Document:

Exhibit 4.15

 

 

This document is important and requires your immediate attention. If you are in any doubt as to how to deal with it, you should consult your investment advisor, stockbroker, bank, trust company or other nominee.

 

April 24, 2014

 

 

NOTICE OF CHANGE

 

of the information relating to

 

HudBay Minerals Inc.’s offer to purchase

 

all of the issued and outstanding common shares of

 

AUGUSTA RESOURCE CORPORATION

 

for consideration per Augusta Share of
 0.315 of a Hudbay Share

 

HudBay Minerals Inc. (the “Offeror”) has prepared this notice of change of information (the “Notice of Change”) to update certain disclosure in  its offer dated February 10, 2014, as amended by the Notice of Variation and Extension dated March 14, 2014 and the Notice of Variation and Extension dated March 31, 2014 (collectively, the “Offer”), to purchase, on and subject to the terms and conditions of the Offer, as amended, all of the issued and outstanding common shares (the “Augusta Shares”) of Augusta Resource Corporation (“Augusta”), other than any Augusta Shares held directly or indirectly by the Offeror and its affiliates, including any Augusta Shares that may become issued and outstanding after February 10, 2014 but before 5:00 p.m. (Toronto Time) on May 5, 2014, upon the exercise, exchange or conversion of any securities of Augusta exercisable or exchangeable for, convertible into or otherwise conferring a right to acquire, any Augusta Shares, including, any option, warrant or convertible debenture (“Convertible Securities”), together with the associated rights issued under Augusta’s Shareholder Rights Plan.

 

THE OFFER REMAINS OPEN FOR ACCEPTANCE UNTIL 5:00 P.M. (TORONTO TIME) ON MAY 5, 2014 (THE “EXPIRY TIME”).

 

The Offeror will not extend the Offer beyond May 5, 2014 unless, at or by that date, the remaining conditions to the Offer have been satisfied or waived, including the condition that Augusta’s Shareholder Rights Plan has been waived, invalidated or cease-traded.

 

This Notice of Change should be read in conjunction with the Offer and original take-over bid circular (the “Original Circular”) dated February 10, 2014, as previously amended (the Offer together with the Original Circular collectively referred to as the “Original Offer and Circular”), and the letter of transmittal (the “Letter of Transmittal”) and notice of guaranteed delivery (the “Notice of Guaranteed Delivery”) that accompanied the Original Offer and Circular. The Original Offer and Circular, as amended previously and by this Notice of Change collectively constitute the “Offer and Circular”. Except as otherwise set forth herein, the terms and conditions previously set forth in the Original Offer and Circular, Letter of Transmittal and Notice of Guaranteed Delivery, each as previously amended, continue to be applicable in all respects. All references to the “Circular” or the “Offer and Circular” in the Original Offer and Circular, the Letter of Transmittal, the Notice of Guaranteed Delivery and this Notice of Change  mean the Original Offer and Circular as amended hereby. Unless the context requires otherwise, capitalized terms used herein but not defined herein that are defined in the Original Offer and Circular have the respective meanings given to them in the Original Offer and Circular.

 

The offering of Hudbay Shares pursuant to the Offer is made by a Canadian issuer that is permitted, under a multi-jurisdictional disclosure system adopted by the United States, to prepare the Offer and Circular in accordance with the disclosure requirements of Canada. The Offer is subject to applicable disclosure requirements in Canada. Augusta Shareholders should be aware that such requirements are different from those of the United States and may differ from those in other jurisdictions. Financial statements included or incorporated by reference in the Offer and Circular have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board and are subject to Canadian auditing standards and auditor independence rules, and thus may not be comparable to financial statements of United States companies or companies incorporated in other jurisdictions. Augusta Shareholders in the United States should be aware that the disposition of Augusta Shares and acquisition of Hudbay Shares by them as described in the Offer and Circular may have tax consequences in the United States,

 

 

Canada and other jurisdictions. Such consequences may not be fully described in the Offer and Circular and such holders are urged to consult their tax advisors. The enforcement by Augusta Shareholders of civil liabilities under U.S. federal or state securities laws or applicable laws of other jurisdictions may be affected adversely by the fact that the Offeror is incorporated under and governed by the laws of Canada, that its officers and directors may be residents of jurisdictions other than the United States or such other jurisdictions, that the experts named in the Circular may be residents of jurisdictions other than the United States or such other jurisdictions, that all or a substantial portion of the assets of the Offeror and such persons may be located outside the United States or such other jurisdictions, that some of Augusta’s officers and directors are resident outside the United States or such other jurisdictions and that all or a substantial portion of the assets of Augusta and Augusta’s officers and directors may be located outside the United States or such other jurisdictions.

 

THE HUDBAY SHARES AND THE OFFER HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (“SEC”) OR ANY OTHER SECURITIES REGULATORY AUTHORITY, NOR HAS THE SEC OR ANY OTHER SUCH AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY OF THE OFFER AND CIRCULAR. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

Prospective investors should be aware that, during the period of the Offer, the Offeror or its affiliates, directly or indirectly, may bid for or make purchases of the securities to be distributed or to be exchanged, or certain related securities, as permitted by applicable laws or regulations of Canada or its provinces or territories. Neither the Offeror nor any of its affiliates intends to make any such purchases during the period of the Offer.

