-----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, ARM8I54OKbfDXJJmOIKWWLgZc+QGZYoIFDAqsKnN6zXsHA/tDGfFa7YySbbIFKcL 6SJ/eEUrqH4in/fRKEo3tQ== 0000950134-99-007546.txt : 19990817 0000950134-99-007546.hdr.sgml : 19990817 ACCESSION NUMBER: 0000950134-99-007546 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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-Q SEC ACT: SEC FILE NUMBER: 000-22433 FILM NUMBER: 99692454 BUSINESS ADDRESS: STREET 1: 6300 BRIDGE POINT PARKWAY STREET 2: BLDG 2 SUITE 500 CITY: AUSTIN STATE: TX ZIP: 78730 BUSINESS PHONE: 5124273300 MAIL ADDRESS: STREET 1: 6300 BRIDGE POINT PARKWAY STREET 2: BLDG 2 SUITE 500 CITY: AUSTIN STATE: TX ZIP: 78730 10-Q 1 FORM 10-Q FOR QUARTER ENDED JUNE 30, 1999 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to________________ Commission File Number 000-22433 BRIGHAM EXPLORATION COMPANY (Exact name of registrant as specified in its charter) DELAWARE 1311 75-2692967 (State of other jurisdiction (Primary Standard Industrial (I.R.S. Employer of incorporation or organization) Classification Code Number) Identification Number)
6300 BRIDGE POINT PARKWAY BLDG. 2, SUITE 500 AUSTIN, TEXAS 78730 (512) 427-3300 (Name, address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X]. No [ ]. As of July 31, 1999, 14,428,621 shares of Common Stock, $.01 per share, were outstanding. ================================================================================ 2 BRIGHAM EXPLORATION COMPANY INDEX
PAGE PART I. FINANCIAL INFORMATION: NUMBER ------ Item 1. Unaudited Financial Statements Condensed Consolidated Financial Statements of Brigham Exploration Company Balance Sheets - December 31, 1998 and June 30, 1999 ..................... 1 Statements of Operations - Three and six months ended June 30, 1998 and 1999 ............................................. 2 Statements of Cash Flows - Three and six months ended June 30, 1998 and 1999 ............................................. 3 Statement of Changes in Stockholders' Equity - Six months ended June 30, 1999 ...................................................... 4 Notes to Condensed Consolidated Financial Statements ................. 5-6 Condensed Financial Statements of Brigham Exploration Company Subsidiaries Balance Sheets - June 30, 1999 ....................................... 7 Balance Sheets - December 31, 1998 ................................... 8 Statements of Operations - Three months ended June 30, 1999 .......... 9 Statements of Operations - Three months ended June 30, 1998 .......... 10 Statements of Operations - Six months ended June 30, 1999 ............ 11 Statements of Operations - Six months ended June 30, 1998 ............ 12 Statements of Cash Flows - Six months ended June 30, 1999 ............ 13 Statements of Cash Flows - Six months ended June 30, 1998 ............ 14 Statements of Changes in Equity - Six months ended June 30, 1999 ..... 15 Notes to Condensed Financial Statements .............................. 16-17 As all Brigham Exploration Company subsidiaries fully and unconditionally guarantee the Senior Subordinated Secured Notes and the Company has no significant assets other than its investments in its subsidiaries, the consolidated financial statements are substantially the same as the financial statements of the subsidiary guarantors and separate financial statements have been omitted as they would not be meaningful to investors. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition ....................................... 18-27 PART II. OTHER INFORMATION: Item 2. Change in Securities ......................................................... 28 Item 4. Submission of Matters to a Vote of Security Holders .......................... 28 Item 6. Exhibits and Reports on Form 8-K ............................................. 29
3 Part I. FINANCIAL INFORMATION: Item 1. Financial Statements BRIGHAM EXPLORATION COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
December 31, June 30, 1998 1999 ----------- -------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 2,569 $ 2,752 Accounts receivable 7,938 3,059 Prepaid expenses 290 380 -------- -------- Total current assets 10,797 6,191 -------- -------- Natural gas and oil properties, at cost, net 134,317 105,324 Other property and equipment, at cost, net 2,014 1,888 Drilling advances paid 230 352 Deferred loan fees 3,146 3,296 Other noncurrent assets 12 123 -------- -------- $150,516 $117,174 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 19,883 $ 14,966 Accrued drilling costs 1,219 38 Participant advances received 764 459 Other current liabilities 1,647 1,571 -------- -------- Total current liabilities 23,513 17,034 -------- -------- Notes payable 59,000 48,250 Senior subordinated notes, net 35,786 38,177 Other noncurrent liabilities 7,536 2,510 Stockholders' equity: Preferred stock, $.01 par value, 10 million shares authorized, none issued and outstanding -- -- Common stock, $.01 par value, 30 million shares authorized, 13,306,206 and 14,309,071 issued and outstanding at 133 143 December 31, 1998 and June 30, 1999, respectively Additional paid-in capital 58,838 62,817 Unearned stock compensation (890) (654) Accumulated deficit (33,400) (51,103) -------- -------- Total stockholders' equity 24,681 11,203 -------- -------- $150,516 $117,174 ======== ========
Natural gas and oil properties are accounted for using the full cost method. See accompanying notes to the condensed consolidated financial statements. 1 4 BRIGHAM EXPLORATION COMPANY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited)
Three Months Six Months Ended June 30, Ended June 30, ------------------- -------------------- 1998 1999 1998 1999 ------- -------- -------- -------- Revenues: Natural gas and oil sales $ 3,987 $ 3,555 $ 7,130 $ 6,746 Workstation revenue 133 71 247 161 ------- -------- -------- -------- 4,120 3,626 7,377 6,907 ------- -------- -------- -------- Costs and expenses: Lease operating 564 619 978 1,154 Production taxes 262 216 450 385 General and administrative 1,139 891 2,293 1,809 Depletion of natural gas and oil properties 1,520 1,461 2,790 2,811 Depreciation and amortization 92 139 175 266 Amortization of stock compensation 116 55 233 113 ------- -------- -------- -------- 3,693 3,381 6,919 6,538 ------- -------- -------- -------- Operating income 427 245 458 369 ------- -------- -------- -------- Other income (expense): Interest income 40 70 77 94 Interest expense (1,410) (3,154) (2,432) (5,971) Loss on sale of natural gas and oil properties -- (12,195) -- (12,195) ------- ------- ------- ------- (1,370) (15,279) (2,355) (18,072) ------- ------- ------- ------- Net loss before income taxes (943) (15,034) (1,897) (17,703) Income tax benefit 316 -- 638 -- ------- -------- -------- -------- Net loss $ (627) $(15,034) $ (1,259) $(17,703) ======= ======== ======== ======== Net loss per share: Basic / Diluted $ (0.05) $ (1.05) $ (0.10) $ (1.28) Weighted average common shares outstanding: Basic / Diluted 12,254 14,309 12,254 13,816
See accompanying notes to the condensed consolidated financial statements. 2 5 BRIGHAM EXPLORATION COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Six Six Six Months Ended Months Ended June 30, June 30, 1998 1999 ------------- ------------ Cash flows from operating activities: Net loss $ (1,259) $(17,703) Adjustments to reconcile net loss to cash used by operating activities: Depletion of natural gas and oil properties 2,790 2,811 Depreciation and amortization 175 266 Amortization of stock compensation 233 113 Interest paid through issuance of senior subordinated note -- 2,642 Amortization of deferred loan fees 266 628 Amortization of discount on senior subordinated notes -- 228 Loss on sale of natural gas and oil properties -- 12,195 Changes in deferred income tax liability (639) -- Changes in working capital and other items: (Increase) decrease in accounts receivable (3,025) 4,879 (Increase) decrease in prepaid expenses 63 (90) Decrease in accounts payable (4,055) (2,001) Decrease in participant advances received (47) (305) Increase (decrease) in other current liabilities 3,987 (74) Other noncurrent assets (119) (111) Other noncurrent liabilities (62) (4,655) -------- -------- Net cash used by operating activities (1,692) (1,177) -------- -------- Cash flows from investing activities: Additions to natural gas and oil properties (30,044) (13,771) Proceeds from sale of natural gas and oil properties -- 26,700 Additions to other property and equipment (315) (89) Increase in drilling advances paid (525) (122) -------- -------- Net cash (used) provided by investing activities (30,884) 12,718 -------- -------- Cash flows from financing activities: Increase in notes payable 70,800 6,000 Repayment of notes payable (34,800) (16,750) Principal payments on capital lease obligations (108) (130) Deferred loan fees paid (1,911) (478) -------- -------- Net cash (used) provided by financing activities 33,981 (11,358) -------- -------- Net increase in cash and cash equivalents 1,405 183 Cash and cash equivalents, beginning of period 1,701 2,569 -------- -------- Cash and cash equivalents, end of period $ 3,106 $ 2,752 ======== ======== Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 1,585 $ 2,457 ======== ======== Supplemental disclosure of noncash investing and financing activities: Capital lease asset additions $ 59 $ 51 ======== ======== Decrease in accounts payable and other noncurrent liabilities in exchange for issuance of common stock $ -- $ 3,510 ======== ======== Increase in accounts payable for deferred loan fees to be paid in future periods $ -- $ 300 ======== ========
See accompanying notes to the condensed consolidated financial statements. 3 6 BRIGHAM EXPLORATION COMPANY CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (in thousands) (unaudited)
Common Stock Additional Unearned ------------------------- Paid-in Stock Accum. Shares Amounts Capital Compensation Deficit Total ---------- ---------- ---------- ------------ -------- ---------- Balance, December 31, 1998 13,306,206 $ 133 $ 58,838 $ (890) $(33,400) $ 24,681 Net loss for the period ended June 30, 1999 -- -- -- -- (17,703) (17,703) Issuance of common stock 1,002,865 10 3,500 -- -- 3,510 Revision in terms of warrants -- -- 479 -- -- 479 Amortization of unearned stock compensation -- -- -- 236 -- 236 ---------- ---------- ---------- --------- -------- ---------- Balance, June 30, 1999 14,309,071 $ 143 $ 62,817 $ (654) $(51,103) $ 11,203 ========== ========== ========== ========== ======== ==========
See accompanying notes to the condensed consolidated financial statements. 4 7 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. ORGANIZATION AND NATURE OF OPERATIONS Brigham Exploration Company (the "Company") is a Delaware corporation formed on February 25, 1997 for the purpose of exchanging its common stock for the common stock of Brigham, Inc. and the partnership interests of Brigham Oil & Gas, L.P. (the "Partnership"). Brigham, Inc. is a Nevada corporation whose only asset is its ownership interest in the Partnership. The Partnership was formed in May 1992 to explore and develop onshore domestic natural gas and oil properties using 3-D seismic imaging and other advanced technologies. Since its inception, the Partnership has focused its exploration and development of natural gas and oil properties primarily in West Texas, the Anadarko Basin and the onshore Gulf Coast. Pursuant to an exchange agreement dated February 26, 1997 (the "Exchange Agreement") and upon the initial filing on February 27, 1997 of a registration statement with the Securities and Exchange Commission (the "SEC") for the public offering of common stock (the "Offering"), the shareholders of Brigham, Inc. transferred all of the outstanding stock of Brigham, Inc. to the Company in exchange for 3,859,821 shares of common stock of the Company. Pursuant to the Exchange Agreement, the Partnership's other general partner and the limited partners also transferred all of their partnership interests to the Company in exchange for 3,314,286 shares of common stock of the Company. Furthermore, the holders of the Partnership's subordinated convertible notes transferred these notes to the Company in exchange for 1,754,464 shares of common stock. These transactions are referred to as the "Exchange." In completing the Exchange, the Company issued 8,928,571 shares of common stock to the stockholders of Brigham, Inc., the partners of the Partnership and the holder of the Partnership's subordinated notes payable. As a result of the Exchange, the Company now owns all the partnership interests in the Partnership. In May 1997, the Company sold 3,325,000 shares of its common stock in the Offering at a price of $8.00 per share. 2. BASIS OF PRESENTATION The accompanying financial statements include the accounts of the Company and its wholly-owned subsidiaries, and its proportionate share of assets, liabilities and income and expenses of the limited partnerships in which the Company, or any of its subsidiaries, has a participating interest. All significant intercompany accounts and transactions have been eliminated. The accompanying condensed consolidated financial statements are unaudited, and in the opinion of management, reflect all adjustments that are necessary for a fair presentation of the financial position and results of operations for the periods presented. All such adjustments are of a normal and recurring nature. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the entire year. The unaudited condensed consolidated financial statements should be read in conjunction with the Company's 1998 Annual Report on Form 10-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. 5 8 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 3. SALE OF NATURAL GAS AND OIL PROPERTIES In February 1999, the Company entered into a project financing arrangement with Duke Energy Financial Services, Inc. ("Duke") to fund the continued exploration of five projects covered by approximately 200 square miles of 3-D seismic data acquired in 1998. In this transaction, the Company conveyed 100% of its working interest in land and seismic in these project areas to a newly formed limited liability company (the "Duke LLC") for a total consideration of $10 million. The Company is the managing member of the Duke LLC with a 1% interest, and Duke is the sole remaining member with a 99% interest. Pursuant to the terms of the Duke LLC agreement, the Company pays 100% of the drilling and completion costs for all wells drilled by the Duke LLC in exchange for a 70% working interest in the wells and their associated drilling and spacing units and allocable seismic data. Upon 100% project payout, the Company has certain rights to back-in for up to a 94% effective working interest in the Duke LLC properties. In June 1999, the Company sold all of its interests in certain producing and non-producing natural gas and oil properties for a total sales price of $17.1 million. Due to the magnitude of the reserve volumes that were attributable to these properties relative to the Company's remaining net reserve volumes, the Company recognized as a loss the difference between the sales price received, after adjustment for transaction costs, and the $28.9 million basis allocated to the divested properties in accordance with the full-cost method of accounting for oil and gas properties. 4. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In June 1998, the Financial Accounting Standards Board (the "FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, depending on the type of hedge transaction. For fair value hedge transactions in which the Company is hedging changes in an asset's, liability's, or firm commitment's fair value, changes in the fair value of the derivative instrument will generally be offset in the income statement by changes in the hedged item's fair value. For cash flow hedge transactions in which the Company is hedging the variability of cash flows related to a variable-rate asset, liability, or a forecasted transaction, changes in the fair value of the derivative instrument will be reported in other comprehensive income. The gains and losses on the derivative instrument that are reported in other comprehensive income will be reclassified as earnings in the periods in which earnings are impacted by the variability of the cash flows of the hedged item. The ineffective portion of all hedges will be recognized in current period earnings. The Company must adopt SFAS No. 133, as amended, effective January 1, 2001. The Company is in the process of analyzing the potential impact of this standard on its financial statement presentations. 6 9 BRIGHAM EXPLORATION COMPANY SUBSIDIARIES CONDENSED BALANCE SHEETS AS OF JUNE 30, 1999 (in thousands) (unaudited)
