and Expenses; Form of Payment. A. The Borrower agrees to pay to the Agent for the ratable benefit of the Lenders a fee (the "Amendment Fee") in the amount of $500,000 payable by the Borrower as follows: (i) a $50,000 installment shall be due and payable on the date hereof; and (ii) a $50,000 installment shall be due with each monthly interest payment required to be made under Section 3.02 of the Credit Agreement as amended hereby; provided that the unpaid balance of the Amendment Fee shall be payable on the earlier of (a) the date on which the Bank of Montreal ceases to be the Agent or (b) the cancellation of the Commitments and repayment in full by the Borrower of the Indebtedness. 16 17 B. The Borrower agrees, whether or not the transactions contemplated hereby are consummated, to pay all reasonable expenses of the Agent and the Lenders (including, without limitation, all reasonable fees and disbursements of counsel and other outside consultants for the Agent and/or the Lenders) in connection with the negotiation, investigation, preparation, execution and delivery of, recording and filing of, preservation of rights under and enforcement of this Amendment and the other Loan Documents to be delivered in connection herewith. C. All payments to be made by the Borrower under this Amendment shall be made in Dollars, in immediately available funds, to the Agent at such account as the Agent shall specify by notice in accordance with Section 4.01 of the Credit Agreement. Section 9. Limitations. The amendments set forth herein are limited precisely as written and shall not be deemed to (a) be a consent to, or waiver or modification of, any other term or condition of the Credit Agreement or any of the other Loan Documents, or (b) prejudice any right or rights which the Lenders or the Agent may now have or may have in the future under or in connection with the Credit Agreement or any of the other Loan Documents. Except as expressly supplemented, amended or modified hereby, the terms and provisions of the Credit Agreement or any other Loan Documents are and shall remain in full force and effect. In the event of a conflict between this Amendment and any of the foregoing documents, the terms of this Amendment shall be controlling. Section 10. Non-Reliance on Agent and Other Lenders. Each Lender acknowledges and agrees that it has, independently and without reliance on the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own decision to enter into this Amendment, and that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Amendment or the Credit Agreement. The Agent shall not be required to keep itself informed as to the performance or observance by the Borrower of this Amendment or any other Loan Document or any other document referred to or provided for herein or therein or to inspect the properties or books of the Borrower. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Agent hereunder and under the Credit Agreement, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of the Borrower (or any of its Affiliates) which may come into the possession of the Agent or any of its Affiliates. In this regard, each Lender acknowledges that Weil, Gotshal & Manges LLP is acting in this transaction as special counsel to the Agent only. Each Lender will consult with its own legal counsel to the extent that it deems necessary in connection with this Amendment and the matters contemplated herein. Section 11. Governing Law. This Amendment and the rights and obligations of the parties hereunder and under the Credit Agreement shall be construed in accordance with and be governed by the laws of the State of Texas and the United States of America. 17 18 Section 12. Descriptive Headings, etc. The descriptive headings of the several Sections of this Amendment are inserted for convenience only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. Section 13. Counterparts. This Amendment may be executed in any number of counterparts and by different parties on separate counterparts and all of such counterparts shall together constitute one and the same instrument. 18 19 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first written above. NOTICE PURSUANT TO TEX. BUS. & COMM. CODE SECTION 26.02 THIS AMENDMENT AND OTHER LOAN DOCUMENTS EXECUTED BY ANY OF THE PARTIES BEFORE OR SUBSTANTIALLY CONTEMPORANEOUSLY WITH THE EXECUTION HEREOF TOGETHER CONSTITUTE A WRITTEN LOAN AGREEMENT AND REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENT BETWEEN THE PARTIES. BORROWER: BRIGHAM OIL & GAS, L.P. By: Brigham, Inc., its General Partner By: /s/ Karen E. Lynch ------------------------ Name: Karen E. Lynch ----------------------- Title: Vice President ---------------------- AGENT: BANK OF MONTREAL By: /s/ Thomas E. McGraw ------------------------ Thomas E. McGraw Director LENDER: BANK OF MONTREAL By: /s/ Thomas E. McGraw ------------------------ Thomas E. McGraw Director 19 20 LENDER: SOCIETE GENERALE, Southwest Agency By: /s/ Paul E. Cornell ------------------------ Name: Paul E. Cornell ----------------------- Title: Managing Director ---------------------- 20 EX-10.37.3 5 3RD AMENDMENT TO GUARANTY AGREEMENT - 3/26/1999 1 EXHIBIT 10.37.3 THIRD AMENDMENT TO GUARANTY AGREEMENT THIS THIRD AMENDMENT TO GUARANTY AGREEMENT (this "Amendment") dated as of March 26, 1999 is between BRIGHAM EXPLORATION COMPANY, a Delaware corporation (the "Guarantor") and BANK OF MONTREAL, as agent ("Agent") for the lenders (the "Lenders") that are or become parties to the Credit Agreement defined below. RECITALS A. Brigham Oil & Gas, L.P., a Delaware limited partnership (the "Borrower"), the Agent and the Lenders previously entered into that certain Credit Agreement dated as of January 26, 1998 as amended by First Amendment to Credit Agreement dated August 20, 1998 and Second Amendment to Credit Agreement of even date herewith (as amended, the "Credit Agreement"), pursuant to which the Lenders agreed to make certain loans and extensions of credit to the Borrower. B. Pursuant to the terms and conditions stated in the Credit Agreement, Guarantor executed that certain Guaranty Agreement dated January 26, 1998 by Guarantor, as amended by First Amendment to Guaranty Agreement dated March 30, 1998 and Second Amendment to Guaranty Agreement dated August 20, 1998 (as amended, the "Guaranty Agreement"). C. Guarantor and the Agent now desire to amend certain provisions of the Guaranty Agreement. NOW THEREFORE, in consideration of the mutual covenants and agreements herein contained, the Guarantor, the Agent and the Lenders hereby agree that the Guaranty Agreement shall be amended as follows: Section 1. Certain Definitions. As used in this Amendment, the terms "Agent", "Amendment", "Borrower", "Credit Agreement", "Guarantor" and "Lenders" shall have the meanings indicated above; and unless otherwise defined herein, all terms beginning with a capital letter which are defined in the Guaranty Agreement shall have the same meanings herein as therein unless the context hereof otherwise requires. Section 2. Amendments to Guaranty Agreement. Section 5.2. Section 5.2 is hereby amended as follows: (a) Section 5.2(q) is hereby deleted in its entirety, and the following substituted therefor: "(q) Current Ratio. The Guarantor will not permit its ratio of (i) consolidated current assets of the Guarantor and its Consolidated Subsidiaries to (ii) their consolidated current liabilities (excluding the Indebtedness) to be less than 1.0 to 1.0 for the quarter ended December 31, 1999 or at any time thereafter." (b) Section 5.2(r) is hereby deleted in its entirety. 1 2 (c) Section 5.2(s) is hereby deleted in its entirety, and the following is substituted therefor: "(r) Interest Coverage Ratio. The Guarantor will not permit its Interest Coverage Ratio as of the end of any fiscal quarter of the Guarantor (calculated quarterly at the end of each fiscal quarter) to be less than the following ratios during the following periods. Interest Coverage Ratio shall mean the ratio of (i) EBITDA to (ii) interest payments accruing (excluding amortizations of fee expense incurred in connection with this Agreement and the closing of the Indenture and Securities Purchase Agreement and any capitalized lease expense included in interest) during the following periods (for purposes hereof interest on the Subordinated Debt shall be deemed cash payments, calculated at the cash interest rate applicable to the Subordinated Debt, whether paid in cash or in kind, except that if a payment of interest is made in kind on any interest payment date applicable to the Subordinated Debt, an amount equal to the cash payment of interest that would have been due on such interest payment date if payment in kind had not been made shall be deemed subtracted from interest expense for the applicable test period ending on the last day of the fiscal quarter preceding such interest payment date (but not for any other test period): (i) not less than 2.0 to 1.0 for the six (6) month period ending December 31, 1999; (ii) not less than 2.0 to 1.0 for the nine (9) month period ending March 31, 2000; (iii) not less than 2.25 to 1.0 for the twelve (12) month period ending June 30, 2000; (iv) not less than 2.5 to 1.0 for the twelve (12) month period ending September 30, 2000; (v) not less than 2.5 to 1.0 for the twelve (12) month period ending December 31, 2000; and (vi) thereafter, not less than 3.0 to 1.0 for the twelve (12) month periods ending at the end of each fiscal quarter of the Guarantor." (d) Section 5.2(u) is hereby deleted in its entirety, and the following is substituted therefor: "(u) Payments on Subordinated Debt. No prepayments of principal will be made on the Subordinated Debt without prior written consent of the Lenders. No payment of interest will be made in cash on the Subordinated Debt prior to September 30, 2000 and from and after September 30, 2000 no payments of interest will be made in cash on the Subordinated 2 3 Debt if (i) an Event of Default under Section 10.01(a) of the Credit Agreement has occurred or (ii) a Borrowing Base deficiency is in existence under the Credit Agreement." Section 3. Representations and Warranties. Guarantor hereby reaffirms that as of the effective date of this Amendment, the representations and warranties made by the Guarantor in Article III of the Guaranty Agreement will be true and correct as though made on and as of the effective date of this Amendment. Section 4. Ratification. Guarantor hereby expressly ratifies and affirms its obligations under the Guaranty Agreement as amended by this Amendment and agrees that the Guaranty Agreement as amended by this Amendment remains in full force and effect. Section 5. Governing Law. This Amendment and the rights and obligations of the parties hereunder and under the Credit Agreement shall be construed in accordance with and be governed by the laws of the State of Texas and the United States of America. Section 6. Descriptive Headings, etc. The descriptive headings of the several Sections of this Amendment are inserted for convenience only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. Section 7. Counterparts. This Amendment may be executed in any number of counterparts and by different parties on separate counterparts and all of such counterparts shall together constitute one and the same instrument. 