 

Information has been incorporated by reference in the Offer and Circular from documents filed with the securities commissions or similar authorities in Canada. Copies of the documents incorporated by reference in the Offer and Circular are available electronically on SEDAR and EDGAR at www.sedar.com and www.sec.gov, respectively.

 

	
The Depositary for the   Offer is:
    	
Information Agent for the   Offer is:
    
	
 
    	
 
    
	
Equity Financial Trust   Company
    	
Kingsdale Shareholder   Services
    
	
 
    
	
The Dealer Managers for   the Offer are:
    
	
 
    	
 
    
	
In Canada
    	
In the United States
    
	
 
    	
 
    	
 
    	
 
    
	
GMP Securities L.P.
    	
BMO Nesbitt Burns Inc.
    	
Griffiths McBurney Corp.
    	
BMO Capital Markets Corp.
    

 

Augusta Shareholders who have validly deposited and not withdrawn their Augusta Shares need take no further action to accept the Offer.

 

Registered Augusta Shareholders who wish to accept the Offer must properly complete and execute the Letter of Transmittal (printed on YELLOW paper) that accompanied the Original Offer and Circular, or a manually executed facsimile thereof, and deposit it, at or prior to the Expiry Time, together with certificate(s) or Direct Registration System (DRS) Advices representing their Augusta Shares and all other required documents, with Equity Financial Trust Company (the “Depositary”) at its office in Toronto, Ontario specified in the Letter of Transmittal, in accordance with the instructions set out in the Letter of Transmittal (as set out in Section 3 of the Original Offer, “Manner of Acceptance — Letter of Transmittal”). Alternatively, registered Augusta Shareholders may accept the Offer by following the procedure for guaranteed delivery set out in Section 3 of the Original Offer, “Manner of Acceptance — Procedure for Guaranteed Delivery”, using the Notice of Guaranteed Delivery (printed on GREEN paper) that accompanied the Original Offer and Circular, or a manually executed facsimile thereof. Augusta Shareholders who hold their Augusta Shares with an investment advisor, stockbroker, bank, trust company or other nominee will not have received a Letter of Transmittal or Notice of Guaranteed Delivery, and should follow the instructions set out by such nominee to tender their Augusta Shares.

 

Persons whose Augusta Shares are registered in the name of an investment advisor, stockbroker, bank, trust company or other nominee should contact such nominee for assistance if they wish to accept the Offer in order to take the necessary steps to be able to deposit such Augusta Shares under the Offer. Nominees likely have established tendering cut-off times that are up to 48 hours prior to the Expiry Time.

 

 

Augusta Shareholders must instruct their investment advisor, stockbroker, bank, trust company or other nominee promptly if they wish to tender.

 

Augusta Shareholders will not be required to pay any fee or commission if they accept the Offer by depositing their Augusta Shares directly with the Depositary or if they make use of the services of a Soliciting Dealer to accept the Offer.

 

Questions and requests for assistance may be directed to Kingsdale Shareholder Services (the “Information Agent”), who can be contacted at 1-866-229-8874 toll free in North America or at 1-416-867-2272 outside of North America or by e-mail at contactus@kingsdaleshareholder.com; or to the Depositary at the addresses indicated on the last page of this document and additional copies of this document, the Original Offer and Circular, the Letter of Transmittal and the Notice of Guaranteed Delivery, or any documents incorporated by reference or otherwise related to the Offer, may be obtained, without charge, upon request from the Depositary or the Information Agent at their respective offices shown on the last page of this document, and are accessible on the Canadian Securities Administrators’ website at www.sedar.com, on EDGAR at www.sec.gov and on the Offeror’s website at www.hudbayminerals.com. These website addresses are provided for informational purposes only and no information contained on, or accessible from, these websites is incorporated by reference in the Offer and Circular unless otherwise expressly indicated in the Offer and Circular.

 

The information contained in this document is current only as of the date of this document. The Offeror does not undertake to update any such information except as required by applicable Law. Information in this document and in the Original Offer and Circular related to Augusta has been compiled from public sources — see “INFORMATION CONCERNING AUGUSTA” in the Original Offer and Circular.

 

No broker, dealer, salesperson or other person has been authorized to give any information or make any representation other than those contained in this Notice of Change or the Original Offer and Circular, and, if given or made, such information or representation must not be relied upon as having been authorized by the Offeror, the Depositary, the Information Agent or the Dealer Managers.

 

 

ADDITIONAL NOTICE TO UNITED STATES SHAREHOLDERS

AND OTHER SHAREHOLDERS OUTSIDE CANADA

 

The Offer is subject to Section 14(d) of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), Regulation 14D promulgated by the SEC thereunder, Section 14(e) of the Exchange Act, and Regulation 14E promulgated by the SEC thereunder.