BRIGHAM BRIGHAM BRIGHAM OIL & BRIGHAM, HOLDINGS HOLDINGS GAS, L.P. INC. I, LLC II, LLC ASSETS Current assets: Cash and cash equivalents $ 2,733 $ 2,747 $ 5 $ 6 Accounts receivable 3,059 3,059 -- -- Prepaid expenses 380 380 -- -- --------- --------- --------- --------- Total current assets 6,172 6,186 5 6 --------- --------- --------- --------- Natural gas and oil properties, at cost, net 105,324 105,324 -- -- Other property and equipment, at cost, net 1,888 1,888 -- -- Investment in subsidiaries and intercompany advances 29 21 2,277 45,386 Drilling advances paid 352 352 -- -- Deferred loan fees 1,736 1,736 -- -- Other noncurrent assets 123 123 -- -- --------- --------- --------- --------- $ 115,624 $ 115,630 $ 2,282 $ 45,392 ========= ========= ========= ========= LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 14,966 $ 14,966 $ -- $ -- Accrued drilling costs 38 38 -- -- Participant advances received 459 459 -- -- Other current liabilities 1,536 1,536 -- -- --------- --------- --------- --------- Total current liabilities 16,999 16,999 -- -- --------- --------- --------- --------- Notes payable 48,250 48,250 -- -- Other noncurrent liabilities 2,510 2,510 -- -- Intercompany accounts payable 1,867 1,888 -- 1,742 Intercompany notes payable 42,642 42,642 -- 42,642 Minority interest -- 2,299 -- -- Equity Partners' capital 3,356 -- 2,282 1,008 Common stock, $1.00 par value, 1,000 shares authorized, issued and outstanding -- 1 -- -- Additional paid-in capital -- 17,215 -- -- Accumulated deficit -- (16,174) -- -- --------- --------- --------- --------- Total equity 3,356 1,042 2,282 1,008 --------- --------- --------- --------- $ 115,624 $ 115,630 $ 2,282 $ 45,392 ========= ========= ========= =========
Natural gas and oil properties are accounted for using the full cost method. See accompanying notes to the condensed financial statements. 7 10 BRIGHAM EXPLORATION COMPANY SUBSIDIARIES CONDENSED 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 -- -- Deferred loan fees 1,397 1,397 -- -- Other noncurrent assets 12 12 -- -- --------- --------- --------- --------- $ 148,863 $ 148,778 $ 11,719 $ 46,919 ========= ========= ========= ========= LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 19,883 $ 19,883 $ -- $ -- Accrued drilling costs 1,219 1,219 -- -- Participant advances received 764 764 -- -- Other current liabilities 1,647 1,647 -- -- --------- --------- --------- --------- Total current liabilities 23,513 23,513 -- -- --------- --------- --------- --------- Notes payable 59,000 59,000 -- -- Other noncurrent liabilities 7,536 7,536 -- -- Intercompany accounts payable 1,690 1,616 -- 1,707 Intercompany notes payable 40,000 40,000 -- 40,000 Minority interest -- 11,730 -- -- Equity Partners' capital 17,124 -- 11,719 5,212 Common stock, $1.00 par value, 1,000 shares authorized, issued and outstanding -- 1 -- -- Additional paid-in capital -- 16,109 -- -- Accumulated deficit -- (10,727) -- -- --------- --------- --------- --------- Total equity 17,124 5,383 11,719 5,212 --------- --------- --------- --------- $ 148,863 $ 148,778 $ 11,719 $ 46,919 ========= ========= ========= =========
Natural gas and oil properties are accounted for using the full cost method. See accompanying notes to the condensed financial statements. 8 11 BRIGHAM EXPLORATION COMPANY SUBSIDIARIES CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999 (in thousands) (unaudited)
BRIGHAM BRIGHAM BRIGHAM OIL & BRIGHAM, HOLDINGS HOLDINGS GAS, L.P. INC. I, LLC II, LLC Revenues: Natural gas and oil sales $ 3,555 $ 3,555 $ -- $ -- Workstation revenue 71 71 -- -- -------- -------- -------- -------- 3,626 3,626 -- -- -------- -------- -------- -------- Costs and expenses: Lease operating 619 619 -- -- Production taxes 216 216 -- -- General and administrative 881 886 5 5 Depletion of natural gas and oil properties 1,461 1,461 -- -- Depreciation and amortization 139 139 -- -- Amortization of stock compensation 55 55 -- -- -------- -------- -------- -------- 3,371 3,376 5 5 -------- -------- -------- -------- Operating income (loss) 255 250 (5) (5) -------- -------- -------- -------- Other income (expense): Interest income 70 70 -- -- Interest expense (1,563) (1,563) -- -- Interest expense - intercompany (1,361) (1,361) -- (1,361) Loss on sale of natural gas and oil properties -- (12,195) -- -- -------- -------- -------- -------- (2,854) (15,049) -- (1,361) -------- -------- -------- -------- Minority interest in net loss -- (10,135) -- -- -------- -------- -------- -------- Net loss before income taxes (2,599) (4,664) -- (1,366) Equity in net loss of investee -- -- (10,135) (3,151) -------- -------- -------- -------- Net loss $ (2,599) $ (4,664) $(10,135) $ (4,517) ======== ======== ======== ========
See accompanying notes to the condensed consolidated financial statements. 9 12 BRIGHAM EXPLORATION COMPANY SUBSIDIARIES CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1998 (in thousands) (unaudited)
BRIGHAM BRIGHAM BRIGHAM OIL & BRIGHAM, HOLDINGS HOLDINGS GAS, L.P. INC. I, LLC II, LLC Revenues: Natural gas and oil sales $ 3,987 $ 3,987 $ -- $ -- Workstation revenue 133 133 -- -- ------- ------- ------- ------- 4,120 4,120 -- -- ------- ------- ------- ------- Costs and expenses: Lease operating 564 564 -- -- Production taxes 262 262 -- -- General and administrative 1,128 1,134 6 6 Depletion of natural gas and oil properties 1,520 1,520 -- -- Depreciation and amortization 92 92 -- -- Amortization of stock compensation 116 116 -- -- ------- ------- ------- ------- 3,682 3,688 6 6 ------- ------- ------- ------- Operating income (loss) 438 432 (6) (6) ------- ------- ------- ------- Other income (expense): Interest income 40 40 -- -- Interest expense (1,410) (1,410) -- -- ------- ------- ------- ------- (1,370) (1,370) -- -- ------- ------- ------- ------- Minority interest in net loss -- (639) -- -- ------- ------- ------- ------- Net loss before income taxes (932) (299) (6) (6) Income tax benefit -- 98 -- -- Equity in net loss of investee -- -- (639) (284) ------- ------- ------- ------- Net loss $ (932) $ (201) $ (645) $ (290) ======= ======= ======= =======
See accompanying notes to the condensed financial statements. 10 13 BRIGHAM EXPLORATION COMPANY SUBSIDIARIES CONDENSED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 (in thousands) (unaudited)
BRIGHAM BRIGHAM BRIGHAM OIL & BRIGHAM, HOLDINGS HOLDINGS GAS, L.P. INC. I, LLC II, LLC Revenues: Natural gas and oil sales $ 6,746 $ 6,746 $ -- $ -- Workstation revenue 161 161 -- -- -------- -------- -------- -------- 6,907 6,907 -- -- -------- -------- -------- -------- Costs and expenses: Lease operating 1,154 1,154 -- -- Production taxes 385 385 -- -- General and administrative 1,799 1,804 5 5 Depletion of natural gas and oil properties 2,811 2,811 -- -- Depreciation and amortization 266 266 -- -- Amortization of stock compensation 113 113 -- -- -------- -------- -------- -------- 6,528 6,533 5 5 -------- -------- -------- -------- Operating income (loss) 379 374 (5) (5) -------- -------- -------- -------- Other income (expense): Interest income 94 94 -- -- Interest expense (2,878) (2,878) -- -- Interest expense - intercompany (2,678) (2,678) -- (2,678) Loss on sale of natural gas and oil properties (12,195) (12,195) -- -- -------- -------- -------- -------- (17,657) (17,657) -- (2,678) -------- -------- -------- -------- Minority interest in net loss -- (11,836) -- -- -------- -------- -------- -------- Net loss before income taxes (17,278) (5,447) (5) (2,683) Equity in net loss of investee -- -- (11,836) (2,592) -------- -------- -------- -------- Net loss $(17,278) $ (5,447) $(11,841) $ (5,275) ======== ======== ======== ========
See accompanying notes to the condensed consolidated financial statements. 11 14 BRIGHAM EXPLORATION COMPANY SUBSIDIARIES CONDENSED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 (in thousands) (unaudited)
BRIGHAM BRIGHAM BRIGHAM OIL & BRIGHAM, HOLDINGS HOLDINGS AS, L.P. INC. I, LLC II, LLC Revenues: Natural gas and oil sales $ 7,130 $ 7,130 $ -- $ -- Workstation revenue 247 247 -- -- ------- ------- ------- ------- 7,377 7,377 -- -- ------- ------- ------- ------- Costs and expenses: Lease operating 978 978 -- -- Production taxes 450 450 -- -- General and administrative 2,282 2,288 6 6 Depletion of natural gas and oil properties 2,790 2,790 -- -- Depreciation and amortization 175 175 -- -- Amortization of stock compensation 233 233 -- -- ------- ------- ------- ------- 6,908 6,914 6 6 ------- ------- ------- ------- Operating income (loss) 469 463 (6) (6) ------- ------- ------- ------- Other income (expense): Interest income 77 77 -- -- Interest expense (2,432) (2,432) -- -- ------- ------- ------- ------- (2,355) (2,355) -- -- ------- ------- ------- ------- Minority interest in net loss -- (1,292) -- -- ------- ------- ------- ------- Net loss before income taxes (1,886) (600) (6) (6) Income tax benefit -- 192 -- -- Equity in net loss of investee -- -- (1,292) (575) ------- ------- ------- ------- Net loss $(1,886) $ (408) $(1,298) $ (581) ======= ======= ======= =======
See accompanying notes to the condensed consolidated financial statements. 12 15 BRIGHAM EXPLORATION COMPANY SUBSIDIARIES CONDENSED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1999 (in thousands) (unaudited)
BRIGHAM BRIGHAM BRIGHAM OIL & BRIGHAM, HOLDINGS HOLDINGS GAS, L.P. INC. I, LLC II, LLC Cash flows from operating activities: Net loss $(17,278) $ (5,447) $(11,841) $ (5,275) Adjustments to reconcile net loss to cash provided by operating activities: Depletion of natural gas and oil properties 2,811 2,811 -- -- Depreciation and amortization 266 266 -- -- Amortization of stock compensation 113 113 -- -- Amortization of deferred loan fees and debt issuance costs 440 440 -- -- Loss on sale of natural gas and oil properties 12,195 12,195 -- -- Minority interest in net loss -- (11,836) -- -- Equity in net loss of investee -- -- 11,836 2,592 Changes in working capital and other items: Decrease in accounts receivable 4,879 4,879 -- -- Increase in prepaid expenses (90) (90) -- -- Decrease in accounts payable (2,001) (2,001) -- -- Decrease in participant advances received (305) (305) -- -- Decrease in other current liabilities (111) (111) -- -- Increase in intercompany accounts payable 31 127 -- 35 Other noncurrent assets (109) (109) -- -- Other noncurrent liabilities (4,655) (4,655) -- -- -------- -------- -------- -------- (3,814) (3,723) (5) (2,648) -------- -------- -------- -------- Cash flows from investing activities: Additions to natural gas and oil properties (13,771) (13,771) -- -- Proceeds from sale of natural gas and oil properties 26,700 26,700 -- -- Additions to other property and equipment (89) (89) -- -- Change in investment in subsidiaries and intercompany advances (4) (95) 5 6 Change in drilling advances paid (122) (122) -- -- -------- -------- -------- -------- 12,714 12,623 5 6 -------- -------- -------- -------- Cash flows from financing activities: Increase in notes payable 6,000 6,000 -- -- Repayment of notes payable (16,750) (16,750) -- -- Increase in intercompany notes payable 2,642 2,642 -- 2,642 Principal payments on capital lease obligations (130) (130) -- -- Deferred loan fees paid (478) (478) -- -- -------- -------- -------- -------- (8,716) (8,716) -- 2,642 -------- -------- -------- -------- Net increase in cash and cash equivalents 184 184 -- -- Cash and cash equivalents, beginning of period 2,549 2,563 5 6 -------- -------- -------- -------- Cash and cash equivalents, end of period $ 2,733 $ 2,747 $ 5 $ 6 ======== ======== ======== ======== Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 2,897 $ 2,897 $ -- $ -- Supplemental disclosure of noncash investing and financing activities: Capital lease asset additions $ 51 $ 51 $ -- $ -- Increase in accounts payable for deferred loan fees to be paid in future periods $ 300 $ 300 $ -- $ -- Capital contribution received in exchange for accounts payable and other noncurrent liabilities $ 3,510 $ -- $ -- $ -- Intercompany capital contributions $ -- $ 1,106 $ 2,404 $ 1,071
See accompanying notes to the condensed consolidated financial statements. 13 16 CONDENSED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1998 (in thousands) (unaudited)