3 4 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered and effective as of the date first above written. NOTICE PURSUANT TO TEX. BUS. & COMM. CODE SECTION 26.02 THIS AMENDMENT AND OTHER LOAN DOCUMENTS EXECUTED BY ANY OF THE PARTIES BEFORE OR SUBSTANTIALLY CONTEMPORANEOUSLY WITH THE EXECUTION HEREOF TOGETHER CONSTITUTE A WRITTEN LOAN AGREEMENT AND REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NOT UNWRITTEN ORAL AGREEMENT BETWEEN THE PARTIES. GUARANTOR: BRIGHAM EXPLORATION COMPANY By: /s/ Karen E. Lynch ------------------------------------- Name: Karen E. Lynch ----------------------------------- Title: Vice President ---------------------------------- AGENT AND LENDER: BANK OF MONTREAL By: /s/ Thomas E. McGraw ------------------------------------ Thomas E. McGraw Director 4 EX-10.39.1 6 AMENDMENT TO REGISTRATION RIGHTS AGRMNT-3/26/1999 1 EXHIBIT 10.39.1 AMENDMENT TO REGISTRATION RIGHTS AGREEMENT This AMENDMENT TO REGISTRATION RIGHTS AGREEMENT (the "Amendment") dated as of March 26, 1999, among Brigham Exploration Company, a Delaware corporation (the "Company"), Joint Energy Development Investments II Limited Partnership, a Delaware limited partnership ("JEDI-II"), and ECT Merchant Investments Corp. ("ECT Merchant"), amends the Registration Rights Agreement dated as of August 20, 1998 among the Company, JEDI-II and Enron Capital & Trade Resources Corp., a Delaware corporation ("ECT"). NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: ARTICLE I MODIFICATION OF DEFINITION OF WARRANTS AND WARRANT SHARES Section 1.01. Definition of Warrant. "Warrants" means the Warrants issued by the Company to JEDI-II and ECT Merchant as of the date hereof for the purchase of an aggregate of 1,000,000 shares of Common Stock, evidenced as of the date hereof by Warrant Certificates Nos. A-3 and A-4, and any Warrants issued upon the transfer thereof or in substitution therefor, as the same may be amended from time to time. Section 1.02. Definition of Warrant Shares. "Warrant Shares" shall mean the shares of Common Stock and other securities receivable upon exercise of the Warrants. ARTICLE II MISCELLANEOUS Section 2.01 Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties on separate counterparts and all of such counterparts shall together constitute one and the same instrument. Section 2.02 Governing Law. This Amendment and the rights and obligations of the parties hereunder shall be construed in accordance with and be governed by the laws of the State of Texas and the United States of America. Section 2.01 Descriptive Headings, etc. The descriptive headings of the sections of this Amendment are inserted for convenience only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. 2 IN WITNESS WHEREOF, the parties have executed this Amendment to Registration Rights Agreement as of the date first written above. BRIGHAM EXPLORATION COMPANY By:/s/ Karen E. Lynch -------------------------------------------- Karen E. Lynch Vice President JOINT ENERGY DEVELOPMENT INVESTMENTS II LIMITED PARTNERSHIP By: Enron Capital Management II Limited Partnership, its General Partner By: Enron Capital II Corp., its General Partner By: /s/ Mark J. Warner -------------------------------------- Mark J. Warner Agent and Attorney-in-fact ECT MERCHANT INVESTMENTS CORP. By: /s/ Mark Warner -------------------------------------- Name: Mark Warner -------------------------------------- Title: Agent and Attorney in Fact -------------------------------------- -2- EX-10.41 7 EXCHANGE AGREEMENT - 3/30/1999 1 EXHIBIT 10.41 ====================================== EXCHANGE AGREEMENT BY AND AMONG VERITAS DGC LAND, INC. AND BRIGHAM EXPLORATION COMPANY DATED AS OF MARCH 30, 1999 ====================================== 2 EXCHANGE AGREEMENT This Exchange Agreement (the "Agreement") is made this 30th day of March, 1999, by and between Brigham Exploration Company ("BEXP" or the "Company") and Veritas DGC Land, Inc. ("Veritas" or the "Investor"). Certain capitalized terms not defined in the text of this Agreement are defined in Appendix A to this Agreement. WHEREAS, BEXP or its affiliates currently owe Veritas certain amounts for certain seismic services rendered by Veritas; WHEREAS, the parties hereto desire to exchange BEXP Common Stock (as defined below) for (i) all of the current payables owed to Veritas and its affiliates by Brigham Oil & Gas, L.P. ("BOG"), (ii) certain future payables and other liabilities which will be due to Veritas on or before December 31, 1999 pursuant that certain Anadarko Basin Seismic Operations Agreement II, dated April 1, 1997, by and between BOG and Veritas, as amended (the "Alliance Agreement II"), and (iii) certain future seismic processing services provided by Veritas Geoservices, Ltd. ("Veritas Geoservices"); and WHEREAS, each of the parties hereto is making certain representations, warranties, covenants and indemnities herein to induce the other to enter into this Agreement; NOW, THEREFORE, in consideration of the respective representations, warranties, covenants and indemnities contained herein, BEXP and Veritas hereby agree as follows: ARTICLE I. ISSUANCE OF SECURITIES 1.1 AUTHORIZATION AND ISSUANCE OF COMMON STOCK. Exchange for Existing Payables. Upon execution of this Agreement, the Company will authorize the issuance and sale to the Investor, and, within fifteen (15) days of the date hereof, shall deliver to Investor certificates evidencing 918,989 shares of BEXP's common stock, par value $.01 per share (the "Common Stock"), in exchange for and in full extinguishment of $3,216,459.88 of existing payables and other liabilities, identified on Schedule 1.1 hereto, that BOG owes to Veritas and its Affiliates (including without limitation Veritas Geoservices) as of March 26, 1999, pursuant to the Alliance Agreement II, that certain Anadarko Basin Seismic Operations Agreement dated February 15, 1996 by and between BOG and Veritas' predecessor, as amended (the "Alliance Agreement I"), and any processing agreements between BOG and any Affiliates of Veritas (the "Processing Agreements"); provided that the extinguishment of such liability is conditioned upon the delivery to Investor of such shares. In the event that it is subsequently determined by mutual agreement of the parties that as of March 26, 1999, there existed payables and other liabilities that were owed to Veritas and its Affiliates under any of such agreements in excess of $3,216,459.88, the first $100,000 of such additional payables or liabilities in existence as of March 26, 1999, shall 3 be paid for by the Company using shares of the Common Stock (using a value of $3.50 per share), such shares to be delivered within thirty (30) days of the date that the parties mutually agree on the existence and amount of such additional payable or liability. Any remaining payables or liabilities shall be paid for by the Company in cash according to Veritas standard payment terms, net thirty (30) days. Interest shall accrue at ten percent (10%) per annum on all balances (other than those exchanged for common stock as provided herein) due for more than fifteen (15) days after the original thirty (30) days. 1.2 ADDITIONAL CONSIDERATION. (A) Stock Exchange for Additional Alliance Agreement II Payables. In addition to the exchange described in Section 1.1 above, on the date hereof, the Company shall issue to Investor, and Investor shall purchase, 83,876 shares of the Common Stock as payment for an additional $293,566 in payables and liabilities for services already performed by Investor under and pursuant to the Alliance Agreement II. The delivery of these shares will extinguish BEXP's and BOG's obligation to pay such additional $293,566 of payables under the Alliance Agreement II. Any additional payables and liabilities, other than those extinguished through the issuance of the Common Stock pursuant to this Section 1.2(A), that become due and payable under the Alliance Agreement II on or after March 26, 1999, are to be paid to the Investor in cash in accordance with the terms of the Alliance Agreement II; provided that any such amounts that remain due and payable for fifteen (15) days after such amounts are due under the Alliance Agreement II shall bear interest at ten percent (10%) per annum. (B) Payment for Future Seismic Processing Services. In addition to the exchanges described in Sections 1.1 and 1.2(A), to the extent Veritas Geoservices performs or has performed additional seismic processing services which have not been invoiced to BOG prior to March 26, 1999, the Investor will invoice the Company for such services according to its standard billing practices, and the Company will be obligated to pay those invoices that it receives during each calendar quarter or prior to the tenth day after the end of such quarter, in cash within thirty (30) days from the end of each calendar quarter, and any amounts that remain due and payable for forty-five (45) days after the end of each quarter shall bear interest at ten percent (10%) per annum; provided, however, that if the Company has not paid such amounts within fifteen (15) days after the end of each quarter, the Company must pay such amounts with shares of the Common Stock (deemed to be valued at $3.50 per share) which shares shall be issued within thirty (30) days of the end of the Calendar Quarter. The Company's obligation to pay such liabilities using the Common Stock shall only apply to the first $1 million of such liabilities, and shall only apply to seismic processing services provided by Veritas Geoservices during calendar year 1999. 1.3 CLOSING. The closing (the "Closing") of the transactions provided for in this Agreement shall take place at the offices of Locke Liddell & Sapp LLP, 3400 Chase Tower, Houston, Texas. The Closing shall take place on March 30, 1998 (the "Closing Date"), or at such other time and place as the parties hereto shall mutually agree. Except as specifically provided herein, failure to consummate the purchases and sales provided for in this Agreement on the date and 2 4 time and at the place determined pursuant to this Section 1.3 shall not result in the termination of this Agreement, and shall not relieve any parties to this Agreement of any obligation hereunder. 1.4 CROSS RECEIPT. Upon delivery of Common Stock hereunder, the Company and the Investor shall each execute and deliver a cross receipt acknowledging the extinguishment of BEXP's debt (to the extent provided herein) and the receipt of the Common Stock, respectively. 1.5 OTHER DOCUMENTS TO BE DELIVERED ON THE CLOSING DATE. The Company shall deliver to the Investor the following at the Closing (or as otherwise indicated below): (A) Certificates representing the shares of Common Stock purchased by the Investor pursuant hereto, including as described in Sections 1.1 and 1.2(A) and (B) (to be delivered as promptly as practicable, but no later than fifteen (15) days after the Closing Date; (B) The Certificate of Incorporation of the Company, as amended and in effect as of the Closing Date, certified by the Secretary of State of the State of Delaware; (C) Certificates, as of a date that is within five (5) days of the Closing, as to the corporate good standing of the Company, issued by the Secretary of State of the State of Delaware; (D) A certificate of the Secretary of the Company attesting to the incumbency of the Company's officers, the authenticity of the resolutions authorizing the transactions contemplated by this Agreement, and the authenticity and continuing validity of the Organizational Documents of the Company; (E) Executed copy of this Agreement. ARTICLE II. REPRESENTATIONS OF THE COMPANY The Company represents and warrants to the Investor as follows: 2.1 ORGANIZATION, EXISTENCE AND GOOD STANDING. The Company is a Company duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now being conducted and as proposed to be conducted, and is duly qualified as a foreign Company to do business and is in good standing in each other jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except where the failure to so qualify would not have a Material Adverse Effect. 