 

The Offeror has filed with the SEC a registration statement on Form F—10, which contains a prospectus relating to the Offer, a tender offer statement on a Schedule TO and other documents and information, as such documents have been amended, modified, supplemented or restated. AUGUSTA SHAREHOLDERS AND OTHER INTERESTED PARTIES ARE URGED TO READ THESE DOCUMENTS, ALL DOCUMENTS INCORPORATED BY REFERENCE, ALL OTHER APPLICABLE DOCUMENTS AND ANY AMENDMENTS OR SUPPLEMENTS TO ANY SUCH DOCUMENTS WHEN THEY BECOME AVAILABLE, BECAUSE EACH CONTAINS OR WILL CONTAIN IMPORTANT INFORMATION ABOUT THE OFFEROR, AUGUSTA AND THE OFFER. Materials filed with the Canadian securities regulatory authorities are available electronically without charge at www.sedar.com. Materials filed with the SEC are available electronically without charge at the SEC’s website, www.sec.gov. All such materials may also be obtained without charge at the Offeror’s website, www.hudbayminerals.com or by directing a written or oral request to the Information Agent for the Offer, Kingsdale Shareholder Services, at 1-866-229-8874 toll free in North America or at 1-416-867-2272 or by e-mail at contactus@kingsdaleshareholder.com or to the Vice President, Legal and Corporate Secretary of the Offeror at 25 York Street, Suite 800, Toronto, Ontario, telephone 1-416-362-8181.

 

Neither this document nor the Original Offer and Circular generally addresses the income tax consequences of the Offer to Augusta Shareholders in any jurisdiction outside Canada or the United States. Augusta Shareholders in a jurisdiction outside Canada or the United States should be aware that the disposition of Augusta Shares may have tax consequences which may not be described in this document or the Original Offer and Circular. Accordingly, Augusta Shareholders outside Canada and the United States should consult their own tax advisors with respect to tax considerations applicable to them.

 

The Original Offer and Circular also contains a cautionary note regarding mineral reserve and resource estimates prepared in accordance with Canadian National Instrument 43-101 — Standards of Disclosure for Mineral Projects — see “CAUTIONARY NOTE REGARDING MINERAL RESERVES AND MINERAL RESOURCES” in the Original Offer and Circular.

 

NOTICE TO HOLDERS OF CONVERTIBLE SECURITIES

 

The Offer is made only for Augusta Shares, together with the associated rights issued under the Shareholder Rights Plan, and is not made for any options, warrants or convertible debentures or any other rights to acquire Augusta Shares. Any holder of Convertible Securities who wishes to accept the Offer should, subject to and to the extent permitted by the terms of such Convertible Securities and applicable Law, exercise, exchange or convert such Convertible Securities in order to obtain certificates representing Augusta Shares and deposit such Augusta Shares in accordance with the Offer. See Section 1 of the Original Offer, “The Offer”. Any such exercise, exchange or conversion must be completed sufficiently in advance of the Expiry Time to ensure that the holder of such Convertible Securities will have received certificates representing the Augusta Shares issuable upon such exercise, exchange or conversion in time for deposit prior to the Expiry Time, or in sufficient time to comply with the procedures described in Section 3 of the Original Offer, “Manner of Acceptance — Procedure for Guaranteed Delivery”.

 

The tax consequences to holders of Convertible Securities of exercising or not exercising such securities are not described in the Offer and Circular. Holders of such Convertible Securities should consult their own tax advisors with respect to the potential tax consequences to them in connection with the decision to exercise or not exercise such securities.

 

iv

 

REPORTING CURRENCY AND CURRENCY EXCHANGE RATE INFORMATION

 

All dollar references in this document and the Original Offer and Circular are in Canadian dollars, except where otherwise indicated. On February 7, 2014, the Bank of Canada noon rate of exchange for the Canadian dollar, expressed in U.S. dollars, was Canadian $1.00 = United States $0.9076.

 

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

 

This Notice of Change contains “forward-looking statements” and “forward-looking information” (collectively, “forward-looking information”) within the meaning of applicable Canadian and United States securities legislation. Forward-looking information includes information that relates to, among other things, statements with respect to the anticipated timing, mechanics and completion and settlement of the Offer (including the hearing by the British Columbia Securities Commission of the Offeror’s application to cease trade Augusta’s Shareholder Rights Plan). Forward-looking information is not, and cannot be, a guarantee of future results or events. Forward-looking information is based on, among other things, opinions, assumptions, estimates and analyses that, while considered reasonable by the Offeror at the date the forward-looking information is provided, inherently are subject to significant risks, uncertainties, contingencies and other factors that may cause actual results and events to be materially different from those expressed or implied by the forward-looking information. The material factors or assumptions that the Offeror identified and applied in drawing conclusions or making forecasts or projections set out in the forward looking information include, but are not limited to, the accuracy of Augusta’s public disclosure and that all conditions to completion of the Offer will be satisfied or waived.

 

The risks, uncertainties, contingencies and other factors that may cause actual results to differ materially from those expressed or implied by the forward-looking information may include, but are not limited to, the market value of the Hudbay Shares received as consideration under the Offer and the impact of such issuance on the market price of the Hudbay Shares, the exercising of dissent and appraisal rights by Augusta Shareholders should a Compulsory Acquisition or Subsequent Acquisition Transaction be undertaken, the reduced trading liquidity of Augusta Shares not deposited under the Offer, Augusta becoming a minority-owned or majority-owned subsidiary of the Offeror after consummation of the Offer, the possibility that the Offeror may remain a minority shareholder of Augusta after consummation of the Offer without the ability to control the management or direction of Augusta, the inaccuracy of Augusta’s public disclosure upon which the Offer is predicated, the triggering of change of control provisions in Augusta’s agreements leading to adverse consequences, as well as the risks discussed under the heading “Risk Factors” in the Original Offer and Circular and other documents filed with Canadian and U.S. securities regulatory authorities. Should one or more risk, uncertainty, contingency or other factor materialize or should any factor or assumption prove incorrect, actual results could vary materially from those expressed or implied in the forward-looking information. Accordingly, the reader should not place undue reliance on forward-looking information. The Offeror does not assume any obligation to update or revise any forward-looking information after the date of this Notice of Change or to explain any material difference between subsequent actual events and any forward-looking information, except as required by applicable law.