BRIGHAM BRIGHAM BRIGHAM OIL & BRIGHAM, HOLDINGS HOLDINGS GAS, L.P. INC. I, LLC II, LLC Cash flows from operating activities: Net loss $ (1,886) $ (408) $ (1,298) $ (581) Adjustments to reconcile net loss to cash used by operating activities: Depletion of natural gas and oil properties 2,790 2,790 -- -- Depreciation and amortization 175 175 -- -- Amortization of stock compensation 233 233 -- -- Amortization of deferred loan fees and debt issuance costs 266 266 -- -- Minority interest in net loss -- (1,292) -- -- Equity in net loss of investee -- -- 1,292 575 Changes in working capital and other items: Increase in accounts receivable (3,026) (3,026) -- -- Decrease in prepaid expenses 63 63 -- -- Decrease in accounts payable (4,055) (4,055) -- -- Decrease in participant advances received (47) (47) -- -- Increase in other current liabilities 3,987 3,987 -- -- Decrease in deferred income tax liability -- (192) -- -- Other noncurrent assets (119) (119) -- -- Other noncurrent liabilities (62) (62) -- -- -------- -------- -------- -------- (1,681) (1,687) (6) (6) -------- -------- -------- -------- Cash flows from investing activities: Additions to natural gas and oil properties (30,044) (30,044) -- -- Additions to other property and equipment (315) (315) -- -- Change in investment in subsidiaries and intercompany advances (223) (7) 7 7 Change in drilling advances paid (525) (525) -- -- -------- -------- -------- -------- (31,107) (30,891) 7 7 -------- -------- -------- -------- Cash flows from financing activities: Increase in notes payable 70,800 70,800 -- -- Repayment of notes payable (34,800) (34,800) -- -- Principal payments on capital lease obligations (108) (108) -- -- Deferred loan fees paid (1,911) (1,911) -- -- -------- -------- -------- -------- 33,981 33,981 -- -- -------- -------- -------- -------- Net increase in cash and cash equivalents 1,193 1,403 1 1 Cash and cash equivalents, beginning of period 1,701 1,701 -- -- -------- -------- -------- -------- Cash and cash equivalents, end of period $ 2,894 $ 3,104 $ 1 $ 1 ======== ======== ======== ======== Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 1,851 $ 1,851 $ -- $ -- Supplemental disclosure of noncash investing and financing activities: Capital lease asset additions $ 59 $ 59 $ -- $ -- Intercompany capital contributions $ -- $ -- $ 29,911 $ 13,318
See accompanying notes to the condensed financial statements. 14 17 BRIGHAM EXPLORATION COMPANY SUBSIDIARIES CONDENSED STATEMENTS OF CHANGES IN EQUITY (in thousands, except shares) (unaudited)
Retained Common Stock Additional Earnings/ --------------------------- Paid-in Accumulated Partners' Shares Amounts Capital Deficit Capital Total ----------- ----------- ----------- ----------- --------- -------- BRIGHAM OIL & GAS, L.P. Balance, December 31, 1998 -- $ -- $ -- $ -- $ 17,124 $ 17,124 Capital contribution -- -- -- -- 3,510 3,510 Net loss -- -- -- -- (17,278) (17,278) ----------- ----------- ----------- ----------- -------- -------- Balance, June 30, 1999 -- $ -- $ -- $ -- $ 3,356 $ 3,356 =========== =========== =========== =========== ======== ======== BRIGHAM INC Balance, December 31, 1998 1,000 $ 1 $ 16,109 $ (10,727) $ -- $ 5,383 Capital contribution -- -- 1,106 -- -- 1,106 Net loss -- -- -- (5,447) -- (5,447) ----------- ----------- ----------- ----------- -------- -------- Balance, June 30, 1999 1,000 $ 1 $ 17,215 $ (16,174) $ -- $ 1,042 =========== =========== =========== =========== ======== ======== BRIGHAM HOLDING I, LLC Balance, December 31, 1998 -- $ -- $ -- $ -- $ 11,719 $ 11,719 Capital contribution -- -- -- -- 2,404 2,404 Net loss -- -- -- -- (11,841) (11,841) ----------- ----------- ----------- ----------- -------- -------- Balance, June 30, 1999 -- $ -- $ -- $ -- $ 2,282 $ 2,282 =========== =========== =========== =========== ======== ======== BRIGHAM HOLDINGS II, LLC Balance, December 31, 1998 -- $ -- $ -- $ -- $ 5,212 $ 5,212 Capital contribution -- -- -- -- 1,071 1,071 Net loss -- -- -- -- (5,275) (5,275) ----------- ----------- ----------- ----------- -------- -------- Balance, June 30, 1999 -- $ -- $ -- $ -- $ 1,008 $ 1,008 =========== =========== =========== =========== ======== ========
See accompanying notes to the condensed financial statements. 15 18 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. ORGANIZATION AND BACKGROUND In August 1998, upon the filing of a registration statement with the SEC, Brigham Exploration Company, a Delaware corporation, (the "Company") issued $50 million of debt and equity securities to two affiliated institutional investors. The financing transaction consisted of the issuance of $40 million of senior subordinated secured notes (the "Notes"). The Notes are fully and unconditionally guaranteed, on a joint and several basis, by each of the Company's directly or indirectly wholly-owned subsidiaries which are Brigham Oil & Gas, L.P. (the "Partnership"), Brigham Inc., Brigham Holdings I LLC ("Holdings I"), and Brigham Holdings II LLC ("Holdings II"). Furthermore, these subsidiaries have pledged their respective stock and partnership interests as collateral for the Notes. These financial statements include the financial statements for the wholly owned subsidiaries whose securities and partnership interests comprise substantially all of the collateral pledged for the Notes. The Partnership was formed in May 1992 to explore and develop onshore domestic natural gas and oil properties using 3-D seismic imaging and other advanced technologies. Since its inception, the Partnership has focused its exploration and development of natural gas and oil properties primarily in West Texas, the Anadarko Basin and the onshore Gulf Coast. Brigham, Inc. is a Nevada corporation whose only asset prior to the Exchange was its less than 1% ownership interest in the Partnership. Brigham, Inc. is the managing general partner of the Partnership. On February 25, 1997, the Company was formed for the purpose of exchanging its common stock for the common stock of Brigham, Inc. and the partnership interests of the Partnership. Pursuant to an exchange agreement dated February 26, 1997 (the "Exchange Agreement") and upon the initial filing on February 27, 1997 of a registration statement with the Securities and Exchange Commission (the "SEC") for the public offering of common stock (the "Offering"), the shareholders of Brigham, Inc. transferred all of the outstanding stock of Brigham, Inc. to the Company in exchange for 3,859,821 shares of common stock of the Company. Pursuant to the Exchange Agreement, the Partnership's other general partner and the limited partners also transferred all of their partnership interests to the Company in exchange for 3,314,286 shares of common stock of the Company. Furthermore, the holders of the Partnership's subordinated convertible notes transferred these notes to the Company in exchange for 1,754,464 shares of common stock. These transactions are referred to as "the Exchange." In completing the Exchange, the Company issued 8,928,571 shares of common stock to the stockholders of Brigham, Inc., the partners of the Partnership and the holder of the Partnership's subordinated notes payable. In May 1997, the Company sold 3,325,000 shares of its common stock in the Offering at a price of $8.00 per share. As a result of the Exchange and the Offering, the Company owns a 68.5% partnership interest in the Partnership and all of the outstanding shares of Brigham, Inc. Brigham, Inc. owns the remainder of the Partnership interest in the Partnership. The proceeds of the Offering were contributed to the Partnership by the Company. Subsequent to the Exchange and the Offering, the Company owned a 68.5% interest in the Partnership and Brigham, Inc. owned a 31.50% interest in the Partnership. Effective January 1, 1998, Brigham, Inc. contributed 30.5% of its 31.5% interest in the Partnership to Holdings II, a newly formed Nevada LLC and wholly owned subsidiary of Brigham, Inc., whose only asset is its investment in the Partnership. Also effective January 1, 1998 the Company contributed its 68.5% interest in the Partnership to Brigham Holdings I, a newly formed Nevada LLC and wholly owned subsidiary of the Company whose only asset is its investment in the Partnership. 16 19 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONDENSED FINANCIAL STATEMENTS (unaudited) 2. BASIS OF PRESENTATION The accompanying financial condensed financial statements are unaudited, and in the opinion of management, reflect all adjustments that are necessary for a fair presentation of the financial position and results of operations for the periods presented. All such adjustments are of a normal and recurring nature. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the entire year. The unaudited condensed financial statements should be read in conjunction with the Company's 1998 Annual Report on Form 10-K pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934. 3. SALE OF NATURAL GAS AND OIL PROPERTIES In February 1999, the Partnership entered into a project financing arrangement with Duke Energy Financial Services, Inc. ("Duke") to fund the continued exploration of five projects covered by approximately 200 square miles of 3-D seismic data acquired in 1998. In this transaction, the Partnership conveyed 100% of its working interest in land and seismic in these project areas to a newly formed limited liability company (the "Duke LLC") for a total consideration of $10 million. The Partnership is the managing member of the Duke LLC with a 1% interest, and Duke is the sole remaining member with a 99% interest. Pursuant to the terms of the Duke LLC agreement, the Partnership pays 100% of the drilling and completion costs for all wells drilled by the Duke LLC in exchange for a 70% working interest in the wells and their associated drilling and spacing units and allocable seismic data. Upon 100% project payout, the Partnership has certain rights to back-in for up to a 94% effective working interest in the Duke LLC properties. In June 1999, the Company sold all of its interests in certain producing and non-producing natural gas and oil properties for a total sales price of $17.1 million. Due to the magnitude of the reserve volumes that were attributable to these properties relative to the Company's remaining net reserve volumes, the Company recognized as a loss the difference between the sales price received, after adjustment for transaction costs, and the $28.9 million basis allocated to the divested properties in accordance with the full-cost method of accounting for oil and gas properties. 4. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In June 1998, the Financial Accounting Standards Board (the "FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, depending on the type of hedge transaction. For fair value hedge transactions in which the Partnership is hedging changes in an asset's, liability's, or firm commitment's fair value, changes in the fair value of the derivative instrument will generally be offset in the income statement by changes in the hedged item's fair value. For cash flow hedge transactions in which the Partnership is hedging the variability of cash flows related to a variable-rate asset, liability, or a forecasted transaction, changes in the fair value of the derivative instrument will be reported in other comprehensive income. The gains and losses on the derivative instrument that are reported in other comprehensive income will be reclassified as earnings in the periods in which earnings are impacted by the variability of the cash flows of the hedged item. The ineffective portion of all hedges will be recognized in current period earnings. The Partnership must adopt SFAS No. 133, as amended, effective January 1, 2001. The Partnership is in the process of analyzing the potential impact of this standard on its financial statement presentations. 17 20 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition RESULTS OF OPERATIONS Comparison of three month periods ended June 30, 1998 and June 30, 1999 Natural gas and oil sales. Natural gas and oil sales decreased 11% from $4 million in the second quarter of 1998 to $3.6 million in the second quarter of 1999. Of this net decrease, $751,000 was attributable to a decrease in production, offset in part by $319,000 attributable to an increase in the average sales price for natural gas and oil. Production volumes for natural gas decreased 17% from 1,207 MMcf in the second quarter of 1998 to 1,006 MMcf in the second quarter of 1999. The average price received for natural gas decreased from $2.09 per Mcf in the second quarter of 1998 to $2.07 per Mcf in the second quarter of 1999. Production volumes for oil decreased 23% from 117 MBbls in the second quarter of 1998 to 90 MBbls in the second quarter of 1999. This decrease in net oil production volumes was primarily due to the natural decline of existing producing oil wells coupled with the Company's strategic decision to reduce its drilling for oil prospects during 1998 and 1999 in response to low oil prices. The average price received for oil increased 33% from $12.17 per Bbl in the second quarter of 1998 to $16.24 per Bbl in the second quarter of 1999. As a result of hedging activities, natural gas revenues decreased $30,275, or $0.03 per Mcf, in the second quarter of 1999 compared to the same period of 1998. Workstation revenue. Workstation revenue decreased 47% from $133,000 in the second quarter of 1998 to $71,000 in the second quarter of 1999. Brigham recognizes workstation revenue as industry participants in the Company's seismic programs are charged an hourly rate for the work performed by Brigham on its 3-D seismic interpretation workstations. This decrease is primarily attributable to the Company's increased working interests in its most recently acquired 3-D seismic data, which reduces the amount of workstation interpretation costs that Brigham can bill to its project participants. The Company expects workstation revenue to continue to decline in 1999 due to the Company's increased working interests in the square miles of 3-D seismic it acquired in 1997 and 1998. Lease operating expenses. Lease operating expenses increased 10% from $564,000 for the second quarter of 1998 to $619,000 for the second quarter of 1999 and, on a per unit of production basis, lease operating expenses for the same periods increased 33% from $0.30 per Mcfe to $0.40 per Mcfe. The increase in lease operating expenses was primarily due to an increase in the number of producing wells in the second quarter of 1999 as compared with the same period in 1998. Production taxes. Production taxes decreased 18% from $262,000 ($0.14 per Mcfe) for the second quarter of 1998 to $216,000 ($0.14 per Mcfe) for the second quarter of 1999, primarily as a result