3 5 2.2 CAPITALIZATION. (A) The authorized capital stock of the Company consists of 40,000,000 shares of Common Stock, par value $0.01 per share, 13,306,206 shares of which are issued and outstanding, and 10,000,000 shares of Preferred Stock, none of which are issued and outstanding. All such issued shares have been duly issued in accordance with applicable laws, including federal and state securities laws. All of the outstanding shares of capital stock of the Company and each Subsidiary have been duly authorized and are validly issued, fully paid and nonassessable. All dividends and other distributions declared with respect to the issued and outstanding shares of the capital stock of the Company have been paid or distributed. (B) The certificates representing the Common Stock to be delivered to the Investor pursuant hereto, both at the Closing and otherwise, and the signatures on the endorsements thereof or stock powers delivered therewith, will be valid and genuine. The stock certificates, endorsements, stock powers and other documents to be delivered to the Investor on the Closing Date or subsequent thereto will transfer to and vest in the Investor good, valid and indefeasible title to the Common Stock to be issued hereunder, free and clear of any adverse claims of any other person, including without limitation any Encumbrance. (C) No stock transfer taxes or other similar taxes are or will be required to be paid by the Investor with respect to the transfer of any of the Common Stock as provided herein. (D) Except as provided in clause (A) above, the SEC Filings (as defined herein) or on Schedule 2.2, as of the Closing Date and except for (i) warrants to purchase an aggregate of 1,000,000 shares of Common Stock issued to Joint Energy Development II Limited Partnership and Enron Capital & Trade Resources Corp. and (ii) options to purchase an aggregate of 1,194,654 shares of Common Stock under the Company's 1997 Incentive Plan, there will be no outstanding (1) shares of Common Stock or Preferred Stock ("Capital Stock") or voting securities of the Company; (2) securities of the Company convertible into or exchangeable for shares of Capital Stock or voting securities of the Company; or (3) options or other rights to acquire from the Company, or other obligations of the Company to issue, any Capital Stock, voting securities, or securities convertible into or exchangeable for Capital Stock or voting securities of the Company. (E) There are no outstanding obligations of the Company to repurchase, redeem, or otherwise acquire any existing securities of the Company. 4 6 2.3 AUTHORITY. The Company has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized and approved by the board of directors of the Company, and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or the consummation of the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by the Company, and this Agreement constitutes the legal, valid and binding agreement of the Company enforceable against the Company in accordance with its terms, subject to (i) bankruptcy, insolvency and other similar laws now or hereafter affecting the enforcement of the rights of creditors generally and (ii) general principles of equity. 2.4 SECURITIES FILINGS. (A) The Company and each Subsidiary has filed all forms, reports, and documents required to be filed with the Securities and Exchange Commission (the "SEC"; such forms, reports, and documents, the "SEC Filings") since it was first required to make such filings. The SEC Filings: (1) were prepared in all material respects in accordance with the requirements of the Securities Act or the Exchange Act, as applicable; and (2) did not at the time they were filed (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (B) Each of the consolidated financial statements (including, in each case, any related notes thereto) contained in the SEC Filings has been prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto) and each fairly represents the financial position of the Company and its Subsidiaries as at the respective dates thereof and the results of its operations and cash flows for the periods indicated, except that the unaudited financials were or are subject to normal and recurring year-end adjustments which were not or are not expected to be material in amount. (C) For purposes hereof, "SEC Filings" shall include the draft Annual Report Form 10-K for the fiscal year ended December 31, 1998, together with all Exhibits being filed therewith, excluding exhibits regarding Enron or its affiliates previously filed in draft form with the Company's Registration Statement declared effective in August, 1998, attached hereto as Schedule 2.4 (the "Draft 1998 10-K"). 5 7 2.5 NO VIOLATION. The execution and delivery of this Agreement, the consummation of the transactions contemplated hereby, or the compliance by the Company or any Subsidiary with any of the provisions hereof will not (i) conflict with or result in any breach of any provision of the Articles of Incorporation, Bylaws or other Organizational Document of the Company or any Subsidiary, (ii) result in a violation or breach of or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under, or require any consent or other action by any Person as a result of, any of the terms, conditions or provisions of any note, contract, agreement, commitment, bond, mortgage, indenture, license, pledge agreement or other instrument or obligation to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary may be bound, or (iii) violate any law, regulation, judgment, order, writ, injunction or decree applicable to the Company or any Subsidiary. 2.6 GOVERNMENTAL CONSENTS. None of the circumstances in connection with the offer, issue, sale or delivery of the Common Stock or the execution and delivery of this Agreement is such as to require a consent, approval or authorization of, or filing, registration or qualification with any Governmental Authority on the part of the Company or any Subsidiary in connection with the execution and delivery of this Agreement or the offer, issue, sale or delivery of the Common Stock. 2.7 NON-CONTRAVENTION. Except for exceptions that do not have a Material Adverse Effect on the Company or any Subsidiary, neither the Company nor any Subsidiary is in breach of, default under, or in violation of any applicable law, decree, order, rule or regulation, or any indenture, contract, agreement, deed, lease, loan agreement, commitment, bond, note, deed of trust, restrictive covenant, license or other instrument or obligation to which it is a party or by which it is bound or to which any of its assets are subject, the execution, delivery and performance of this Agreement and the issuance, sale and delivery of the Common Stock and other documents will not constitute any such breach, default or violation or require consent or approval of any court or Governmental Authority except as contemplated herein. 2.8 FINANCIAL STATEMENTS. The audited and unaudited consolidated financial statements, together with the notes thereto, the Company included (or incorporated by reference) in the SEC Filings fairly present the financial condition of the Company and its consolidated subsidiaries as of the dates thereof and the results of their operations and changes in financial positions for the periods then ended in accordance with GAAP (except as stated in such financial statements, including the related notes, and except that the quarterly financial statements do not contain all the footnote disclosures required by GAAP), subject, in the case of the unaudited financial statements, to normal year-end audit adjustments and any other adjustments described therein. The information in the Draft 1998 10-K, when read together with the information included in this Agreement and the schedules and exhibits hereto, does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. The Company has provided the Investor with a copy of each document which is of the character of document which would otherwise be required to be filed by the Company with the SEC as an exhibit (other than financial statements, financial exhibits or financial schedules) to any Annual Report on 6 8 Form 10-K, Quarterly Report on Form 10-Q or Current Report on Form 8-K required to be filed by the Company under the Exchange Act, if filed with respect to a period ending on the date hereof, which has not been previously filed or incorporated by reference in the SEC Filings or which is not referred to in the Schedules hereto. 2.9 ABSENCE OF CERTAIN CHANGES. Except as disclosed in the SEC Filings or Schedule 2.9, since December 31, 1998, there has not been (a) any material adverse change in the business, properties, assets, condition (financial or otherwise), results of operations or prospects of the Company and its Subsidiaries, taken as a whole, (b) in the case of the Company, any declaration setting aside or payment of any dividend or other distribution with respect to its Capital Stock, or (c) any material change by the Company in accounting principles or methods. 2.10 NO BROKER'S OR FINDER'S FEES. No agent, broker, investment banker, person or firm has acted directly or indirectly on behalf of the Company or any Subsidiary in connection with this Agreement or the transactions contemplated hereby, and no such person or entity is or will be entitled to any broker's or finder's fee or any other commission or similar fee or expense, directly or indirectly, in connection with this Agreement or the transactions contemplated hereby. 2.11 EXEMPTION FROM REGISTRATION. Based in part on the representations of the Investor herein, the offer, sale and delivery of the Common Stock pursuant to this Agreement is exempt from the registration requirements of the Securities Act and all applicable state securities laws. 2.12 NO UNDISCLOSED MATERIAL LIABILITIES. There are no liabilities of the Company or any Subsidiary of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise, and there is no existing condition, situation or set of circumstances which could reasonably be expected to result in such a liability, other than: (A) liabilities provided for in the consolidated financial statements of the Company included in the Draft 1998 10-K, or disclosed in the notes thereto; (B) liabilities disclosed on any of the Schedules attached hereto; and (C) other undisclosed liabilities which, individually or in the aggregate, are not material to the Company or any Subsidiaries considered as a whole. 2.13 DISCLOSURE. Neither this Agreement nor any other document, certificate or statement furnished to the Investor by or on behalf of the Company in connection herewith, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading. There is no fact regarding the Company or any Subsidiary known to the Company or any Subsidiary which the Company or any Subsidiary reasonably believes will materially and adversely affect the business or financial condition of the Company or any Subsidiary, which heretofore has not been set forth in this Agreement or in the other documents, certificates and written statements furnished or otherwise provided in writing to the Investor by or on behalf of the Company or any Subsidiary prior to the date hereof in connection 7 9 with the transactions contemplated hereby. All information previously provided, or to be provided to Investor, and all Schedules contemplated hereby are, or shall be, respectively, true, accurate and complete in all material respects. ARTICLE III. REPRESENTATIONS OF THE INVESTOR The Investor represents and warrants to the Company as follows: 3.1 ORGANIZATION AND EXISTENCE. The Investor is a Company duly organized, validly existing and in good standing under the laws of Delaware, and has all requisite power and authority to carry on its business as now being conducted. 