 

The Original Offer and Circular also contain forward looking information and this cautionary note should be read in conjunction with the Cautionary Note Regarding Forward Looking Statements in the Original Offer and Circular.

 

v

 

NOTICE OF CHANGE

 

April 24, 2014

 

TO: THE HOLDERS OF COMMON SHARES OF AUGUSTA RESOURCE CORPORATION

 

This Notice of Change amends and supplements the Original Offer and Circular, as previously amended, in order to revise and update the unaudited pro forma financial statements and summary financial information in the Original Offer and Circular to reflect the most recently reported financial results of the Offeror and Augusta.

 

The Offeror will not extend the Offer beyond May 5, 2014 unless, at or by that date, the remaining conditions to the Offer have been satisfied or waived, including the condition that the Shareholder Rights Plan has been waived, invalidated or cease-traded. The Offeror has applied to the British Columbia Securities Commission to cease trade the Shareholder Rights Plan prior to the Expiry Time and a hearing has been scheduled for April 29, 2014.

 

1.                                      Amendments to the Offer and Circular

 

The first sentence of the first paragraph under the heading “Summary of the Offeror’s Historical and Pro Forma Financial Information” on page 36 of the Original Offer and Circular is hereby deleted and replaced by the following:

 

“Augusta Shareholders should refer to Schedule “B” to this Offer and Circular for the Offeror’s unaudited pro forma consolidated financial statements of the Offeror as at and for the year ended December 31, 2013, giving effect to the proposed acquisition of all of the issued and outstanding Augusta Shares in the manner set forth therein.”

 

The second paragraph under the heading “Summary of the Offeror’s Historical and Pro Forma Financial Information” on page 36 of the Original Offer and Circular is hereby deleted and replaced by the following:

 

“The tables set out below include a summary of (i) the Offeror’s historical consolidated financial information as at and for the years ended December 31, 2013 and 2012, prepared in accordance with IFRS, and (ii) the unaudited pro forma condensed consolidated financial information for the Offeror as at and for the year ended December 31, 2013. The historical financial information as at and for the years ended December 31, 2013 and 2012 has been derived from the Offeror’s consolidated financial statements, which are incorporated by reference herein. The unaudited pro forma consolidated financial information for the Offeror has been derived from the audited consolidated financial statements of the Offeror and Augusta for the year ended December 31, 2013.”

 

The second sentence of the third paragraph under the heading “Summary of the Offeror’s Historical and Pro Forma Financial Information” on page 36 of the Original Offer and Circular is hereby deleted and replaced by the following:

 

“The summary unaudited pro forma consolidated financial information for the Offeror gives effect to the proposed acquisition of Augusta as if it had occurred as at December 31, 2013, for the purposes of the pro forma consolidated balance sheet information and as at January 1, 2013 for the purposes of the pro forma consolidated statement of earnings for the year ended December 31, 2013.”

 

1

 

That certain table “Summary of Historical Financial Information of the Offeror” on page 37 of the Original Offer and Circular is hereby deleted and replaced by the following:

 

Summary of Historical Financial Information of the Offeror
 (in millions of $ except per share information)

 

	
 
    	
 
    	
Year ended
   December 31
    	
 
    
	
 
    	
 
    	
2013
    	
 
    	
2012(2)
    	
 
    
	
Certain Income Statement Data
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Revenue
    	
 
    	
516.8
    	
 
    	
702.6
    	
 
    
	
Gross Profit
    	
 
    	
80.0
    	
 
    	
193.9
    	
 
    
	
Results from operating activities
    	
 
    	
(6.9
    	
)
    	
101.7
    	
 
    
	
(Loss) profit from continuing operations
    	
 
    	
(109.3
    	
)
    	
(23.5
    	
)
    
	
Loss from discontinued operations, net of taxes
    	
 
    	
—
    	
 
    	
—
    	
 
    
	
Loss for the period/year
    	
 
    	
(109.3
    	
)
    	
(23.5
    	
)
    
	
Loss per share (basic and diluted)(1)
    	
 
    	
(0.59
    	
)
    	
(0.12
    	
)
    
	
Ratio of earnings   to fixed charges
    	
 
    	
(0.8
    	
)
    	
(3.6
    	
)
    

 

	
 
    	
 
    	
Year ended
   December 31
    	
 
    
	
 
    	
 
    	
2013
    	
 
    	
2012(2)
    	
 
    
	
Certain Balance Sheet Data
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cash and cash equivalents
    	
 
    	
631.4
    	
 
    	
1,337.1
    	
 
    
	
Property, plant and   equipment
    	
 
    	
2,665.1
    	
 
    	
1,732.2
    	
 
    
	
Current assets
    	
 
    	