of reduced average natural gas and oil production volumes. General and administrative expenses. General and administrative expenses decreased 22% from $1.1 million for the second quarter of 1998 to $891,000 for the second quarter of 1999 primarily due to an increase in overhead fees billed to working interest participants on Company-operated wells and the reduction of various administrative costs, the most significant of which was the elimination of accrued bonuses for 1999 and a 10% payroll reduction that was effective mid-May 1999. On a per unit of production basis, general and administrative expenses decreased from $0.60 per Mcfe for the second quarter of 1998 to $0.58 per Mcfe for the second quarter of 1999. Depletion of natural gas and oil properties. Depletion of natural gas and oil properties decreased from $1.52 million ($0.80 per Mcfe) in the second 18 21 quarter of 1998 to $1.46 million ($0.94 per Mcfe) in the second quarter of 1999. Of this net decrease, $287,000 was due to the decrease in production volumes, which was partially offset by $228,000 due to an 18% increase in the depletion rate per unit of production. Interest expense. Net interest expense increased 125% from $1.4 million in the second quarter of 1998 to $3.1 million in the second quarter of 1999. This increase was due to a higher average debt balance with a higher average interest rate in the second quarter of 1999 compared with the second quarter of 1998 resulting from increased capital expenditures funded with debt. The weighted average outstanding debt balance increased from $59.6 million in the second quarter of 1998 to $104.1 million in the second quarter of 1999. The average effective annual interest rate on borrowings outstanding during the second quarter of 1999 was 12% compared to 9.3% for the second quarter of 1998. Interest expense in the second quarter of 1999 included $1.8 million of non-cash charges, including (i) $1.3 million of interest expense related to the Subordinated Notes that was paid through the issuance of additional Subordinated Notes (or "paid-in-kind"), (ii) $366,000 for amortization of deferred financing fees, and (iii) $136,000 for amortization of debt discounts related to the issuance of the Subordinated Notes. In connection with issuance of the Subordinated Notes in August 1998, the Company recorded the Subordinated Notes at a discount of $4.5 million to reflect the estimated value of the warrants to purchase common stock that were issued in connection with the issuance of the Subordinated Notes. This discount was increased by $479,000 in March 1999 to adjust the estimated value of the warrants based on the amendment of certain terms of the warrants, including a decrease in the exercise price per share and an increase in the term of the warrants. The Company amortizes this debt discount over the five-year term of the Subordinated Notes based on the interest method of amortization and includes such amortization in interest expense. Loss on sale of natural gas and oil properties. In June 1999, the Company sold all of its interests in certain producing and non-producing natural gas and oil properties for a total sales price of $17.1 million. Due to the magnitude of the reserve volumes that were attributable to these properties relative to the Company's remaining net reserve volumes, the Company recognized as a loss the difference between the sales price received, after adjustment for transaction costs, and the $28.9 million basis allocated to the divested properties in accordance with the full-cost method of accounting for oil and gas properties. No property divestitures occurred during the second quarter of 1998 for which recognition of gain or loss was appropriate. Comparison of six month periods ended June 30, 1998 and June 30, 1999 Natural gas and oil sales. Natural gas and oil sales decreased 5% from $7.1 million in the first six months of 1998 to $6.8 million in the first six months of 1999. Of this net decrease, $459,000 was attributable to a decrease in production, offset in part by $75,000 attributable to an increase in the average sales price for natural gas and oil. Production volumes for natural gas increased 5% from 1,947 MMcf in the first six months of 1998 to 2,053 MMcf in the first six months of 1999. The average price received for natural gas decreased from $2.10 per Mcf in the first six months of 1998 to $2.08 per Mcf in the first six months of 1999. Production volumes for oil decreased 23% from 232 MBbls in the first six months of 1998 to 178 MBbls in the first six months of 1999. This decrease in net oil production volumes was primarily due to the natural decline of existing producing oil wells coupled with the Company's strategic decision to reduce its drilling for oil prospects during 1998 and 1999 and the curtailment of certain producing oil wells in early 1999, both in response to low oil prices. The average price received for oil increased 5% from $13.15 per Bbl in the first six months of 1998 to $13.85 per Bbl in the first six months of 1999. As a result of hedging activities, natural gas revenues increased $528,945, or $0.26 per Mcf, in the first six months of 1999 compared to the same period for 1998. 19 22 Workstation revenue. Workstation revenue decreased 35% from $247,000 in the first six months of 1998 to $161,000 in the first six months of 1999. Brigham recognizes workstation revenue as industry participants in the Company's seismic programs are charged an hourly rate for the work performed by Brigham on its 3-D seismic interpretation workstations. This decrease is primarily attributable to the Company's increased working interests in its most recently acquired 3-D seismic data, which reduces the amount of workstation interpretation costs that Brigham can bill to its project participants. The Company expects workstation revenue to continue to decline in 1999 due to the Company's increased working interests in the square miles of 3-D seismic it acquired in 1997 and 1998. Lease operating expenses. Lease operating expenses increased 18% from $978,000 for the first six months of 1998 to $1.2 million for the first six months of 1999, and, on a per unit of production basis, lease operating expenses for the same periods increased 28% from $0.29 per Mcfe to $0.37 per Mcfe. The increase in lease operating expenses was primarily due to an increase in the number of producing wells in the first six months of 1999 as compared with the same period in 1998. Production taxes. Production taxes decreased 14% from $450,000 ($0.13 per Mcfe) for the first six months of 1998 to $385,000 ($0.12 per Mcfe) for the first six months of 1999, primarily as a result of reduced average natural gas and oil production volumes. General and administrative expenses. General and administrative expenses decreased 21% from $2.3 million for the first six months of 1998 to $1.8 million for the first six months of 1999 primarily due to an increase in overhead fees billed to working interest participants on Company-operated wells and the reduction of various administrative costs, the most significant of which was the elimination of accrued bonuses for 1999 and a 10% payroll reduction that was effective mid-May 1999. On a per unit of production basis, general and administrative expenses decreased 16% from $0.69 per Mcfe for the first six months of 1998 to $0.58 per Mcfe for the first six months of 1999. Depletion of natural gas and oil properties. Depletion of natural gas and oil properties increased from $2.79 million ($0.84 per Mcfe) in the first six months of 1998 to $2.8 million ($0.90 per Mcfe) in the first six months of 1999. Of this net increase, $202,000 was due to a 7% increase in the depletion rate per unit of production, which was partially offset by $181,000 due to the decrease in production volumes. Interest expense. Net interest expense increased 150% from $2.4 million in the first six months of 1998 to $5.9 million in the first six months of 1999. This increase was due to a higher average debt balance with a higher average interest rate in the first six months of 1999 compared with the first six months of 1998 resulting from increased capital expenditures related to the Company's exploration activities funded with debt. The weighted average outstanding debt balance increased from $51.3 million in the first six months of 1998 to $101.9 million in the first six months of 1999. The average effective annual interest rate on borrowings outstanding during the first six months 1999 was 11.7% compared to 9.4% for the first six months 1998. Interest expense in the first six months of 1999 included $3.5 million of non-cash charges, including (i) $2.6 million of interest expense related to the Subordinated Notes that was paid through the issuance of additional Subordinated Notes (or "paid-in-kind"), (ii) $628,000 for amortization of deferred financing fees, and (iii) $228,000 for amortization of debt discounts related to the issuance of the Subordinated Notes. In connection with issuance of the Subordinated Notes in August 1998, the Company recorded the Subordinated Notes at a discount of $4.5 million to reflect the estimated value of the warrants to purchase common stock that were issued in connection with the issuance of the Subordinated Notes. This discount was increased by $479,000 in March 1999 to adjust the estimated value of the warrants based on the amendment of certain terms of the warrants, including a decrease in the exercise price per share and an increase in the term of the warrants. The Company amortizes this debt discount over the five-year term of the Subordinated Notes 20 23 based on the interest method of amortization and includes such amortization in interest expense. Loss on sale of natural gas and oil properties. In June 1999, the Company sold all of its interests in certain producing and non-producing natural gas and oil properties for a total sales price of $17.1 million. Due to the magnitude of the reserve volumes that were attributable to these properties relative to the Company's remaining net reserve volumes, the Company recognized as a loss the difference between the sales price received, after adjustment for transaction costs, and the $28.9 million basis allocated to the divested properties in accordance with the full-cost method of accounting for oil and gas properties. No property divestitures occurred during the first six months of 1998 for which recognition of gain or loss was appropriate. LIQUIDITY Despite the Company's success in building its inventory of 3-D seismic data and potential drilling locations, a number of key factors have contributed to significantly limit the Company's capital resources available to fund its continued long-term growth-oriented exploration strategy. Management believes these principal factors include: (i) lower commodity sales prices during the second half of 1998 and the early part of 1999, which reduced revenues and cash flow from the Company's production volumes, (ii) reduced access to public, private and industry sources of capital on cost-effective terms due to the continuing low commodity price environment and outlook, (iii) less than anticipated success in placing working interests with industry or financial participants in certain of its high equity interest projects during the second half of 1998, resulting in lower levels of project cost recoupment than budgeted, (iv) high levels of expenditures in 1997 and 1998 for 3-D seismic and land activities that do not generate proved reserves and cash flow until the drilling stage of the project cycle, (v) the utilization of high levels of debt to fund its accelerating exploration expenditures, and (vi) disappointing drilling results during 1998 on a number of high equity interest exploratory and development wells, several of which were completed and subsequently plugged and abandoned or otherwise performed below expectations. As a result of these limiting factors and an expectation for continuing difficult industry and capital markets conditions, Brigham has substantially reduced its planned capital budget for 1999 and has undertaken a number of strategic initiatives in an effort to improve and preserve its capital liquidity in the current environment. While the Company remains focused on its long-term growth objectives and the continuation of its established business model for 3-D seismic-based exploration, Brigham has adapted its business strategy in the near-term in an effort to maximize value for its shareholders on a long-term basis through the implementation of the following principal strategic initiatives: (i) focusing all of the Company's planned exploration efforts in 1999 toward the drilling of its highest-grade 3-D prospects identified in its Anadarko Basin and Gulf Coast projects, concentrated primarily in trends where Brigham has achieved exploration success, (ii) elimination of substantially all planned seismic and land expenditures for new projects until its capital resources can support such additional activity, (iii) divestiture of certain producing natural gas and oil properties to raise capital to reduce debt borrowings and to redirect capital to drilling projects that have the potential to generate higher investment returns, (iv) restructure of its outstanding senior and subordinated debt agreements to provide the Company with flexibility needed to preserve cash flow to fund its expected near-term exploration activities, (v) implementation of overhead reduction plan to reduce general and administrative expenses, and (vi) evaluating opportunities to raise additional equity capital either through the sales of interests in certain of its seismic projects or the issuance of equity securities. The Company believes that the successful execution of these strategic initiatives will provide Brigham with sufficient capital resources to execute its planned 1999 exploration program and position the Company to realize the significant value it believes it has captured in its inventory of 3-D seismic projects and delineated drilling locations. While the Company has initiated each of these strategic directives in late 1998 and early 1999, and has effected 21 24 certain of them to date, the successful completion of any or all of these efforts to improve the Company's capital availability within the expected timeframe is uncertain and will likely have a material impact on the Company's liquidity, near-term capital expenditure levels and growth profile. On March 30, 1999, the Company entered into an agreement with Veritas DGC Land, Inc. ("Veritas") to exchange 1,002,865 