3.2 AUTHORITY. The Investor has full power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized and approved by the board of directors of the Investor, and no other proceedings on the part of the Investor are necessary to authorize this Agreement or the consummation of the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by the Investor and constitutes the legal, valid and binding agreement of the Investor, enforceable against the Investor in accordance with its terms, subject to (i) bankruptcy, insolvency and other similar laws now or hereafter affecting the enforcement of the rights of creditors generally and (ii) general principles of equity. 3.3 NO VIOLATION. Neither the execution and delivery of this Agreement, the consummation of the transactions contemplated hereby, nor the compliance by the Investor with any of the provisions hereof will (i) conflict with or result in any breach of any provision of the Certificate of Incorporation or Bylaws of the Investor, (ii) result in a violation or breach of or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under, any of the terms, conditions or provisions of any note, contract, agreement, commitment, bond, mortgage, indenture, license, pledge agreement or other instrument or obligation to which the Investor is a party or by which such Investor may be bound, or (iii) violate any law, regulation, judgment, order, writ, injunction or decree applicable to the Investor. 3.4 NO BROKER'S OR FINDER'S FEES. No agent, broker, investment banker, person or firm has acted directly or indirectly on behalf of such Investor in connection with this Agreement or the transaction contemplated hereby, and no such person or entity is or will be entitled to any broker's or finder's fee or any other commission or similar fee or expense, directly or indirectly, in connection with this Agreement or the transaction contemplated hereby. 8 10 3.5 INVESTMENT INTENT. The Investor represents that it has had an opportunity to ask questions of and receive answers from the Company regarding the Company and its business, assets, results of operation and financial condition and the terms and conditions of the issuance of the Common Stock hereunder for the purpose of evaluating the proposed acquisition of the Common Stock. (A) The Investor is acquiring the Common Stock hereunder solely by and for its own account, for investment purposes only and not for the purpose of resale or distribution; and Investor has no contract, undertaking, agreement or arrangement with any person or entity to sell, transfer or pledge to such person or anyone else any of the Common Stock; and Investor has no present plans or intentions to enter into any such contract, undertaking or arrangement. (B) The Investor acknowledges and understands that (i) no registration statement relating to the Common Stock has been or is to be filed with the SEC under the Securities Act or pursuant to the securities laws of any state; (ii) the Common Stock cannot be sold or transferred without compliance with the registration provisions of the Securities Act or compliance with exemptions, if any, available thereunder; (iii) the certificates representing the Shares will include a legend thereon that refers to the foregoing; and (iv) the Company has no obligation or intention to register the Common Stock under any federal or state securities act or law; except to the extent in each case that the terms of the Registration Rights Agreement shall otherwise provide. (C) The Investor (i) is an "accredited investor" as defined in Rule 501 of the rules promulgated pursuant to the Securities Act; (ii) has such knowledge and experience in financial and business matters in general that it has the capacity to evaluate the merits and risks of an investment in the Common Stock and to protect its own interest in connection with an investment in the Common Stock; (iii) has such a financial condition that it has no need for liquidity with respect to its investment in the Common Stock to satisfy any existing or contemplated undertaking, obligation or indebtedness; and (iv) is able to bear the economic risk of its investment in the Common Stock for an indefinite period of time. (D) The acquisition of the Common Stock by the Investor at the Closing, as applicable, shall constitute Investor's confirmation of the foregoing representations. 3.6 NO ADDITIONAL REPRESENTATIONS OR WARRANTIES. The Investor is making no representations or warranties, express or implied, of any nature whatsoever except as specifically set forth in Article III of this Agreement. 9 11 ARTICLE IV. POST-CLOSING COVENANTS OF THE COMPANY 4.1 POST-CLOSING COVENANTS. From the date hereof and for as long as the Investor continues to hold Common Stock, the Company covenants that it will make all SEC Filings required to be made pursuant to the Securities Act or the Exchange Act, or the rules promulgated thereunder. No investigation by the Investor or other information received by the Investor shall operate as a waiver or otherwise affect any representation, warranty, or agreement given or made by the Company hereunder. 4.2 INFORMATION REQUIREMENTS. As long as the Investor or an Affiliate of the Investor owns any of the Common Stock it acquires hereby, the Company covenants to the Investor that it will deliver to the Investor, contemporaneously with the filing, publication or distribution of such, copies of all SEC Filings, communications from the Company to its shareholders after the date of this Agreement. Nothing contained in this Article IV is intended to influence the general management or overall operations of the Company or any Subsidiary in a manner not permitted by applicable law and the provisions hereof shall automatically be reduced in compliance therewith. ARTICLE V. POST-CLOSING COVENANTS OF THE PARTIES 5.1 RESTRICTIONS ON TRANSFER. For a period of six months from the date hereof, the Investor will not sell, exchange or assign any of the Common Stock received pursuant to this Agreement. Thereafter, the Investor will have no further restrictions on its right to sell, exchange or otherwise transfer the Common Stock, except as provided by applicable law. 5.2 AMENDMENT OF ALLIANCE AGREEMENTS. For purposes of Alliance Agreement I, the "Exclusivity Period" (as defined in the Alliance Agreement I) shall be deemed to have expired on September 9, 1999, and for purposes of the Alliance Agreement II, the "Exclusivity Period" (as defined in the Alliance Agreement II) shall be deemed to have expired on November 25, 2000. Effective as of November 25, 1998, all seismic operating activities pursuant to Alliance Agreement II ceased and neither Veritas nor the Company shall have any obligation to conduct any additional seismic operating activities under Alliance Agreement II. Any seismic processing agreements between BOG and Veritas or any Affiliates and all other agreements related to any of the payables described in Article I shall be deemed to have been properly and timely paid in accordance with the terms of such agreements, provided that the Common Stock is properly issued to Veritas in accordance with the terms set forth herein. Veritas and its Affiliates and BOG shall enter into all amendments to the Alliance Agreement I and the Alliance Agreement II and any processing agreements which are necessary to cause BOG to receive credit for the payment of the payables described in Article I in accordance with the terms hereof. In addition, the Company agrees that in the event that "Final Payout" (as defined in the Alliance Agreement I) does not occur under Alliance Agreement I, then to the extent allowed under the terms of BOG's currently existing agreements with Stephens Production Company and Vintage Petroleum, Inc., BOG shall provide Veritas with 10 12 copies of all available permits, OB logs, survey notes, SEG P1 files, field tapes, any intermediate processing files (i.e., CDP Gathers), bin and survey maps, processing sequences, final stacked tapes and final migration tapes related to the seismic data acquired pursuant to Alliance Agreement I; provided, however, that Veritas shall pay for all reproduction costs incurred to provide such copies. In the event that "Final Payout" (as defined in the Alliance Agreement II) does not occur under Alliance Agreement II, BOG shall provide Veritas with copies of all available permits, OB logs, survey notes, SEG P1 files, field tapes, intermediate processing files (i.e., CDP Gathers), bin and survey maps, processing sequences, final stacked tapes and final migration tapes related to the seismic data acquired pursuant to Alliance Agreement II; provided, however, that Veritas shall pay for all reproduction costs incurred to provide such copies. 5.3 FIRST RIGHT OF REFUSAL FOR SEISMIC ACQUISITION. From the date hereof until March 26, 2004, if BOG or any successor to substantially all of the assets of BOG receives a good-faith bid by a reputable unaffiliated service provider to provide it with seismic processing, operations or acquisition services, BOG or such successor will provide Veritas with the opportunity (which must be accepted, if at all, within ten (10) days after receipt by Veritas or any of its Affiliates of notice of the terms and conditions of the third-party offer) to offer to BOG or such successor, the same terms and conditions as are offered by such third party bid. In the event that the bid received by BOG or such successor includes a risk-sharing structure or any kind of investment in the 3-D seismic project by the service provided, Veritas also must match those terms in order to receive the contract. 5.4 CERTAIN FILINGS. The parties hereto shall cooperate with one another (A) in determining whether any action by or in respect of, or filing with, any Governmental Authority is required, or any actions, consents, approvals, or waivers are required to be obtained from parties to any material contracts, in connection with the consummation of the transactions contemplated by this Agreement; and (B) in taking such actions or making such filings, furnishing information required in connection therewith and seeking timely to obtain any such actions, consents, approvals, or waivers. 5.5 PUBLICITY. Except as otherwise required by law, the parties shall determine in advance, by mutual agreement and consent, the timing and content of any announcement, including press releases or other public statements concerning the transactions contemplated by this Agreement. 11 13 ARTICLE VI. INDEMNIFICATION 6.1 INDEMNIFICATION BY THE COMPANY. The Company shall indemnify the Investor, its Affiliates, and their directors, officers, employees, agents and counsel (collectively, the "Investor Indemnified Parties") from, and hold each of them harmless against, any and all actions, suits, losses, liabilities, claims and damages, and expenses in connection therewith, including reasonable counsel's fees and disbursements, whether foreseeable or unforeseeable ("Indemnified Liabilities") to which any of them may become subject arising from: (A) exercise by the Investor or any Affiliate of their respective rights under this Agreement; (B) proceedings brought against the Investor or any Affiliate in their capacity as shareholders in the Company; and (C) breach by the Company of this Agreement, including without limitation any inaccuracy in any representation or warranty of the Company under this Agreement, the Schedules hereto, or any agreement, certificate or other document delivered or to be delivered by the Company pursuant hereto in any respect. Notwithstanding the foregoing, the Company shall not be required to indemnify the Investor Indemnified Parties for Indemnified Liabilities arising from the Investor Indemnified Parties' intentional misconduct, gross negligence or breach of this Agreement. 