925.2
    	
 
    	
1,527.7
    	
 
    
	
Non-current assets
    	
 
    	
2,918.8
    	
 
    	
1,948.8
    	
 
    
	
Total   Assets
    	
 
    	
3,844.0
    	
 
    	
3,476.5
    	
 
    
	
Current liabilities
    	
 
    	
342.0
    	
 
    	
345.7
    	
 
    
	
Long-term debt
    	
 
    	
779.3
    	
 
    	
479.5
    	
 
    
	
Equity
    	
 
    	
1,627.7
    	
 
    	
1,653.5
    	
 
    
	
Total   liabilities and equity
    	
 
    	
3,844.0
    	
 
    	
3,476.5
    	
 
    
	
Book value per   share
    	
 
    	
9.5
    	
 
    	
9.6
    	
 
    

 

(1)             Attributable to owners.

(2)             The 2012 balances reflect adjustments related to the adoption of amended IAS 19, Employee Benefits, effective January 1, 2013. As a result of the amended standards, equity was decreased by $107.5 million as at December 31, 2012. In addition, net loss was increased by $2.3 million reflecting increased employee benefit expense.

 

That certain table “Summary of Unaudited Pro Forma Consolidated Financial Information of the Offeror” on page 38 of the Original Offer and Circular is hereby deleted and replaced by the following:

 

2

 

Summary of Unaudited Pro Forma Consolidated Financial Information of the Offeror

(in millions of $ except per share information)

 

	
 
    	
 
    	
Year
   ended
   Dec-31
   2013
   100%
    	
 
    	
Year
   ended
   Dec-31
   2013
   33%
    	
 
    	
Year
   ended
   Dec-31
   2013
   51%
    	
 
    
	
Certain   Income Statement Data
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Revenue
    	
 
    	
516.8
    	
 
    	
516.8
    	
 
    	
516.8
    	
 
    
	
Gross Profit
    	
 
    	
80.0
    	
 
    	
80.0
    	
 
    	
80.0
    	
 
    
	
Results from operating   activities
    	
 
    	
(15.1
    	
)
    	
(6.9
    	
)
    	
(15.1
    	
)
    
	
(Loss) profit for   the period/year
    	
 
    	
(107.6
    	
)
    	
(103.2
    	
)
    	
(107.6
    	
)
    
	
(Loss) profit   attributable to owners of the Company
    	
 
    	
(99.6
    	
)
    	
(95.3
    	
)
    	
(96.4
    	
)
    
	
(Loss) profit per   share (basic and diluted)(1)
    	
 
    	
(0.47
    	
)
    	
(0.53
    	
)
    	
(0.51
    	
)
    
	
Ratio of earnings   to fixed charges
    	
 
    	
(0.7
    	
)
    	
(0.7
    	
)
    	
(0.7
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Certain   Balance Sheet Data
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cash and cash   equivalents
    	
 
    	
620.7
    	
 
    	
618.4
    	
 
    	
620.7
    	
 
    
	
Property, plant and   equipment
    	
 
    	
3,342.6
    	
 
    	
2,665.1
    	
 
    	
3,352.1
    	
 
    
	
Current assets
    	
 
    	
939.7
    	
 
    	
912.2
    	
 
    	
939.7
    	
 
    
	
Non-current assets
    	
 
    	
3,565.2
    	
 
    	
3,027.2
    	
 
    	
3,574.7
    	
 
    
	
Total   assets
    	
 
    	
4,504.9
    	
 
    	
3,939.4
    	
 
    	
4,514.4
    	
 
    
	
Current liabilities
    	
 
    	
449.4
    	
 
    	
342.0
    	
 
    	
449.4
    	
 
    
	
Long-term debt
    	
 
    	
786.0
    	
 
    	
779.3
    	
 
    	
786.0
    	
 
    
	
Equity
    	
 
    	
2,022.3
    	
 
    	
1,723.1
    	
 
    	
2,028.1
    	
 
    
	
Total   liabilities and equity
    	
 
    	
4,504.9
    	
 
    	
3,939.4
    	
 
    	
4,514.4
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Book value per   share
    	
 
    	
9.5
    	
 
    	
9.6
    	
 
    	
10.7
    	
 
    

 

(1)             Attributable to owners.

 

The paragraph under the heading “Consolidated Capitalization” on page 39 of the Original Offer and Circular is hereby deleted and replaced by the following:

 

“As at the date hereof, there have been no material changes in the Hudbay Share or loan capitalization of the Offeror since December 31, 2013, other than: (i) the issuance of 20,930,000 Hudbay Shares pursuant to an equity offering (the “Equity Offering”) and (ii) the draw down of approximately $56.5 million pursuant to the equipment financing facility the Offeror has entered into with Cat Financial (the “Equipment Financing Loan”). The following table sets forth the consolidated capitalization of the Company: (i) as at December 31, 2013; (ii) as at December 31, 2013 after giving effect to the Equity Offering and the Equipment Financing Loan and before giving effect to the Offer; (iii) as at December 31, 2013 after giving effect to the Equity Offering, the Equipment Financing Loan and the acquisition in the Offer of all of the issued and outstanding Augusta Shares; (iv) as at December 31, 2013 after giving effect to the Equity Offering, the Equipment Financing Loan and the acquisition in the Offer of 33% of the issued and outstanding Augusta Shares (including Augusta Shares held by the Offeror and its affiliates prior to the commencement of the Offer); and (v) as at December 31, 2013 after giving effect to the Equity Offering, the Equipment Financing Loan and the acquisition in the Offer of 51% of the issued and outstanding Augusta Shares (including Augusta Shares held by the Offeror and its affiliates prior to the commencement of the Offer).”