shares of newly issued Brigham common stock valued at $3.50 per share for approximately $3.5 million of payment obligations due to Veritas in 1999 for certain seismic acquisition and processing services previously performed. In addition, this agreement provides for the payment by Brigham of up to $1 million in future seismic processing services to be performed by Veritas in newly issued shares of Brigham common stock valued at $3.50 per share, in the event that the Company does not elect to pay for such services in cash. The settlement of these seismic processing services has been determined on a quarterly basis. During the third quarter 1999, Brigham issued an additional 119,550 shares of common stock valued at $3.50 per share to Veritas pursuant to its election to settle certain seismic processing service obligations, incurred primarily during the second quarter of 1999, in stock instead of cash. Brigham considers this arrangement to have been beneficial as it has enabled the Company to reduce its working capital commitments and preserve additional cash flow and capital availability to fund its 1999 drilling program. CAPITAL RESOURCES The Company's primary sources of capital have been revolving credit facility and other debt borrowings, public and private equity financings, the sale of interests in projects and properties, and funds generated by operations. The Company's primary capital requirements are 3-D seismic acquisition, processing and interpretation costs, land acquisition costs and drilling expenditures. In January 1998, the Company entered into a new revolving credit facility that provided for an initial borrowing availability of $75 million that was used to repay its then outstanding borrowings under its previous credit facility and to fund capital expenditures. This revolving credit facility has been subsequently amended, most recently in July 1999, to provide for a borrowing availability of $56 million. In August 1998, the Company issued $50 million of debt and equity securities, including $40 million of Subordinated Notes, that generated proceeds of approximately $47.5 million, net of offering costs, that were used to repay a portion of then outstanding borrowings under the Credit Facility, thereby increasing the Company's borrowing availability under its Credit Facility to fund capital expenditures. In late June 1999, the Company received $17.1 million ($16.8 million after adjustment for transaction costs and post-closing adjustments) from the sale of its interests in producing and non-producing natural gas and oil properties within two non-operated fields in its Anadarko Basin province. Cash Flow Analysis In the first six months of 1999, cash flow used by operating activities was $1.2 million primarily as a result of a $4.7 million decrease in other noncurrent liabilities partially offset by a net $2.4 million increase in non-cash working capital and a net $1.2 million cash flow from total revenues, net of lease operating expenses, production taxes, general and administrative expenses and cash interest expense. Cash flow provided by investing activities was 22 25 $12.7 million in the first six months of 1999 primarily as a net result of $13.8 million of capital expenditures related to exploration activities and $26.7 million of proceeds received from the sale of interests in certain seismic projects and natural gas and oil properties. Cash flow used in financing activities was $11.4 million the first six months of 1999 resulting from a $10.8 million net reduction in notes payable attributable to the net repayment of outstanding borrowings under the revolving credit facility and the payment of deferred loan fees and principal payments made on capital lease obligations. Revolving Credit Facility In January 1998, the Company entered into a new revolving credit agreement (the "Credit Facility"), which provided for an initial borrowing availability of $75 million. The Credit Facility was amended in March 1999 to reduce the borrowing availability, extend the date of borrowing base redetermination, modify certain financial covenants, include certain additional covenants that place significant restrictions on the Company's ability to incur certain capital expenditures, and to increase the interest rate on outstanding borrowings. As a result of the completion of the majority of the Company's strategic initiatives to improve its capital resources, including the late June 1999 property divestitures and the application of the net sales proceeds to reduce borrowings outstanding under the Credit Facility, the Company and its senior lenders entered into an amendment to the Credit Facility in July 1999. This most recent amendment provides the Company with borrowing availability of $56 million (approximately $8 million of which remained available at the time the amendment was effected) principally to fund its planned drilling activities and anticipated working capital requirements through the end of 1999. The Company's lenders have indicated that the borrowing availability provided under the amended Credit Facility exceeds that which would otherwise be made available under a more traditional conforming borrowing base calculation based on the estimated value of the Company's current net proved reserves and its cash flow. As consideration for this amendment to the Credit Facility, the Company has issued to its senior lenders one million warrants to purchase the Company's common stock at an exercise price of $2.25 per share. The warrants have a seven-year term from the date of issuance and are exercisable at the holders' option at any time. Principal outstanding under the Credit Facility is due at maturity on January 26, 2001 with interest due monthly for base rate tranches or periodically as LIBOR tranches mature. The annual interest rate for borrowings under the Credit Facility is either the lender's base rate or LIBOR plus 3.00%, at the Company's option. The Company's obligations under the Credit Facility are secured by substantially all of the natural gas and oil properties and other tangible assets of the Company. The borrowing availability will be redetermined by the senior lenders at January 31, 2000, based on the Company's then estimated net proved reserve value and cash flows. At August 12, 1999, the Company had $50.8 million in borrowings outstanding under the Credit Facility, which bear interest at an average annual rate of 8.39%. The Credit Facility has certain financial covenants including current and interest coverage ratios, as defined. The Company and its lenders effected the March 1999 amendment to the Credit Facility to enable the Company to comply with certain financial covenants of the Credit Facility, including the minimum current ratio, minimum interest coverage ratio and the limitation on capital expenditures related to seismic and land activities. The Company believes its amendments are indicative of its senior lenders' cooperation in the current oil and natural gas industry environment. If oil and natural gas prices deteriorate beyond the date of redetermination of borrowing availability or the Company does not generate its expected growth in proved reserves through its drilling activities planned for the second half of 1999, the Company believes its senior lenders may require the Company to reduce its level of borrowing under the Credit Facility accordingly. Should the Company be unable to comply with certain of the financial covenants, its senior lenders may be unwilling to waive compliance or amend the covenants in the future. In such instance, the Company's liquidity may be adversely affected, which could in turn have an adverse impact on the Company's future financial position and results of operations. 23 26 Subordinated Notes In August 1998, the Company issued $50 million of debt and equity securities to affiliates of Enron Corp. ("Enron"). Securities issued by the Company in connection with this financing transaction included: (i) $40 million of Subordinated Notes, (ii) warrants to purchase 1,000,000 shares of the Company's common stock at a price of $10.45 per share (the "Warrants"), and (iii) 1,052,632 shares of the Company's common stock at a price of $9.50 per share. The approximate $47.5 million in net proceeds received by the Company from this financing transaction were used to repay a portion of outstanding borrowings under its Credit Facility, which increased the Company's borrowing availability under its Credit Facility to fund capital expenditures. Principal outstanding under the Subordinated Notes is due at maturity on August 20, 2003. Interest on the Subordinated Notes is payable quarterly at rates that vary depending upon whether accrued interest is paid in cash or "in kind" through the issuance of additional Subordinated Notes ("PIK Interest"). Interest shall be paid in cash at interest rates of 12%, 13% and 14% per annum during years one through three, year four and year five, respectively, of the term of the Subordinated Notes; provided, however, that the Company may pay PIK Interest for a cumulative total of six quarterly interest payments at interest rates of 13%, 14% and 15% per annum during years one through three, year four and year five, respectively, of the term of the Notes. The Subordinated Notes rank subordinate in right of payment to Senior Indebtedness (as defined) and senior to all other financings (other than any allowed capital leases and purchase money financings) of the Company. The Subordinated Notes are secured by a second lien against substantially all of the natural gas and oil properties and other tangible assets of the Company. The Subordinated Notes may be prepaid at any time, in whole or in part, without premium or penalty, provided that all partial prepayments must be pro rata to the various holders of the Subordinated Notes. The Subordinated Notes were issued pursuant to an indenture (the "Indenture") that contains certain covenants that, among other things, limit the ability of the Company and its subsidiaries to incur additional indebtedness, pay dividends, make distributions, enter into certain sale and leaseback transactions, enter into certain transactions with affiliates, dispose of certain assets, incur liens, and engage in mergers and consolidations. In March 1999, the Company and Chase Bank of Texas, National Association, as trustee (the "Trustee") for the holders of the Subordinated Notes, entered into an amendment to the Indenture. This amendment provides the Company with the option to pay interest due on the Subordinated Notes in kind, for any reason, through the second quarter of 2000. In addition, certain financial and other covenants were amended. The amendment also provides for a reduction in the exercise price per share of the Warrants from $10.45 per share to $3.50 per share and extended the term of the Warrants from seven to ten years. The Indenture governing the Subordinated Notes has certain financial covenants including current and interest coverage ratios, as defined. The Company and the holders of the Subordinated Notes effected the recent amendment to the Indenture to enable the Company to comply with certain financial covenants of the Indenture that parallel those of the Credit Facility, including the minimum current ratio and the minimum interest coverage ratio. Should the Company be unable to comply with certain of the financial covenants, the holders of the Subordinated Notes may be unwilling to waive compliance or amend the covenants in the future. In such instance, the Company's liquidity may be 24 27 adversely affected, which could in turn have an adverse impact on the Company's future financial position and results of operations. At June 30, 1999 and August 12, 1999, the Company had $42.6 million principal amount of Subordinated Notes outstanding. Capital Expenditures As a result of the Company's limited available capital resources, Brigham has significantly reduced its planned capital expenditure budget for 1999 from the Company's previously anticipated levels in an effort to match its current and expected future capital resources. The Company's current 1999 capital budget is estimated to be $28 million, or approximately 34% of 1998 expenditures. The Company's budgeted 1999 capital expenditures consist of approximately $18.5 million to drill an estimated 25 to 30 gross wells, $5.5 million for seismic and land costs, consisting primarily of previous year commitments and obligations to acquire 3-D data and acreage, and $4 million for capitalized general and administrative expenses and other fixed asset expenditures. Brigham expects that its 1999 drilling expenditures will be allocated to prospects identified among its 3-D projects primarily in its Anadarko Basin and Gulf Coast provinces, and such expenditures will be devoted to the drilling of the highest grade prospects in the Company's inventory of identified potential drilling locations. The Company intends to fund these budgeted capital expenditures through a combination of cash flow from operations, available borrowings under its Credit Facility and the sales of certain assets and equity interests (including the Anadarko Basin property divestitures completed in late June 1999, the sale of interests in certain 3-D seismic projects for $11.5 million completed in January 1999 and the potential sales of additional interests in certain 3-D seismic projects during the second half of 1999). The Company's capital availability during 1999 will depend to a large extent on its success raising additional financing through its planned and potential strategic initiatives discussed above, and therefore the Company's actual 1999 capital expenditures may differ from its current estimates. In the event additional financing is not available in the amounts or timing needed, the Company may be required to curtail its planned exploration activities in 1999 and take further measures to reduce the size and scope of its business. OTHER MATTERS Year 2000 Issues Many computer software systems, as well as certain hardware and equipment using date-sensitive data, were structured to use a two-digit date field meaning that they may not be able to properly recognize dates in the year 2000. The Company has developed a plan to address this issue and is taking steps to review its information technology systems, such as computer hardware and software, as well as non information technology systems, including computer controlled equipment and electronic devices used to operate equipment involved in processing and interpreting 3-D seismic data. The Company has