6.2 INDEMNIFICATION BY THE INVESTOR. The Investor shall indemnify the Company, its Affiliates, and its directors, officers, employees, agents and counsel (collectively, the ACompany Indemnified Parties@) from, and hold each of them harmless against Indemnified Liabilities to which any of them may become subject arising in connection with this Agreement, the transactions contemplated hereby, and any action, omission to act, occurrence or condition in connection herewith, including Indemnified Liabilities that arise out of or relate to any: (A) breach by the Investor of this Agreement, including without limitation any inaccuracy in any representation or warranty of the Investor under this Agreement, the Schedules hereto, or any agreement, certificate or other document delivered or to be delivered by the Investor pursuant hereto in any respect, whether or not the Company Indemnified Party relied thereon or had Knowledge thereof and without regard to any qualifications contained in such representations and warranties limiting such representations and warranties (a) to matters within the Knowledge of the Investor, or (b) as to materiality; and (B) breach or nonfulfillment of any covenant, agreement or other obligation of the Investor under this Agreement or any agreement or document delivered pursuant hereto. 12 14 6.3 LIMITATION OF LIABILITY. No indemnification shall be required to be made by the Company or the Investor pursuant to this Article VI with respect to any Indemnified Liabilities unless and until the aggregate amount of Indemnified Liabilities incurred by the Investor Indemnified Parties or the Company Indemnified Parties, respectively (whether asserted, resulting, imposed, or incurred before, on, or after the Closing Date), exceeds $5,000; provided, however that once such amount exceeds $5,000, the Investor Indemnified Parties or the Company Indemnified Parties, as applicable, shall be entitled to recover all amounts to which they are entitled, including such initial $5,000. 6.4 NOTICE AND DEFENSE OF THIRD-PARTY CLAIMS. If any Proceeding shall be brought or asserted under this Article VI against a party claiming indemnification under this Agreement (for purposes of this Section 6.4, an "Indemnified Party") in respect of which indemnity may be sought under this Article from the party from whom indemnification is sought (for purposes of this Section 6.4, an "Indemnifying Party"), the Indemnified Party shall give prompt written notice of such Proceeding to the Indemnifying Party who shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all expenses; provided, that any delay or failure so to notify the Indemnifying Party shall relieve the Indemnifying Party of its obligations hereunder only to the extent, if at all, that it is prejudiced by reason of such delay or failure. In no event shall any Indemnified Party be required to make any expenditure or bring any cause of action to enforce the Indemnifying Party's obligations and liability under and pursuant to the indemnifications set forth in this Article. In addition, actual or threatened action by a Governmental Authority or other Person is not a condition or prerequisite to the Indemnifying Party's obligations under this Article. The Indemnified Party shall have the right to employ separate counsel in any of the foregoing Proceedings and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the Indemnified Party unless the Indemnified Party shall in good faith determine that there exist actual or potential conflicts of interest which make representation by the same counsel inappropriate. The Indemnified Party's right to participate in the defense or response to any Proceeding should not be deemed to limit or otherwise modify the Indemnifying Party's obligations under this Article. In the event that the Indemnifying Party, within five days after notice of any such Proceeding, fails to assume the defense thereof, the Indemnified Party shall have the right to undertake the defense, compromise or settlement of such Proceeding for the account of the Indemnifying Party, subject to the right of the Indemnifying Party to assume the defense of such Proceeding with counsel reasonably satisfactory to the Indemnified Party at any time prior to the settlement, compromise or final determination thereof. Anything in this Article VI to the contrary notwithstanding, the Indemnifying Party shall not, without the Indemnified Party's prior written consent, settle or compromise any Proceeding or consent to the entry of any judgment with respect to any Proceeding for anything other than money damages paid by the Indemnifying Party. The Indemnifying Party may, without the Indemnified Party's prior written consent, settle or compromise any such Proceeding or consent to entry of any judgment with respect to any such Proceeding that requires solely the payment of money damages by the Indemnifying Party and that includes as an unconditional term thereof the release by the claimant or the plaintiff of the Indemnified Party from all liability in respect of such Proceeding. 13 15 6.5 PARTICIPATION IN PUBLIC OFFERING. No Person may participate in any Public Offering hereunder unless such Person (a) agrees to sell such Person's securities on the basis provided in any underwriting agreement approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements and the provisions of this Agreement in respect of registration rights. 6.6 STOCK LEGENDS. All stock certificates representing Registerable Shares issued pursuant to the provisions of this Agreement shall bear a legend stating that such shares are subject to the provisions of this Agreement. ARTICLE VII. MISCELLANEOUS 7.1 EXPENSES. Whether or not the purchase of the Common Stock herein contemplated is consummated, all costs and expenses incurred by Investor in connection with this Agreement and the transactions contemplated hereby (including but not limited to attorneys and brokerage fees and expenses) shall be paid by Investor and all such costs and expenses incurred by the Company shall be paid by the Company. 7.2 AMENDMENT AND MODIFICATION. This Agreement may be amended, modified or supplemented only by the written agreement of the parties hereto. 7.3 WAIVER OF COMPLIANCE; CONSENTS. Any failure of the Investor, on the one hand, or the Company, on the other hand, to comply with any obligation, covenant, agreement or condition herein may be waived by the Company or the Investor, respectively, only by a written instrument signed by the party granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. Whenever this Agreement requires or permits consent by or on behalf of any party hereto, such consent shall be given in writing in a manner consistent with the requirements for a waiver of compliance as set forth in this Section 7.3. 7.4 NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given if (i) delivered personally, (ii) mailed by registered or certified mail (return receipt requested), whereupon notice shall be deemed given three days after mailing, or (iii) sent by telecopy with confirmation, to the other party at the following addresses (or at such other address for a party as shall be specified by like notice; provided that notices of a change of address shall be effective only upon receipt thereof): If to the Company: Brigham Exploration Company 6300 Bridge Point Parkway, Bldg. 2, Suite 500 Austin, Texas 78730 Attn: President Telecopy Number: (512) 427-3400 14 16 with a copy to: Joe Dannenmaier Thompson & Knight 1700 Pacific Avenue, Suite 3300 Dallas, Texas 75201 Telecopy Number: (214) 969-1751 and Brigham Exploration Company 6300 Bridge Point Parkway, Bldg. 2, Suite 500 Austin, Texas 78730 Attn: General Counsel Telecopy Number: (512) 427-3400 If to the Investor: Veritas DGC Land, Inc. 3701 Kirby Drive, Suite 932 Houston, Texas 77098-3982 Attn: Deanna L. M. Goodwin Telecopy Number: (713) 512-8729 with a copy to: Locke Liddell & Sapp LLP 2600 Texas Commerce Tower 600 Travis Houston, Texas 77002 Attn: Mr. H. William Swanstrom Telecopy number: (713) 223-3717 and Veritas DGC, Inc. 3701 Kirby Drive, Suite 1112 Houston, Texas 77098 Attn: Larry L. Worden Telecopy number: (713) 512-8701 7.5 ASSIGNMENT. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by the Company without the prior written consent of the Investor. No permitted assignment shall relieve the assigning party of any of its obligations hereunder. 15 17 7.6 GOVERNING LAW. This Agreement shall be governed by the laws of the State of Texas (regardless of the laws that might otherwise govern under applicable Texas principles of conflicts of law) as to all matters, including but not limited to matters of validity, construction, effect, performance and remedies. 7.7 DISPUTE RESOLUTION. (A) If a dispute arises between the parties hereto regarding any issue that relates to this Agreement, the parties agree that their respective representatives shall meet and consult in good faith in an attempt to settle the dispute, within thirty (30) days of written notice thereof, as a condition precedent to the initiative of arbitration proceedings under the Commercial Arbitration Rules of the American Arbitration Association. (B) In the event the parties are unable to resolve their differences, such dispute shall be submitted to arbitration. Arbitration shall be conducted in Houston, Texas, under the Commercial Arbitration Rules then in force of the American Arbitration Association. The arbitration proceedings shall be conducted before a panel of three (3) members of the State Bar of Texas in which the arbitration is conducted, actively engaged in commercial transactions. The parties agree that discovery shall be limited and shall be handled expeditiously. Discovery proceedings available in litigation before the courts shall not apply in an arbitration conducted pursuant to this Agreement. However, each party shall produce relevant and non-privileged documents or copies thereof requested by the other party within the time limits set and to the extent required by order of the arbitrators. All disputes regarding discovery shall be promptly resolved by the arbitrators. Strict rules of evidence shall not apply in such arbitration. The parties may offer such evidence as they desire and the arbitrators shall accept such evidence as the arbitrators deems relevant to the issues and accord it such weight as the arbitrators deem appropriate. In rendering the award, the arbitrators shall determine the respective rights and obligations of the parties according to the laws of the State of Texas. The arbitrators shall award to the prevailing party, if any, as determined by the arbitrator all of the prevailing party's costs and fees. "Costs and fees" shall include the reasonable pre-award expenses of the arbitration, including arbitrator's fees, administrative fees, witness fees and attorney's fees. The parties and arbitrators shall treat all aspects of the arbitration proceedings, including without limitation, discovery, testimony and other evidence, briefs and the award, as strictly confidential. The arbitrators' decision may include any remedy contemplated by this Agreement. (C) It is the intent of the parties that, excepting extraordinary circumstances, any arbitration shall be concluded within four (4) months of the date arbitration is commenced. The parties may, upon agreement, extend the time limits or the arbitrators may determine that such an extension is necessary in the interest of justice. (D) The arbitrators will use their best efforts to issue a final award within forty-five (45) days after closure of the proceedings. The arbitration award shall be in writing and specify the factual and legal basis for the award. 