 

3

 

That certain table “Consolidated Capitalization” on page 39 of the Original Offer and Circular is hereby deleted and replaced by the following:

 

	
 
    	
 
    	
Actual
   December 31,
   2013
    	
 
    	
After giving
   effect to the
   Equity Offering
   and the
   Equipment
   Financing Loan
   before giving
   effect to the
   Offer
    	
 
    	
After giving
   effect to the
   Equity Offering,
   the Equipment
   Financing Loan
   and the Offer(6)
   100%
    	
 
    	
After giving
   effect to the
   Equity Offering,
   the Equipment
   Financing Loan
   and the Offer(7)
   33%
    	
 
    	
After giving
   effect to the
   Equity Offering,
   the Equipment
   Financing Loan
   and the Offer(8)
   51%
    	
 
    
	
 
    	
 
    	
(Dollar amount in thousands)
    	
 
    
	
Cash and cash equivalents(1)
    	
 
    	
$
    	
631,427
    	
 
    	
$
    	
797,031
    	
(4)
    	
$
    	
786,308
    	
(4)
    	
$
    	
784,031
    	
(4)
    	
$
    	
786,308
    	
(4)
    
	
Debt (including current maturities):
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Existing Credit Facilities(2)
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    
	
Other secured debt(3)
    	
 
    	
—
    	
 
    	
60,083
    	
 
    	
60,083
    	
 
    	
60,083
    	
 
    	
60,083
    	
 
    
	
Total secured debt
    	
 
    	
—
    	
 
    	
60,083
    	
 
    	
60,083
    	
 
    	
60,083
    	
 
    	
60,083
    	
 
    
	
Total senior unsecured debt
    	
 
    	
$
    	
779,331
    	
 
    	
$
    	
779,331
    	
 
    	
$
    	
779,331
    	
 
    	
$
    	
779,331
    	
 
    	
$
    	
779,331
    	
 
    
	
Long-term debt incurred in Offer (including current portion)(5)
    	
 
    	
—
    	
 
    	
—
    	
 
    	
106,146
    	
 
    	
—
    	
 
    	
106,146
    	
 
    
	
Total debt
    	
 
    	
$
    	
779,331
    	
 
    	
$
    	
839,414
    	
 
    	
$
    	
945,560
    	
 
    	
$
    	
839,414
    	
 
    	
$
    	
945,560
    	
 
    
	
Equity:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Equity
    	
 
    	
$
    	
1,627,707
    	
 
    	
$
    	
1,627,707
    	
 
    	
$
    	
1,627,707
    	
 
    	
$
    	
1,627,707
    	
 
    	
$
    	
1,627,707
    	
 
    
	
Equity Offering(4)
    	
 
    	
—
    	
 
    	
165,604
    	
 
    	
165,604
    	
 
    	
165,604
    	
 
    	
165,604
    	
 
    
	
Shares issued pursuant to the Offer
    	
 
    	
—
    	
 
    	
—
    	
 
    	
379,800
    	
 
    	
74,257
    	
 
    	
160,242
    	
 
    
	
Total equity
    	
 
    	
$
    	
1,627,707
    	
 
    	
$
    	
1,793,311
    	
 
    	
$
    	
2,173,111
    	
 
    	
$
    	
1,867,568
    	
 
    	
$
    	
1,953,553
    	
 
    
	
Total capitalization(1)
    	
 
    	
$
    	
2,407,038
    	
 
    	
$
    	
2,632,725
    	
 
    	
$
    	
3,118,671
    	
 
    	
$
    	
2,706,982
    	
 
    	
$
    	
2,899,113
    	
 
    

 

(1)             Reflects the United States dollar/Canadian dollar closing exchange rate as reported by the Bank of Canada as at December 31, 2013.

(2)             As of December 31, 2013, there were no borrowings outstanding under the Credit Facility. As of December 31, 2013, the Offeror had commitments available to be borrowed under its credit facility of US$73 million (based on the maximum availability, equal to the lesser of US$100 million and a borrowing base related to accounts receivable and inventory of the Manitoba business unit); however, borrowing capacity was reduced by $64.1 million of letters of credit outstanding on such date.

(3)             Does not include available credit facilities, including the undrawn portion of the equipment financing facility for the Constancia mobile fleet which the Offeror has entered into with Cat Financial. The equipment financing facility will be used to finance the purchase of up to approximately US$130 million of equipment.

(4)             Reflects net proceeds from the Equity Offering of $165.6 million.

(5)             On December 16, 2013, Augusta announced that it had closed an additional loan facility for US$26.6 million (the “Expanded Loan”) and had drawn down the first tranche of US$3.5 million. In connection with the Expanded Loan, Augusta paid an arrangement fee of US$1,120,000 and issued a total of 3.3 million Warrants to the lender with an exercise price of US$2.12 per share, subject to amendment if certain conditions are not met. The Warrants expire on December 12, 2016.