completed the initial phases of its plan by identifying all computerized systems and substantially completing an inventory of its equipment and component parts. Both information technology and non information technology systems may contain embedded technology, which complicates the Company's Year 2000 identification, assessment, remediation and testing efforts. The Company continues to inventory its equipment and facilities to determine if they contain embedded date-sensitive technology. The Company is currently reviewing all of its systems to determine which are not Year 2000 compliant and will need to be replaced or modified. This current phase includes comparisons of inventory to manufacturer's information and/or performance testing. If problems are identified, the Company will undertake remediation, replacement or 25 28 alternative procedures for non-compliant equipment or facilities on a business priority basis. The Company's identification and assessment efforts to date have not identified any computer equipment or software it currently uses which will require replacement or modification, except that one of the word processing software programs the Company uses may be non-compliant and may need to be discontinued or upgraded. In addition, in the ordinary course of replacing computer equipment and software, the Company attempts to obtain replacements that are Year 2000 compliant. The Company currently anticipates that its identification, assessment, remediation and testing efforts will continue and, depending upon the results of the assessment efforts, be completed by September 30, 1999. As of June 30, 1999, all costs incurred by the Company in connection with its Year 2000 compliance efforts were included within the Company's normal general and administrative expenses (for example, regular maintenance of software programs). The Company is currently expensing as incurred all costs related to the assessment and remediation of the Year 2000 issue, and these costs are being funded through operating cash flow. However, in certain instances the Company may determine that replacing existing equipment may be appropriate and may capitalize such replacements. The Company is unable currently to estimate the amount of its total out-of-pocket costs to become Year 2000 compliant, but the Company currently expects that such costs will not have a material adverse effect on the Company's financial condition, operations or liquidity. The foregoing timetable and assessment of costs to become Year 2000 compliant reflect management's current best estimates. These estimates are based on many assumptions, including assumptions about the cost, availability and ability of resources to locate, remediate and modify affected systems, equipment and facilities. Based upon its activities to date, the Company does not currently believe that these factors will cause results to differ significantly from those estimated. However, the Company cannot reasonably estimate the potential impact on its financial condition and operations if key third parties including, among others, suppliers, contractors, joint venture participants, financial institutions, customers and governments do not become Year 2000 compliant on a timely basis. The Company is currently identifying third parties whose business significantly impacts the Company, has contacted some significant third parties to determine the extent to which interfaces with such entities are vulnerable to Year 2000 issues, and will contact others as it completes the identification phase. In the event that the Company is unable to complete the remediation or replacement of its critical systems, facilities and equipment, establish alternative procedures in a timely manner, or if those with whom the Company conducts business are unsuccessful in implementing timely solutions, Year 2000 issues could have a material adverse effect on the Company's liquidity and results of operations. At this time, the potential effect in the event the Company and/or third parties are unable to timely resolve their Year 2000 problems is not determinable. A contingency plan has not been developed for dealing with the most reasonably likely worst case scenario, and such scenario has not yet been clearly identified. However, the Company currently believes that it will be able to resolve its own Year 2000 issues in a timely manner. The disclosure set forth in this section is provided pursuant to Securities Act Release No. 33-7558. As such it is protected as a forward-looking statement under the Private Securities Litigation Reform Act of 1995. See "Forward-Looking Information." This disclosure is also subject to protection under the Year 2000 Information and Readiness Disclosure Act of 1998, Public Law 105-271, as a "Year 2000 Statement" and "Year 2000 Readiness Disclosure" as defined therein. Forward Looking Information The Company may make forward looking statements, oral or written, 26 29 including statements in this report, press releases and other filings with the SEC, relating to the Company's drilling plans, its potential drilling locations, capital expenditures, use of offering proceeds, the ability of expected sources of liquidity to support working capital and capital expenditure requirements and the Company's financial position, business strategy and other plans and objectives for future operations. Such statements involve risks and uncertainties, including those relating to the Company's dependence on exploratory drilling activities, the volatility of natural gas and oil prices, the risks associated with growth (including the risk of reduced availability of seismic gathering and drilling services in the face of growing demand), the substantial capital requirements of the Company's exploration and development projects, operating hazards and uninsured risks and other factors detailed in the Company's registration statement and other filings with the SEC. All subsequent oral and written forward looking statements attributable to the Company are expressly qualified in their entirety by these factors. The Company assumes no obligation to update these statements. 27 30 PART II. OTHER INFORMATION: Item 2. Changes in Securities Pursuant to the Company's agreement dated March 30, 1999 with Veritas DGC Land, Inc. ("Veritas"), in July 1999 the Company exchanged 119,550 shares of newly issued Brigham Exploration Company common stock valued at $3.50 per share for approximately $420,000 of payment obligations due to Veritas in 1999 for certain seismic acquisition and processing services previously performed. These shares were issued pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933, as amended. Veritas represented its intention to acquire the shares for investment purposes only and not for the purpose of resale or distribution, and appropriate legends were affixed to the certificate issued in such transaction. Veritas was given access to information about the Company. Item 4. Submission of Matters to a Vote of Security Holders (a) The annual meeting of stockholders of the Company was held at 10:00 a.m., local time, on Thursday, May 13, 1999 in Austin, Texas. (b) Proxies were solicited by the Board of Directors of the Company pursuant to Regulation 14A under the Securities Exchange Act of 1934. There was no solicitation in opposition to the Board of Directors' nominees as listed in the proxy statement and all such nominees were duly elected. (c) Out of a total of 14,309,071 shares of common stock of the Company outstanding and entitled to vote, 11,210,288 shares were present in person or by proxy, representing approximately 78 percent.
Number of Shares Number of Shares WITHHOLDING AUTHORITY Voting FOR Election to Vote for Election As Director As Director ----------- ----------- Ben M. Bud Brigham 11,182,788 27,500 Anne L. Brigham 11,182,788 27,500 Jon L. Glass 11,182,688 27,600 Harold D. Carter 11,182,688 27,600 Alexis M. Cranberg 11,182,688 27,600 W. Craig Childers 11,182,688 27,600 Stephen P. Reynolds 11,182,688 27,600
The proposal to appoint PricewaterhouseCoopers, LLP as the Company's independent auditors for 1999 was voted upon as follows: 11,156,588 shares voted FOR; 2,000 shares voted AGAINST; and 51,700 shares WITHHOLDING AUTHORITY to vote. 28 31 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1 Third amendment to Credit Agreement dated as of July 19, 1999 among Brigham Oil & Gas, L.P., Bank of Montreal, as Agent, and the lenders signatory thereto. 10.2 Fourth amendment to Guaranty Agreement dated as of July 19, 1999 between Brigham Exploration Company and Bank of Montreal, as Agent for the lenders party to the Credit Agreement. 27 Financial Data Schedule (b) Reports on Form 8-K The Company filed a report on Form 8-K on July 12, 1999, to report the closing on June 25, 1999 of the sale of its entire interest in certain producing and non-producing natural gas and oil properties in the Company's Anadarko Basin province. The Form 8-K included unaudited pro forma financial statements presented to reflect the divestiture. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto, duly authorized, in the City of Austin, State of Texas, on the 13th day of August, 1999. BRIGHAM EXPLORATION COMPANY By: /s/ BEN M. BRIGHAM ---------------------------------------- Ben M. Brigham Chief Executive Officer, President and Chairman of the Board By: /s/ CRAIG M. FLEMING ---------------------------------------- Craig M. Fleming Chief Financial Officer 29 32 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION --- ----------- 10.1 Third amendment to Credit Agreement dated as of July 19, 1999 among Brigham Oil & Gas, L.P., Bank of Montreal, as Agent, and the lenders signatory thereto. 10.2 Fourth amendment to Guaranty Agreement dated as of July 19, 1999 between Brigham Exploration Company and Bank of Montreal, as Agent for the lenders party to the Credit Agreement. 27 Financial Data Schedule
EX-10.1 2 THIRD AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10.1 THIRD AMENDMENT TO CREDIT AGREEMENT THIRD AMENDMENT TO CREDIT AGREEMENT, dated as of July 19, 1999 ("this Amendment"), among Brigham Oil & Gas, L.P., a limited partnership formed under the laws of the State of Delaware (the "Borrower"), the financial institutions party to the Credit Agreement referred to below (each a "Lender" and collectively the "Lenders") and Bank of Montreal, a Canadian bank, as agent for Lenders under the Credit Agreement (in such capacity, the "Agent"). RECITALS WHEREAS, the Borrower, the Lenders and the Agent are parties to that certain Credit Agreement, dated as of January 26, 1998, as amended by that certain First Amendment to Credit Agreement, dated as of August 20, 1998 and that certain Second Amendment to Credit Agreement dated as of March 26, 1999 (as so amended, the "Credit Agreement"); and WHEREAS, the Borrower has advised the Lenders and the Agent that it desires to amend certain provisions of the Credit Agreement, and the Borrower has requested that the Lenders and the Agent agree to various amendments to certain provisions of the Credit Agreement; and WHEREAS, the Lenders and the Agent have agreed to so amend certain provisions of the Credit Agreement upon the terms and subject to the conditions and limitations of this Amendment; NOW, THEREFORE, in consideration of the premises, covenants and agreements contained herein, the parties hereto hereby agrees as follows: Section 1. Definitions. Capitalized terms used and not otherwise defined herein are used with the meanings ascribed thereto in the Credit Agreement. The following capitalized terms shall have the following respective meanings when used herein: A. "Lending Relationship" shall refer to the Credit Agreement and the other Loan Documents, including, without limitation, this Amendment, together with any and all negotiations, discussions, acts, omissions, renewals, extensions, and other agreements or events related to the Credit Agreement and such other Loan Documents, the parties' obligations thereunder and the transactions contemplated thereby, including, without limitation, any such negotiations, discussions, acts, omissions, renewals, extensions, other agreements or events that (a) occurred prior to the date hereof, (b) may occur on the date hereof, or (c) occurred prior to the execution of this Amendment and the instruments and documents executed and delivered in connection herewith or relating hereto. 1 2 B. "New Mortgage" shall mean that certain Mortgage, Deed of Trust, Assignment of Production, Security Agreement and Financing Statement dated as of March 26, 1999 from Brigham Oil & Gas, L.P. to Thomas McGraw, as Trustee, for the benefit of Bank of Montreal, as Agent. C. "Released Claims" shall mean any and all claims (including without limitation any liabilities, damages, demands and causes of action arising therefrom), whether (a) at law or in equity, (b) on the alleged commission of a tort, (c) on the alleged breach (or anticipatory breach or repudiation) of any contract, duty, or warranty (whether oral or written, express or implied), (d) on the alleged violation of any statute, tariff, or regulation (whether promulgated by the United States, any state thereof, any foreign state or country, or any other governmental agency or entity, wherever located), or (e) on any other factual, legal or equitable theory, including, without limitation, any claim for damages of any type or nature, for injunctive or other relief, for attorneys' fees, interest or any other liability whatsoever on any theory, including without limitation any loss, cost or damage in connection with or based upon "lender liability", unfair dealing, duress, coercion, control or undue influence, extortion or commercial bribery, breach of an implied covenant or duty of good faith and fair dealing, material misrepresentation or omission, overreaching, unconscionability, conflict of interest, bad faith, malpractice, disparate bargaining position, detrimental reliance, promissory estoppel, estoppel by deed, waiver, laches, or any other equitable theory, equitable subordination, breach of fiduciary duty or any other duty, or tortious inducement to commit such breach, tortious interference with contract or prospective business relations, negligent performance of contractual obligations, or other theories of negligence, negligent or intentional infliction of emotional distress, slander, libel, other defamation, fraudulent transfer, conversion, trespass to (or clouding the title of) property, usury, violations of the Racketeer Influenced and Corrupt Organizations Act, deceptive trade practices, conspiracy, or any theory of liability as partners or joint venturers, that any Releasing Party may have as of the date hereof against any Released Party with respect to the Lending Relationship. D. "Released Party" shall mean each of the Agent, the Lenders and their respective predecessors, successors, assigns, directors, officers, partners, employees, agents, attorneys, principals and Affiliates and all other Persons liable or who might be claimed to be liable on their behalf (collectively, the "Released Parties"). E. "Releasing Party" shall mean each of the Borrower and the Guarantors and their respective predecessors, successors, assigns, directors, officers, partners, employees, agents, attorneys, principals, Affiliates and all other Persons who might have a claim against any Released Party (collectively, the "Releasing Parties"). F. "Warrant Agreements" shall mean collectively (i) that certain Warrant Agreement between Brigham Exploration and Bank of Montreal and (ii) that certain Warrant Agreement between Brigham Exploration and Societe Generale, each to be entered into within thirty (30) days after the date hereof. 