16 18 (E) Either party may appeal the arbitrators' award to an appellate arbitrator by filing with the AAA within twenty (20) days after transmittal of the award, a written brief, not to exceed twenty (20) pages stating the reason(s) why the arbitrators' decision should be reversed or modified. The opposing party shall file with the AAA and serve on the appealing party within twenty (20) days of receiving the appeal brief, and opposition brief not to exceed twenty (20) pages. The appellate arbitrator shall be appointed directly by the AAA without submission of a list by the parties, and shall be a retired judge of a court of record of the State in which the arbitration is conducted. (F) If no appeal is filed, the arbitrators' decision shall be final and binding upon the parties. If an appeal is filed, the decision of the appellate arbitrator's decision shall be final and binding upon the parties. Judgment upon the award of the arbitrators, if no appeal was made, or upon the decision of the appellate arbitrator, if an appeal was filed, may be ordered and enforced by a court of competent Jurisdiction. 7.8 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 7.9 NO THIRD-PARTY BENEFICIARIES. No provision of this Agreement is intended to confer upon any Person other than the Parties hereto any rights or remedies hereunder, other than wholly-owned subsidiaries of the Parties hereto, which shall be considered third party beneficiaries hereof. 7.10 INTERPRETATION. The article and section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement. 7.11 ENTIRE AGREEMENT. This Agreement, including the documents, instruments and agreements referred to herein, and the agreements and documents executed contemporaneously herewith embody the entire agreement and understanding of the parties hereto in respect of the subject matter hereof. There are no restrictions, promises, representations, warranties, covenants, or undertakings, other than those expressly set forth or referred to herein or therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. Notwithstanding the foregoing, this Agreement does not supersede the Confidentiality Agreement between the Parties dated February 15, 1999. 7.12 ATTORNEYS' FEES. In the event any party hereto institutes a lawsuit against any other party hereto for a claim arising out of or to specifically enforce this Agreement, the losing party shall pay the reasonable attorneys' fees incurred by the prevailing party in connection with such lawsuit. 17 19 7.13 FURTHER ASSURANCES. The parties hereto agree (i) to furnish upon request to each such further information, (ii) to execute and deliver to each other such other documents, and (iii) to do such other acts and things, all as the other party hereto may at any time reasonably request, for the purpose of carrying out the intent of this Agreement and the documents referred herein. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 18 20 IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as of the date first above written. BRIGHAM EXPLORATION COMPANY By: /s/ David T. Brigham ---------------------------------------- Name: David T. Brigham -------------------------------------- Title: Vice President ------------------------------------- VERITAS DGC LAND, INC. By: /s/ Deanna Goodwin ---------------------------------------- Name: Deanna Goodwin -------------------------------------- Title: Vice President Finance ------------------------------------- Appendix A - Definitions Schedule 1.1 - Extinguished Liabilities Schedule 2.4 - Draft Annual Report on Form 10-K for fiscal year ended December 31, 1998 Schedule 2.9 - Absence of Certain Changes 19 21 APPENDIX A DEFINITIONS For the purposes of this Agreement, the following terms shall have the meanings specified or referred to below whether or not capitalized when used in this Agreement. Where a defined term in this Agreement derives its meaning from a statutory reference, for the purposes of this Agreement any regulatory definition promulgated pursuant to the applicable statute shall be deemed to be applicable to the extent its definition is broader than the statutory reference and any reference or citation to a statute or regulation shall be deemed to include any amendments to that statute or regulation and judicial and administrative interpretations of it. Any specific references to a law shall include any amendments to it promulgated from time to time. "Affiliate" means, with respect to a specified Person, (a) any Entity of which such Person is an executive officer, director, partner, trustee or other fiduciary or is directly or indirectly the Beneficial Owner of ten percent (10%) or more of any class of equity security thereof or other financial interest therein; (b) if such Person is an individual, any relative or spouse of such individual, or any relative of such spouse (such relative being related to the individual in question within the second degree) and any Entity of which any such relative, spouse, or relative of spouse is an executive officer, director, partner, trustee or other fiduciary or is directly or indirectly the Beneficial Owner of ten percent (10%) or more of any class of equity security thereof or other financial interest therein; (c) if such Person is an Entity, any director, executive officer, partner, trustee or other fiduciary or any direct or indirect Beneficial Owner of ten percent (10%) or more of any class of equity security of, or other financial interest in, such Entity; or (d) any Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with the Person specified. For purposes of this definition, "executive officer" means the president, any vice president in charge of a principal business unit, division or function such as sales, administration, research and development, or finance, and any other officer, employee or other Person who performs a policy making function or has the same duties as those of a president or vice president. For purposes of this definition, "control" (including "controlling", "controlled by" and "under common control with") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. When used without reference to a particular Person, "Affiliate" means an Affiliate of the Company or the Shareholders. "Agreement" means this Exchange Agreement, including the schedules and exhibits attached hereto, which are hereby incorporated herein "Alliance Agreement I" means that certain Anadarko Basin Seismic Operation Agreement, dated February 15, 1996, by and between BOG and Veritas predecessor, as amended. "Alliance Agreement II" means that certain Anadarko Basin Seismic Operation Agreement, dated April 1, 1997, by and between BOG and VERITAS' predecessor, as amended. "BOG" means Brigham Oil & Gas, L.P. Appendix A-1 22 "Best Efforts" means those efforts which a prudent individual desirous of achieving a result would exert in similar circumstances to ensure that such result is achieved as expeditiously as possible. "Closing " shall have the meaning set forth in Section 1.2. "Closing Date" means the date and time as of which the Closing actually takes place. "Common Stock" means any class or series of the common stock, $.01 per share par value, of the Company. "Encumbrance" means any lien, pledge, hypothecation, charge, mortgage, deed of trust, security interest, encumbrance, equity, trust, equitable interest, claim, easement, right-of-way, servitude, right of possession, lease tenancy, license, encroachment, burden, intrusion, covenant, infringement, interference, proxy, option, right of first refusal, community property interest, legend, defect, impediment, exception, condition, restriction, reservation, limitation, impairment, imperfection of title, restriction on or condition to the voting of any security, restriction on the transfer of any security or other asset, restriction on the receipt of any income derived from any security or other asset, and restriction on the possession, use, exercise or transfer of any other attribute of ownership, whether based on or arising from common law, constitutional provision, statute or contract. "Entity" means any Company (including any non-profit Company), general partnership, limited partnership, joint venture, joint stock association, estate, trust, cooperative, foundation, union, syndicate, league, consortium, coalition, committee, society, firm, company or other enterprise, association, organization or entity of any nature. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "GAAP" means generally accepted United States accounting principles, consistently applied. As applied to the Company, GAAP means those accounting principles and practices (a) which are recognized as such by the Financial Accounting Standards Board, (b) which are applied for all periods after the date hereof in a manner consistent with the manner in which such principles and practices were applied to the most recent audited financial statements of the Company furnished to the Purchaser, and (c) which are consistently applied for all periods after the date hereof so as to reflect properly the financial condition, and results of operations and cash flows, of the Company. "Governmental Authority" means any foreign governmental authority, the United States of America, any State of the United States, any local authority and any political subdivision of any of the foregoing, any multi-national organization or body, any agency, department, commission, board, bureau, court or other authority thereof, or any quasi-governmental or private body exercising, or purporting to exercise, any executive, legislative, judicial, administrative, police, regulatory or taxing authority or power of any nature. Appendix A-2 23 "Governmental Authorization" means any permit, license, franchise, approval, certificate, consent, ratification, permission, confirmation, endorsement, waiver, certification, registration, qualification or other authorization issued, granted, given or otherwise made available by or under the authority of any Governmental Authority or pursuant to any Legal Requirement. "Legal Requirement" means any law, statute, ordinance, decree, requirement, Order, treaty, proclamation, convention, rule or regulation (or interpretation of any of the foregoing) of, and the terms of any Governmental Authorization issued by, any Governmental Authority. "Liability" means any debt, obligation, duty or liability of any nature (including any unknown, undisclosed, unfixed, unliquidated, unsecured, unmatured, unaccrued, unasserted, contingent, conditional, inchoate, implied, vicarious, joint, several or secondary liability), regardless of whether such debt, obligation, duty or liability would be required to be disclosed on a balance sheet prepared in accordance with GAAP. "Material Adverse Effect" means any material adverse change in the condition (financial or otherwise), business, operations, properties, prospects, assets or Liabilities of the Company or any Subsidiaries considered as a whole (whether or not covered by insurance). "Order" means any order, judgment, injunction, edict, decree, ruling, pronouncement, determination, decision, opinion, sentence, subpoena, writ or award issued, made, entered or rendered by any court, administrative agency or other Governmental Authority or by any arbitrator. "Organizational Documents" means, with respect to a Company, the certificate of incorporation, articles of incorporation and bylaws of such Company; with respect to a general partnership, the partnership agreement establishing such partnership; with respect to a joint venture, the joint venture agreement establishing such joint venture; with respect to a limited partnership, the limited partnership agreement and the certificate of limited partnership of such limited partnership; with respect to a trust, the instrument establishing such trust; and with respect to any other Entity, any charter document or other document executed, adopted, approved, ratified or filed in connection with the formation, creation, constitution or organization of such Entity, in each case