(6)             Refer to the unaudited pro forma consolidated financial statements of the Offeror for the year ended December 31, 2013 attached as Schedule “B” to this Offer and Circular for details regarding the assumptions used to calculate the effect of the Offer.

(7)             Refer to the unaudited pro forma consolidated financial statements of the Offeror for the year ended December 31, 2013 attached as Schedule “D” to this Offer and Circular for details regarding the assumptions used to calculate the effect of the Offer.

(8)             Refer to the unaudited pro forma consolidated financial statements of the Offeror for the year ended December 31, 2013 attached as Schedule “E” to this Offer and Circular for details regarding the assumptions used to calculate the effect of the Offer.

 

Schedules “B”, “D” and “E” to the Original Offer and Circular are hereby deleted and replaced with the following:

 

4

 

SCHEDULE B

 

UNAUDITED PRO FORMA FINANCIAL STATEMENT

 

5

 

HudBay Minerals Inc.

 

Pro Forma Consolidated Financial Statements
 (Unaudited)
  December 31, 2013
 (expressed in thousands of Canadian Dollars)

 

6

 

HudBay Minerals Inc.
  Pro Forma Consolidated Financial Statements
  (Unaudited) As at December 31, 2013

 

(expressed in thousands of Canadian Dollars)

 

	
 
    	
 
    	
Hudbay
    $
    	
 
    	
Augusta
    $
    	
 
    	
Adjustments
    $
    	
 
    	
Note 4
    	
 
    	
Pro forma
    consolidated
    $
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
(note 1)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Assets
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Current   assets
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cash and cash equivalents
    	
 
    	
631,427
    	
 
    	
2,412
    	
 
    	
(13,135
    	
)
    	
(b),(c),(f)
    	
 
    	
620,704
    	
 
    
	
Trade and other receivables
    	
 
    	
168,298
    	
 
    	
8,156
    	
 
    	
—
    	
 
    	
 
    	
 
    	
176,454
    	
 
    
	
Inventories
    	
 
    	
52,201
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
52,201
    	
 
    
	
Prepaid expenses and other current assets
    	
 
    	
28,917
    	
 
    	
16,957
    	
 
    	
—
    	
 
    	
 
    	
 
    	
45,874
    	
 
    
	
Other financial assets - current
    	
 
    	
807
    	
 
    	
146
    	
 
    	
—
    	
 
    	
 
    	
 
    	
953
    	
 
    
	
Taxes receivable
    	
 
    	
37,644
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
37,644
    	
 
    
	
Assets held for sale
    	
 
    	
5,864
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
5,864
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Total   current assets
    	
 
    	
925,158
    	
 
    	
27,671
    	
 
    	
(13,135
    	
)
    	
 
    	
 
    	
939,694
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Receivables
    	
 
    	
57,376
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
57,376
    	
 
    
	
Inventories
    	
 
    	
7,888
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
7,888
    	
 
    
	
Prepaid expenses
    	
 
    	
574
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
574
    	
 
    
	
Other financial assets - long-term
    	
 
    	
71,182
    	
 
    	
1,449
    	
 
    	
(34,126
    	
)
    	
(g),(h)
    	
 
    	
38,505
    	
 
    
	
Intangible assets - computer software
    	
 
    	
13,573
    	
 
    	
1,485
    	
 
    	
—
    	
 
    	
 
    	
 
    	
15,058
    	
 
    
	
Property, plant, and equipment
    	
 
    	
2,665,075
    	
 
    	
311,855
    	
 
    	
365,681
    	
 
    	
(d)
    	
 
    	
3,342,611
    	
 
    
	
Goodwill
    	
 
    	
71,373
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
71,373
    	
 
    
	
Deferred tax assets
    	
 
    	
31,787
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
31,787
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Total   assets
    	
 
    	
3,843,986
    	
 
    	
342,460
    	
 
    	
318,420
    	
 
    	
 
    	
 
    	
4,504,866
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Liabilities   
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Current   liabilities
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Trade and other payables
    	
 
    	
218,898
    	
 
    	
4,707
    	
 
    	
—
    	
 
    	
 
    	
 
    	
223,605
    	
 
    
	
Taxes payable
    	
 
    	
33
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
33
    	
 
    
	
Other liabilities
    	
 
    	
41,139
    	
 
    	
3,194
    	
 
    	
—
    	
 
    	
 
    	
 
    	
44,333
    	
 
    
	
Other financial liabilities - current
    	
 
    	
16,348
    	
 
    	
99,464
    	
 
    	
—
    	
 
    	
 
    	
 
    	
115,812
    	
 
    
	
Deferred revenue
    	
 
    	
65,616
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
65,616
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Total   current liabilities
    	
 
    	
342,034
    	
 
    	
107,365
    	
 
    	
—
    	
 
    	
 
    	
 
    	
449,399
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Other financial liabilities
    	
 
    	
23,039
    	
 
    	
3,848
    	
 
    	
—
    	
 
    	
 
    	
 
    	
26,887
    	
 
    
	
Long-term debt
    	
 
    	
779,331
    	
 
    	
6,682
    	
 
    	
—
    	
 
    	
(e)
    	
 
    	
786,013
    	
 
    
	
Deferred revenue
    	
 
    	