2 3 Section 2. Amendments to Credit Agreement. The Credit Agreement is amended hereby as follows: A. Section 1.02 is amended hereby: (i) by deleting the definition of the term "Aggregate Maximum Credit Amounts" in its entirety and substituting the following therefor: "`Aggregate Maximum Credit Amounts' at any time prior to the initial Borrowing Base determination shall equal $56,000,000, as the same may be reduced pursuant to Section 2.03(b) and Section 2.07(d), and thereafter shall equal the sum of the Maximum Credit Amounts."; (ii) by deleting the definition of the term "EBITDA" in its entirety and substituting the following therefor: "'EBITDA' shall mean, for any period, the sum of Consolidated Net Income for such period PLUS the following expenses or charges to the extent deducted from Consolidated Net Income in such period: interest, taxes, depreciation, depletion and amortization, and other non-cash charges, MINUS (i) all non-cash income added to Consolidated Net Income in such period and (ii) capitalized general and administrative charges for such period."; (iii) by deleting the reference "June 1, 1999" in the definition of the term "First Borrowing Base Determination Date" and substituting therefor the reference "January 31, 2000"; B. Section 2.03 of the Credit Agreement is amended hereby by deleting the text of subsection (a) in its entirety, and substituting the following therefor: "Prior to the initial Borrowing Base determination, the Aggregate Commitments shall at all times be equal to the Aggregate Maximum Credit Amounts, after which date the Aggregate Commitments shall be equal to the lesser of (i) the Aggregate Maximum Credit Amounts or (ii) the Borrowing Base as determined from time to time.". C. Section 2.07 of the Credit Agreement is amended hereby as follows: (i) by inserting the following reference before the last sentence of subsection (d): "Prior to the initial Borrowing Base determination, all prepayments on the Loans other than prepayments made from the proceeds of sale of any equity or equity derivative securities shall reduce the Aggregate Maximum Credit Amounts." 3 4 (ii) by inserting the following new subsection (e): "(e) Prior to the initial determination of the Borrowing Base, the Borrower shall make prepayments as set forth below: (i) Upon the sale, transfer or other disposition of any asset that would be included in the Borrowing Base, as determined by the Agent in its discretion, the Borrower shall prepay the Loans in an amount equal to 100% of the net cash proceeds of any such sale; and (ii) Upon any sale, transfer or other disposition of any asset that would not be included in the Borrowing Base, the Borrower shall prepay the Loans in an amount equal to 66-2/3% of the net cash proceeds exceeding $500,000 of any such sale." D. Section 8.07 of the Credit Agreement is amended hereby by deleting the reference "June 1, 1999 " in the first sentence of subsection (b) and substituting therefor the reference "January 31, 2000"; E. Annex I of the Credit Agreement is amended hereby by deleting Annex I in its entirety and substituting therefor Annex I attached hereto as Exhibit A. Section 3. Covenants. The Borrower or Brigham Exploration, as the case may be, covenants and agrees that during the period from July 1, 1999 through and including January 31, 2000: A. Brigham Exploration shall deliver weekly cash budgets reasonably satisfactory to the Agent in the form provided under the Second Amendment to Credit Agreement, and weekly cash flow statements reasonably satisfactory to the Agent based on such form, with variance analysis to budget (including accounts receivables and accounts payables reporting) not later than the Friday following the week to which such budgets and statements relate. B. The Borrower shall not use any amounts advanced by the Lenders to spud any wells or conduct any other drilling operations (other than routine workovers and recompletions normally expensed in accordance with past practice) without the prior written consent of the Agent and the Lenders, and shall not use any amounts advanced by the Lenders to acquire acreage, leases or seismic data provided that, notwithstanding the foregoing, (i) the Borrower may pay liabilities and/or obligations outstanding as of the date hereof, (ii) the Borrower may incur up to $300,000, in the aggregate, in discretionary new commitments during the period from the date hereof through and including January 31, 2000 to acquire leases and seismic data (or licenses thereto) if, and only if, the Borrower shall grant the Agent, for the benefit of the Lenders, a perfected Lien on its interest in any new leases acquired pursuant to this proviso within thirty (30) days or, upon request by the Agent, within fifteen (15) days, of any such acquisition under a form 4 5 of mortgage substantially identical to that of the New Mortgage; and (iii) the Borrower may use amounts advanced by the Lenders to spud, drill and complete wells identified in Schedule I hereto and any other wells that have no dry hole costs associated therewith. C. The Borrower shall provide to the Agent from time to time upon request by the Agent the certificate of a Responsible Officer of the Borrower stating that, except as disclosed in a schedule thereto, the Borrower has not received written notice that any mechanics' liens have been filed or will be filed on the Mortgaged Properties; provided that mere receipt of an invoice for services rendered shall not constitute written notice that a mechanics' lien will be filed. D. The Borrower shall provide the Agent and Lenders with an internal engineering report by October 31, 1999. E. The Borrower will not, and will not allow any of its Subsidiaries to, (i) transfer any assets to Quest Resources LLC or (ii) make any investments in or loans or advances to Quest Resources LLC. Section 4. Conditions Precedent. This Amendment shall become binding upon receipt by the Agent of the following documents and satisfaction of the other conditions provided in this Section 4, each of which must be satisfactory to the Agent in form and substance: A. counterparts of this Amendment executed by the Borrower, the Agent and the Lenders; B. certificates of the Secretary or an Assistant Secretary of the Borrower and each of the Guarantors setting forth for each of them (i) the resolutions of its board of directors or managers (or if such Guarantor is a partnership, resolutions of the general partner of such partnership), as applicable, with respect to the authorization to execute and deliver this Amendment and consummate the transactions contemplated hereby; (ii) the Responsible Officer of such entity authorized to sign this Amendment, and (iii) the signature of such authorized Responsible Officer of such entity; C. a Fourth Amendment to Guaranty Agreement executed by Brigham Exploration Company; D. a Consent and Acknowledgement executed by each of the Guarantors; E. an opinion of in-house counsel of Borrower and Brigham Exploration substantially in the form issued by counsel to Borrower in connection with the Second Amendment; 5 6 F. payment to the Agent for the ratable benefit of the Lenders of all accrued and unpaid Interest outstanding on all Base Rate Loans under the Credit Agreement and the Notes; G. payment of the expenses of the Agent and the Lenders in accordance with Section 8.B hereof; and H. such other documents as Agent or its counsel may reasonably request. Section 5. Representations and Warranties. A. Except as provided in subsection (iii) of this Section 5.A., the Borrower hereby reaffirms that, as of the date of this Amendment, the representations and warranties made by the Borrower and Brigham Exploration in the Credit Agreement are true and correct as though made on and as of the date hereof, and further, the Borrower represents that, (i) as of the date hereof, no Default or Material Adverse Effect has occurred and is continuing except as previously disclosed to the Agent in writing; (ii) the execution, delivery and performance by the Borrower or the Guarantors of this Amendment and the other Loan Documents and all instruments and documents to be delivered by the Borrower or the Guarantors, to the extent a party thereto, hereunder and thereunder and the creation of all Liens provided for herein and therein: (a) are within the Borrower's or such Guarantor's corporate power; (b) have been duly authorized by all necessary or proper corporate action, including the consent of stockholders, members and/or partners therein or thereof; (c) are not in contravention of any provision of the Borrower's or such Guarantor's certificate of incorporation, bylaws or similar organizational and/or governing documents; (d) will not violate (1) any law or regulation or (2) any order or decree of any court or governmental instrumentality; (e) will not conflict with or result in the breach or termination of, constitute a default under or accelerate any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which the Borrower or any of the Guarantors is a party or by which the Borrower or any of the Guarantors or any of their respective property is bound; (f) will not result in the creation or imposition of any Lien upon any of the property of the Borrower or the Guarantors other than those in favor of the Agent pursuant to the terms of this Amendment and the other Loan Documents to be delivered in connection herewith; and (g) do not require the consent or approval of any governmental body, agency, authority or any other Person that has not been duly obtained, made or complied with prior to the date hereof. At or prior to the date hereof, each of this Amendment and the other Loan Documents to be delivered in connection herewith shall have been duly executed and delivered for the benefit of or on behalf of the Borrower or the Guarantors, in each case to the extent a party thereto, and each shall then constitute a legal, valid and binding obligation of the Borrower or such Guarantor, enforceable against it in accordance with its terms; and 6 7 (iii) notwithstanding the foregoing, the representations and warranties contained in the last sentence of Section 7.10(a) of the Credit Agreement (and not those contained in the first two sentences) are reaffirmed with respect to the Mortgaged Property covered by or described in the New Mortgage. B. Each of the Borrower and the Guarantors further represents and warrants, for itself only that he or it (i) is executing this Amendment after consultation with counsel of his or its own choosing, (ii) has read and understands the release granted by Section 6 hereof, (iii) desires to execute this Amendment and (iv) has the requisite authority to enter into and be bound by this Amendment, including the release granted by Section 6 hereof. Section 6. Release. A. Each of the Releasing Parties desires and intends fully to compromise, release and settle any and all of the Released Claims; and each of the Releasing Parties hereby covenants, warrants and represents unto each of the Released Parties that such Releasing Party does hereby FOREVER RELEASE, ACQUIT, WAIVE AND DISCHARGE each of the Released Parties of and from the Released Claims and each of the Releasing Parties hereby declares the same FOREVER RELEASED, ACQUITTED, WAIVED, SETTLED AND DISCHARGED. This release is effective without regard to whether (i) such Released Claims are known or unknown, (ii) damages arising out of such Released Claims have yet accrued, (iii) such Released Claims arose collaterally, directly, derivatively, or otherwise between the parties hereto or (iv) an ordinary person in the same or similar circumstances would or would not, through the exercise of due care, have discovered such claims by the date of this Amendment. In connection with the foregoing release: B. Borrower and each of the Guarantors represents and warrants that it has the full power and authority to perform the release granted in this Section 6 and that it has not in any manner made any assignment of any Released Claim to any third party. C. The release granted in this Section 6 will be effective upon execution of this Amendment by all of the parties hereto. D. Each party executing this Amendment understands and agrees that the release granted in this Section 6 is a full, final and complete release of the Released Claims and that such release may be pleaded as an absolute and final bar to any or all suits which may hereafter be filed or prosecuted by any one or more of the Releasing Parties or anyone claiming by, through or under any one or more of the Releasing Parties in respect of any of the matters released hereby, and that no recovery on account of the Released Claims may hereafter be had from any of the Released Parties; and that the consideration given for such release is not an admission of liability or fault on the part of any of the Released Parties (it being the express intent of the parties hereto to obtain peace of mind and avoid the expense and uncertainty of potential litigation), and that 7 8 none of the Releasing Parties or those claiming by, through or under any of them will ever claim that it is. E. The parties hereto acknowledge that the release granted by this Section 6 does not have any effect with respect to relationships between the Borrower and each of the Guarantors and the Lenders and the Agent other than in connection with the Lending Relationship. Section 7. Events of Default and Remedies. A. The occurrence of any one or more of the following events (regardless of the reason therefor) shall constitute an "Event of Default" hereunder: (i) Brigham Exploration shall fail to deliver within 30 days after closing a Warrant Agreement in form and substance satisfactory to the Lenders executed by Brigham Exploration in favor of each of Bank of Montreal and Societe Generale; (ii) Brigham Exploration shall fail to deliver within 30 days after closing a legal opinion of Brigham Exploration's in-house counsel in form and substance satisfactory to the Agent with respect to the Warrant Agreements, any Loan Documents executed by Brigham Holdings I, LLC or Brigham Holdings II, LLC in connection with this Third Amendment and consummation of the transactions contemplated by the Warrant Agreements and such other Loan Documents; (iii) the Borrower shall fail to deliver within 30 days after closing a Consent and Acknowledgement executed by Brigham Holdings I, LLC in favor of the Agent; (iv) the Borrower shall fail to deliver within 30 days after closing a Consent and Acknowledgement executed by Brigham Holdings II, LLC in favor of the Agent; and (v) the Borrower shall fail to deliver certificates of the Secretary or an Assistant Secretary of Brigham Exploration, Brigham Holdings I, LLC and Brigham Holdings II, LLC setting forth for each of them (i) the resolutions of its board of directors or managers (or if such entity is a partnership, resolutions of the general partner of such partnership), as applicable, with respect to the authorization to execute and deliver the Warrant Agreements and the Loan Documents to be executed in connection with this Third Amendment and to consummate the transactions contemplated hereby and thereby, in each case, to the extent a party thereto; (ii) the Responsible Officer of such entity authorized to execute such documents, and (iii) the signature of such authorized Responsible Officer of such entity. 