including any and all amendments or modifications thereof. "Person" means any individual, Entity or Governmental Authority. "Proceeding" means any action, suit, litigation, arbitration, lawsuit, claim, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding and any informal proceeding), prosecution, contest, hearing, inquiry, inquest, audit, examination, investigation, challenge, controversy or dispute commenced, brought, conducted or heard by or before, or otherwise involving, any Governmental Authority or any arbitrator. "Public Offering" means an underwritten public offering of Common Stock of the Company pursuant to an effective registration statement under the Securities Act. Appendix A-3 24 "Securities Act" shall mean the Securities Act of 1933, as amended. "Subsidiary" means, with respect to any Person, any Company, partnership, joint venture, joint stock association, business trust or other Entity which is, directly or indirectly, owned or controlled by another Person or any other Person which is itself a Subsidiary within the meaning of this definition, including, without limitation, all Persons the majority of the Capital Stock or voting stock of which is directly or indirectly owned by the Company. "Threatened" - A Proceeding, dispute or other matter shall be deemed to have been "threatened" if any demand or statement shall have been made (orally or in writing) or any notice shall have been given (orally or in writing), or if any other event shall have occurred or any other circumstances shall exist, that might lead a prudent Person to conclude that such a Proceeding, dispute or other matter might be asserted, commenced, taken or otherwise pursued in the future; provided, however, when used in the context of "threatened releases", each term shall have the meaning ascribed to it under Environmental Laws. Terms which are defined in the body of this Agreement shall have the meanings specified therein. Appendix A-4 EX-10.42 8 REGISTRATION RIGHTS AGREEMENT - 3/30/1999 1 EXHIBIT 10.42 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "Agreement") is made and entered into as of March 30, 1999, by and among Brigham Exploration Company, a Delaware corporation (the "Company"), and Veritas DGC Land, Inc., a Delaware corporation ("Veritas"). This Agreement is made pursuant to the Exchange Agreement between the Company and Veritas of even date herewith (the "Exchange Agreement"). In order to induce Veritas to enter into the Exchange Agreement, the Company has agreed to provide the registration and other rights set forth in this Agreement. Pursuant to the Exchange Agreement, the Company will issue Veritas shares of Common Stock (as defined below). The parties agree as follows: ARTICLE I Section 1.01. Definitions. Capitalized terms used herein without definition shall have the meanings given to them in the Exchange Agreement. The terms set forth below are used herein as so defined: "Commission" has the meaning specified therefor in Section 1.02 of this Agreement. "Common Stock" means the common stock, par value $0.01 per share, of the Company. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Holder" means the record holder of any Registrable Securities. "Inspector" has the meaning specified therefor in Section 2.03 this Agreement. "Losses" has the meaning specified therefore in Section 2.07 of this Agreement. "Other Holders" has the meaning specified therefor in Section 2.01 of this Agreement. "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, business trust, trust or unincorporated entity. "Records" has the meaning specified therefor in Section 2.03 of this Agreement. "Registrable Securities" means the Acquired Shares until such time as such securities cease to be Registrable Securities pursuant to Section 1.02 hereof. 2 "Registration Statement" has the meaning specified therefor in Section 2.01 of this Agreement. "Securities Act" has the meaning specified therefor in Section 1.02 of this Agreement. "Selling Holder" means a Holder who is selling Registrable Securities pursuant to a Registration Statement. Section 1.02. Registrable Securities. Any Registrable Security will cease to be a Registrable Security when (i) a Registration Statement covering such Registrable Security has been declared effective by the Securities and Exchange Commission (the "Commission") and such Registrable Security has been sold or disposed of pursuant to such effective Registration Statement; (ii) such Registrable Security is disposed of pursuant to Rule 144 (or any similar provision then in force) under the Securities Act of 1933, as amended (the "Securities Act"); (iii) such Registrable Security is eligible to be, and at the time of determination can be, disposed of pursuant to paragraph (k) of Rule 144 (or any similar provision then in force) under the Securities Act; or (iv) such Registrable Security is held by the Company or one of its subsidiaries. ARTICLE II Section 2.01. Registration. (a) The Company shall register on a Form S-3 (or Form S-1 or successor form to either) Registration Statement all of the Registrable Securities that are held by the Holder(s) so that such Registration Statement is declared effective within 180 days of the closing under the Exchange Agreement. The Company shall use its best efforts to keep such Registration Statement effective until the second anniversary of such closing. With respect to shares issued pursuant to the Exchange Agreement at the end of, or after, such 180-day period, the Company shall register such shares on a Form S-3 (or Form S-1 or successor form to either) Registration Statement within 30 days of such shares' issuance. Each such Registration Statement referred to herein is a "Registration Statement." (b) The Company and the parties to the Registration Rights Agreements with the Company dated February 26, 1997 and August 20, 1998, respectively, who are entitled to piggy-back registration rights ("Other Holders") with respect to a Registration Statement filed pursuant to Section 2.01 may include securities of the Company in such Registration Statement. Section 2.02. Piggy-Back Registration. If the Company proposes to register any of its equity securities under the Securities Act for sale to the public, whether for its own account or for the account of Other Holders or both (except with respect to Registration Statements filed pursuant to demand under the Registration Rights Agreement dated August 20, 1998 and Registration Statements on Forms S-4 or S-8 or for purposes permissible under such forms as of the date hereof), each such time it will give written notice to all Holders of its intention to do so no less than 20 days prior to the anticipated filing date. Upon the written request received by the Company from any Holder no later than the 15th day after receipt by such holder of the notice sent by the Company (which request shall state the intended method of disposition thereof), the Company will use best efforts to cause the Registrable Securities as to -2- 3 which registration shall have been so requested to be included in the securities to be covered by such Registration Statement, all to the extent required to permit the sale or other disposition by each Holder (in accordance with its written request) of such Registrable Securities so registered; provided, however, that the Company may at any time prior to the effectiveness of any such Registration Statement, in its sole discretion and without the consent of any Holder, abandon any proposed offering by the Company in which any Holder had requested to participate. The number of Registrable Securities to be included in such a registration may be reduced or eliminated if and to the extent, in the case of an underwritten offering, the managing underwriter shall advise the Company that such inclusion would materially jeopardize the successful marketing of the securities (including the Registrable Securities) proposed to be sold therein; provided, however, that such number of shares of Registrable Securities shall not be reduced if any securities included in such registration are included other than for the account of the Company unless the shares included in the Registration for the account of such Persons are also reduced on a pro rata basis, provided, in the case of a Registration Statement filed pursuant to the exercise of demand registration rights of any Other Holders, priority shall be given first to the Other Holders that demand such registration. Section 2.03. Registration Procedures. If and whenever the Company is required pursuant to this Agreement to effect the registration of any of the Registrable Securities under the Securities Act, the Company will, as expeditiously as possible: (a) prepare and file with the Commission such amendments and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective for the distribution period and as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement in accordance with the Holders intended method of disposition; (b) furnish to each Selling Holder and to each underwriter such number of copies of the Registration Statement and the prospectus included therein (including each preliminary prospectus and each document incorporated by reference therein to the extent then required by the rules and regulations of the Commission) as such Persons may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities covered by such Registration Statement; (c) if applicable, use best efforts to register or qualify the Registrable Securities covered by such Registration Statement under the securities or blue sky laws of such jurisdictions as the Selling Holders shall reasonably request, provided that the Company will not be required to qualify generally to transact business in any jurisdiction where it is not then required to so qualify or to take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject; (d) immediately notify each Selling Holder, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus contained in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing and as promptly as practicable amend or supplement the -3- 4 prospectus or take other appropriate action so that the prospectus does not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; (e) make available for inspection by the Selling Holders designated by a majority thereof, and any attorney, accountant or other agent retained by such representative of the Selling Holders (the "Inspectors"), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the "Records"), and cause the Company's officers, directors and employees to supply all information reasonably requested by any such Inspector in connection with such Registration Statement; (f) cause the Registrable Securities to be listed on New York Stock Exchange, American Stock Exchange or on the NASDAQ National Market if the Common Stock is or becomes so listed; (g) use best efforts to keep effective and maintain for the period of distribution, qualification, approval or listing obtained to cover the Registrable Securities as may be necessary for the Selling Holders to dispose thereof and shall from time to time amend or supplement any prospectus used in connection therewith to the extent necessary in order to comply with applicable law; (h) use best efforts to cause the Registrable Securities to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Company to enable the Selling Holders to consummate the disposition of such Registrable Securities; and (i) take such other actions as are reasonably requested by the Selling Holders or the underwriters, if any, in order to expedite, facilitate or consummate the disposition of such Registrable Securities. Section 2.04. Restrictions on Public Sale by Selling Holders of Registrable Securities. To the extent not inconsistent with applicable law, including