8 9 B. The occurrence and continuation of an Event of Default hereunder shall constitute an Event of Default under the Credit Agreement as amended hereby. Section 8. Payment of Fees and Expenses; Form of Payment. A. Brigham Exploration, as Guarantor of Borrower's obligations to Lenders under the Loan Documents, agrees, in consideration of the Lenders' agreement to enter into this Third Amendment, to issue to each Lender its ratable share, based on its Percentage Share of the Aggregate Commitments, of warrants to purchase 1,000,000 shares of the common stock of Brigham Exploration exercisable in accordance with the terms and conditions of the Warrant Agreements. B. The Borrower agrees, whether or not the transactions contemplated hereby are consummated, to pay all reasonable expenses of the Agent and the Lenders (including, without limitation, all reasonable fees and disbursements of counsel and other outside consultants for the Agent and/or the Lenders) in connection with the negotiation, investigation, preparation, execution and delivery of, recording and filing of, preservation of rights under and enforcement of this Amendment and the other Loan Documents to be delivered in connection herewith. C. All payments to be made by the Borrower under this Amendment shall be made in Dollars, in immediately available funds, to the Agent at such account as the Agent shall specify by notice in accordance with Section 4.01 of the Credit Agreement. Section 9. Limitations. The amendments set forth herein are limited precisely as written and shall not be deemed to (a) be a consent to, or waiver or modification of, any other term or condition of the Credit Agreement or any of the other Loan Documents, or (b) prejudice any right or rights which the Lenders or the Agent may now have or may have in the future under or in connection with the Credit Agreement or any of the other Loan Documents. Except as expressly supplemented, amended or modified hereby, the terms and provisions of the Credit Agreement or any other Loan Documents are and shall remain in full force and effect. In the event of a conflict between this Amendment and any of the foregoing documents, the terms of this Amendment shall be controlling. Section 10. Non-Reliance on Agent and Other Lenders. Each Lender acknowledges and agrees that it has, independently and without reliance on the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own decision to enter into this Amendment, and that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Amendment or the Credit Agreement. The Agent shall not be required to keep itself informed as to the performance or observance by the Borrower of this Amendment or any other Loan Document or any other document referred to or provided for herein or therein or to 9 10 inspect the properties or books of the Borrower. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Agent hereunder and under the Credit Agreement, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of the Borrower (or any of its Affiliates) which may come into the possession of the Agent or any of its Affiliates. In this regard, each Lender acknowledges that Weil, Gotshal & Manges LLP is acting in this transaction as special counsel to the Agent only. Each Lender will consult with its own legal counsel to the extent that it deems necessary in connection with this Amendment and the matters contemplated herein. Section 11. Governing Law. This Amendment and the rights and obligations of the parties hereunder and under the Credit Agreement shall be construed in accordance with and be governed by the laws of the State of Texas and the United States of America. Section 12. Descriptive Headings, etc. The descriptive headings of the several Sections of this Amendment are inserted for convenience only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. Section 13. Counterparts. This Amendment may be executed in any number of counterparts and by different parties on separate counterparts and all of such counterparts shall together constitute one and the same instrument. 10 11 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first written above. NOTICE PURSUANT TO TEX. BUS. & COMM. CODE SECTION 26.02 THIS AMENDMENT AND OTHER LOAN DOCUMENTS EXECUTED BY ANY OF THE PARTIES BEFORE OR SUBSTANTIALLY CONTEMPORANEOUSLY WITH THE EXECUTION HEREOF TOGETHER CONSTITUTE A WRITTEN LOAN AGREEMENT AND REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENT BETWEEN THE PARTIES. BORROWER: BRIGHAM OIL & GAS, L.P. By: Brigham, Inc., its General Partner By: /s/ CRAIG M. FLEMING ------------------------------------ Name: Craig M. Fleming ---------------------------------- Title: Vice President and CEO --------------------------------- AGENT: BANK OF MONTREAL By: /s/ THOMAS E. MCGRAW ------------------------------------ Thomas E. McGraw Director LENDER: BANK OF MONTREAL By: /s/ THOMAS E. MCGRAW ------------------------------------ Thomas E. McGraw Director S 12 LENDER: SOCIETE GENERALE, Southwest Agency By: /s/ MARK A. COX ------------------------------------ Name: Mark A. Cox -------------------------------- Title: Director -------------------------------- S 13 EXHIBIT A ANNEX I
Name of Lender Percentage Share Maximum Credit Amount - -------------- ---------------- --------------------- Bank of Montreal 66.1538 $43,000,000 Societe Generale 33.8462 $22,000,000
ANNEX I-I EX-10.2 3 FOURTH AMENDMENT TO GUARANTY AGREEMENT 1 EXHIBIT 10.2 FOURTH AMENDMENT TO GUARANTY AGREEMENT THIS FOURTH AMENDMENT TO GUARANTY AGREEMENT (this "Amendment") dated as of July 19, 1999 is between BRIGHAM EXPLORATION COMPANY, a Delaware corporation (the "Guarantor") and BANK OF MONTREAL, as agent (the "Agent") for the lenders (the "Lenders") that are or become parties to the Credit Agreement defined below. RECITALS A. Brigham Oil & Gas, L.P., a Delaware limited partnership (the "Borrower"), the Agent and the Lenders as parties to that certain Credit Agreement dated as of January 26, 1998 as amended by First Amendment to Credit Agreement dated August 20, 1998 and Second Amendment to Credit Agreement dated as of March 26, 1999 and that Third Amendment to Credit Agreement of even date herewith (as so amended, the "Credit Agreement"), pursuant to which the Lenders agreed to make certain loans and extensions of credit to the Borrower. B. Pursuant to the terms and conditions stated in the Credit Agreement, Guarantor executed that certain Guaranty Agreement dated January 26, 1998 by Guarantor, as amended by First Amendment to Guaranty Agreement dated March 30, 1998, Second Amendment to Guaranty Agreement dated August 20, 1998 and Third Amendment to Guaranty Agreement dated March 26, 1999 (as so amended, the "Guaranty Agreement"). C. The Guarantor and the Agent now desire to amend certain provisions of the Guaranty Agreement. NOW THEREFORE, in consideration of the mutual covenants and agreements herein contained, the Guarantor, the Agent and the Lenders hereby agree that the Guaranty Agreement shall be amended as follows: Section 1. Certain Definitions. Unless otherwise defined herein, all capitalized terms used herein are used with the meanings assigned to such terms in the Guaranty Agreement. Section 2. Amendments to Guaranty Agreement. Section 5.2. Section 5.2 is hereby amended as follows: (a) Section 5.2(q) is hereby deleted in its entirety, and the following substituted therefor: "(q) Current Ratio. The Guarantor will not permit its ratio of (i) consolidated current assets of the Guarantor and its Consolidated Subsidiaries to (ii) their consolidated current liabilities (excluding the Indebtedness) to be less than (A) .75 to 1.0 for the quarters ended December 31, 1999 and March 31, 2000 or (B) 1.0 to 1.0 at any time thereafter." (b) Section 5.2(s) is hereby deleted in its entirety, and the following is substituted therefor: 1 2 "(r) Interest Coverage Ratio. The Guarantor will not permit its Interest Coverage Ratio as of the end of any fiscal quarter of the Guarantor (calculated quarterly at the end of each fiscal quarter) to be less than the ratio set forth below for such period. Interest Coverage Ratio shall mean the ratio of (i) EBITDA to (ii) interest payments accruing (excluding amortizations of fee expense incurred in connection with this Agreement and the closing of the Indenture and Securities Purchase Agreement and any capitalized lease expense included in interest) during the following periods (for purposes hereof interest on the Subordinated Debt shall be deemed cash payments, calculated at the cash interest rate applicable to the Subordinated Debt, whether paid in cash or in kind, except that if a payment of interest is made in kind on any interest payment date applicable to the Subordinated Debt, an amount equal to the cash payment of interest that would have been due on such interest payment date if payment in kind had not been made shall be deemed subtracted from interest expense for the applicable test period ending on the last day of the fiscal quarter preceding such interest payment date (but not for any other test period): (i) not less than 1.25 to 1.0 for the nine (9) month period ending March 31, 2000; (ii) not less than 1.25 to 1.0 for the twelve (12) month period ending June 30, 2000; (iii) not less than 1.25 to 1.0 for the twelve (12) month period ending September 30, 2000; (iv) not less than 1.5 to 1.0 for the twelve (12) month period ending December 31, 2000; and (v) thereafter, not less than 1.75 to 1.0 for the twelve (12) month periods ending at the end of each fiscal quarter of the Guarantor." Section 3. Representations and Warranties. The Guarantor hereby reaffirms that as of the effective date of this Amendment, the representations and warranties made by the Guarantor in Article III of the Guaranty Agreement will be true and correct as though made on and as of the effective date of this Amendment. Section 4. Limitations; Ratification. The amendments set forth herein are limited precisely as written and shall not be deemed to (a) be a consent to, or waiver or modification of, any other term or condition of the Guaranty Agreement or any of the other Loan Documents, or (b) prejudice any right or rights which the Lenders or the Agent may now have or may have in the future under or in connection with the Guaranty Agreement or any of the other Loan Documents. Except as expressly supplemented, amended or modified hereby, the terms and provisions of the Guaranty Agreement or any other Loan Documents are and shall remain in full 2 3 force and effect. The Guarantor hereby expressly ratifies and affirms its obligations under the Guaranty Agreement as amended by this Amendment and agrees that the Guaranty Agreement as amended by this Amendment remains in full force and effect. In the event of a conflict between this Amendment and any of the foregoing documents, the terms of this Amendment shall be controlling. Section 5. Governing Law. This Amendment and the rights and obligations of the parties hereunder and under the Credit Agreement shall be construed in accordance with, and be governed by, the laws of the State of Texas and the United States of America. Section 6. Descriptive Headings, etc. The descriptive headings of the several Sections of this Amendment are inserted for convenience only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. Section 7. Counterparts. This Amendment may be executed in any number of counterparts and by different parties on separate counterparts and all of such counterparts shall together constitute one and the same instrument. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 3 4 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed, delivered and effective as of the date first above written. NOTICE PURSUANT TO TEX. BUS. & COMM. CODE SECTION 26.02 THIS AMENDMENT AND OTHER LOAN DOCUMENTS EXECUTED BY ANY OF THE PARTIES BEFORE OR SUBSTANTIALLY CONTEMPORANEOUSLY WITH THE EXECUTION HEREOF TOGETHER CONSTITUTE A WRITTEN LOAN AGREEMENT AND REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NOT UNWRITTEN ORAL AGREEMENT BETWEEN THE PARTIES. GUARANTOR: BRIGHAM EXPLORATION COMPANY By: /s/ CRAIG M. FLEMING ----------------------------------- Name: Craig M. Fleming --------------------------------- Title: Vice President and CFO -------------------------------- AGENT AND LENDER: BANK OF MONTREAL By: /s/ THOMAS E. MCGRAW ----------------------------------- Thomas E. McGraw Director S EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 2,752 0 3,059 0 0 6,191 107,212 0 117,174 17,034 0 0 0 143 11,060 117,174 6,746 6,907 0 1,539 17,194 0 5,877 (17,703) 0 (17,703) 0 0 0 (17,703) (1.28) (1.28)
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