insurance codes, each Selling Holder whose Registrable Securities are included in a Registration Statement pursuant to this Agreement agrees not to effect any public sale or distribution of the issue being registered (or any securities of the Company convertible into or exchangeable or exercisable for securities of the same type as the issue being registered) during the 14 days before, and during the 90-day period beginning on, the effective date of such Registration Statement (except as part of such registration), but only in the case of an underwritten public offering by the Company of securities of the same type as the Registrable Securities, and even then only if and to the extent requested in writing (with reasonable prior notice) by the managing underwriter or underwriters provided that the duration of the foregoing restrictions shall be no longer than the duration of the shortest restriction imposed by the underwriters on the officers or directors or any other stockholder of the Company; and provided further, that the period of time for which the Company is required to keep such registration statement which includes Registrable Securities continuously effective shall be increased by a period equal to such requested holdback period. -4- 5 Section 2.05. [Reserved] Section 2.06. Expenses. (a) "Registration Expenses" means all expenses incident to the Company's performance under or compliance with this Agreement, including without limitation, all registration and filing fees, blue sky fees and expenses, printing expenses, listing fees, fees and disbursements of counsel and independent public accountants for the Company, fees of the National Association of Securities Dealers, Inc., transfer taxes, fees of transfer agents and registrars, costs of insurance and reasonable out-of-pocket expenses (including without limitation, reasonable legal fees of one counsel for all Selling Holders), but excluding any Selling Expenses. "Selling Expenses" means all underwriting fees, discounts and selling commissions allocable to the sale of the Registrable Securities. (b) The Company will pay all Registration Expenses in connection with each Registration Statement filed pursuant to this Agreement, whether or not the Registration Statement becomes effective, and the Selling Holders shall pay all Selling Expenses in connection with any Registrable Securities registered pursuant to this Agreement. Section 2.07. Indemnification. (a) In the event of a registration of any Registrable Securities under the Securities Act pursuant to this Agreement, the Company will indemnify and hold harmless each Selling Holder thereunder and each Person, if any, who controls such Selling Holder within the meaning of the Securities Act and the Exchange Act, against any losses, claims, damages or liabilities (including reasonable attorneys' fees) ("Losses"), joint or several, to which such Selling Holder or controlling Person may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such Losses (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement under which such Registrable Securities were registered under the Securities Act pursuant to this Agreement, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each such Selling Holder and each such controlling Person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Loss or actions; provided, however, that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by such Selling Holder, such underwriter or such controlling Person in writing specifically for use in such Registration Statement or prospectus. (b) Each Selling Holder agrees to indemnify and hold harmless the Company, its directors, officers, employees and agents and each Person, if any, who controls the Company within the meaning of the Securities Act or of the Exchange Act to the same extent as the foregoing indemnity from the Company to such Selling Holder, but only with respect to information regarding such Selling Holder furnished in writing by or on behalf of such Selling Holder expressly for inclusion in any Registration Statement or prospectus relating to the -5- 6 Registrable Securities, or any amendment or supplement thereto; provided, however, that the liability of such Selling Holder shall not be greater in amount than the dollar amount of the proceeds (net of any Selling Expenses) received by such Selling Holder from the sale of the Registrable Securities giving rise to such indemnification. (c) Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel reasonably satisfactory to such indemnified party and, after notice from the indemnifying party to such indemnified party of its election so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 2.07 for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel as so elected; provided, however, that, (i) if the indemnifying party has failed to assume the defense and employ counsel or (ii) if the defendants in any such action include both the indemnified party and the indemnifying party and counsel to the indemnified party shall have concluded that there may be reasonable defenses available to the indemnified party that are different from or additional to those available to the indemnifying party or that the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, then the indemnified party shall have the right to select a separate counsel and to assume such legal defense and otherwise to participate in the defense of such action, with the expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the indemnifying party is incurred. (d) If the indemnification provided for in this Section 2.07 is unavailable to the Company or the Selling Holders or is insufficient to hold them harmless in respect of any Losses, then each such indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such Losses as between the Company on the one hand and each Selling Holder on the other, in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and of each Selling Holder on the other in connection with the statements or omissions which resulted in such Losses, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and each Selling Holder on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statements of a material fact or the omission or alleged omission to state a material fact has been made by, or relates to, information supplied by such party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who is not guilty of such fraudulent misrepresentation. -6- 7 ARTICLE III Section 3.01. Communications. All notices and other communications provided for or permitted hereunder shall be made in writing by telecopy, courier service or personal delivery; (a) if to a Holder, at the most current address given by such holder to the Company in accordance with the provisions of this Section 3.01, (b) if to the Company, initially at its address set forth in its Form 10-K filed with the Commission, and (c) for each, thereafter at such other address, notice of which is given in accordance with the provisions of this Section 3.01. All such notices and communications shall be deemed to have been received at the time delivered by hand, if personally delivered; when receipt acknowledged, if telecopied; and on the next business day if timely delivered to an air courier guaranteeing overnight delivery. Section 3.02. Successor and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including subsequent holders of Registrable Securities. Section 3.03. Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Agreement. Section 3.04. Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. Section 3.05. Governing Law. THE LAWS OF THE STATE OF TEXAS SHALL GOVERN THIS AGREEMENT WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. Section 3.06. Severability of Provisions. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting or impairing the validity or enforceability of such provision in any other jurisdiction. Section 3.07. Entire Agreement. This Agreement, together with the Exchange Agreement and the other documents provided for therein are intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted by the Company with respect to the securities sold pursuant to the Exchange Agreement. This Agreement, the Exchange -7- 8 Agreement and the other documents provided for therein supersede all prior agreements and understandings between the parties with respect to such subject matter except as specified in the Exchange Agreement. Section 3.08. Attorneys' Fees. In any action or proceeding brought to enforce any provision of this Agreement, the successful party shall be entitled to recover reasonable attorneys' fees in addition to its costs and expenses and any other available remedy. Section 3.09. Amendment. This Agreement may be amended only by means of a written amendment signed by the Company and by the Holders of a majority of the Registrable Securities. Section 3.10. Registrable Securities Held by the Company or Its Affiliates. In determining whether the Holders of the required amount of Registrable Securities have concurred in any direction, amendment, supplement, waiver or consent, Registrable Securities owned by the Company or one of its Affiliates shall be disregarded. Section 3.11. Assignment of Rights. The rights of any Holder under this Agreement may be assigned to any Person who acquires any Registrable Securities. Any assignment of registration rights pursuant to this Section 3.11 shall be effective only upon receipt by the Company of written notice from such assigning Holder stating the name and address of any assignee. The rights of an assignee under this Section 3.11 shall be the same rights granted to the assigning Holder under this Agreement. In connection with any such assignment, the term "Holder" as used herein shall, where appropriate to assign the rights and obligations of the assigning Holder hereunder to such assignee, be deemed to refer to the assignee. Section 3.12 Liquidated Damages. The parties hereto agree that upon the failure of the Company to register shares of Registrable Securities held by Veritas in the amounts and at the times required hereunder, and to meet its obligations under Section 2.03(a) hereunder, Veritas shall be entitled to liquidated damages from the Company in an amount equal to $0.25 per share of Registrable Securities then held by Veritas. The parties agree that the liquidated damages set forth herein are reasonable and not a penalty because of the difficulty of ascertaining the actual damages that would be sustained by Veritas in the event of such a material breach of this Agreement by the Company. In the event of such a breach Veritas either may elect the liquidated damages provided hereunder or, in the alternative, pursue its remedies at law. -8- 9 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. BRIGHAM EXPLORATION COMPANY By: /s/ David T. Brigham ---------------------------------------- Name: David T. Brigham ----------------------------------- Title: Vice President ---------------------------------- VERITAS DGC LAND, INC. By: /s/ Deanna Goodwin ---------------------------------------- Name: Deanna Goodwin ----------------------------------- Title: Vice President Finance ---------------------------------- -9- EX-23.1 9 CONSENT OF PRICE WATERHOUSE LLP 1 Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-56961 and No. 333-70137) of Brigham Exploration Company of our report dated March 30, 1999 which appears on page F1-2 of this Form 10-KA of Brigham Exploration Company. We also consent to the incorporation by reference of our report on the financial statements of Brigham Oil & Gas LP; Brigham Holdings I, LLC; Brigham Holdings II, LLC and Brigham Inc. which appears on page F2-1 of this Form 10-KA. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Houston, Texas April 14, 1999 -----END PRIVACY-ENHANCED MESSAGE-----