464,135
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
464,135
    	
 
    
	
Provisions
    	
 
    	
146,062
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
146,062
    	
 
    
	
Pension obligations
    	
 
    	
25,931
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
25,931
    	
 
    
	
Other employee benefits
    	
 
    	
142,114
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
142,114
    	
 
    
	
Deferred tax liabilities
    	
 
    	
293,633
    	
 
    	
3,583
    	
 
    	
144,810
    	
 
    	
(d)
    	
 
    	
442,026
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Total liabilities
    	
 
    	
2,216,279
    	
 
    	
121,478
    	
 
    	
144,810
    	
 
    	
 
    	
 
    	
2,482,567
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Shareholders’   Equity
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Share capital (note 5)
    	
 
    	
1,021,088
    	
 
    	
235,031
    	
 
    	
144,769
    	
 
    	
(a),(c),(f),(i)
    	
 
    	
1,400,888
    	
 
    
	
Reserves
    	
 
    	
49,557
    	
 
    	
28,734
    	
 
    	
(28,873
    	
)
    	
(a),(g),(h),(i)
    	
 
    	
49,418
    	
 
    
	
Retained earnings
    	
 
    	
564,966
    	
 
    	
(42,783
    	
)
    	
57,714
    	
 
    	
(a),(b),(h)
    	
 
    	
579,897
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Total   equity attributable to Hudbay shareholders
    	
 
    	
1,635,611
    	
 
    	
220,982
    	
 
    	
173,610
    	
 
    	
 
    	
 
    	
2,030,203
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Non-controlling   interest
    	
 
    	
(7,904
    	
)
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
(7,904
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Total   equity
    	
 
    	
1,627,707
    	
 
    	
220,982
    	
 
    	
173,610
    	
 
    	
 
    	
 
    	
2,022,299
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Total   liabilities and shareholders’ equity
    	
 
    	
3,843,986
    	
 
    	
342,460
    	
 
    	
318,420
    	
 
    	
 
    	
 
    	
4,504,866
    	
 
    

 

The accompanying notes are an integral part of these pro forma consolidated financial statements.

 

7

 

HudBay Minerals Inc.
  Pro Forma Consolidated Statement of Income
  (Unaudited) For the year ended December 31, 2013

 

(expressed in thousands of Canadian Dollars)

 

	
 
    	
 
    	
Hudbay
    $
    	
 
    	
Augusta
    $
    	
 
    	
Adjustments
    $
    	
 
    	
Note 4
    	
 
    	
Pro forma
    consolidated
    $
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
(note 1)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Revenue
    	
 
    	
516,801
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
516,801
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cost   of sales
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Mine operating   costs
    	
 
    	
360,085
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
360,085
    	
 
    
	
Depreciation and   amortization
    	
 
    	
76,714
    	
 
    	
 
    	
 
    	
—
    	
 
    	
 
    	
 
    	
76,714
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
436,799
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
436,799
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Gross   profit
    	
 
    	
80,002
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
80,002
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Selling   and administrative expenses
    	
 
    	
39,956
    	
 
    	
6,737
    	
 
    	
—
    	
 
    	
 
    	
 
    	
46,693
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Exploration   and evaluation
    	
 
    	
23,286
    	
 
    	
1,493
    	
 
    	
—
    	
 
    	
 
    	
 
    	
24,779
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Other   operating income
    	
 
    	
(913
    	
)
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
(913
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Other   operating expenses
    	
 
    	
9,197
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
9,197
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Asset   impairment loss
    	
 
    	
15,356
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
15,356
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Results   from operating activities
    	
 
    	
(6,880
    	
)
    	
(8,230
    	
)
    	
—
    	
 
    	
 
    	
 
    	
(15,110
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Finance   income
    	
 
    	
(3,494
    	
)
    	
(811
    	
)
    	
—
    	
 
    	
 
    	
 
    	
(4,305
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Finance   expenses
    	
 
    	
8,921
    	
 
    	
249
    	
 
    	
—
    	
 
    	
 
    	
 
    	
9,170
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Other   finance losses
    	
 
    	
43,697
    	
 
    	
(826
    	
)
    	
(8,414
    	
)
    	
(h),(i)
    	
 
    	
34,457
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Net   finance expense
    	
 
    	
49,124
    	
 
    	
(1,388
    	
)
    	
(8,414
    	
)
    	
 
    	
 
    	
39,322
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Loss   before tax
    	
 
    	
(56,004
    	
)
    	
(6,842
    	
)
    	
8,414
    	
 
    	
 
    	
 
    	
(54,432
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Tax   expense
    	
 
    	
53,272
    	
 
    	
(151
    	
)
    	
—
    	
 
    	
 
    	
 
    	
53,121
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Loss   for the year
    	
 
    	
(109,276
    	
)
    	
(6,691
    	
)
    	
8,414
    	
 
    	
 
    	
 
    	
(107,553
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Attributable   to
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Owners of the   Company
    	
 
    	
(101,359
    	
)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
(99,636
    	
)
    
	
Non-controlling   interests
    	
 
    	
(7,917
    	
)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
(7,917
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Loss   for the year
    	
 
    	
(109,276
    	
)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
(107,553
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Loss   per share attributable to owners of the Company
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Basic and diluted   (note 6)
    	
 
    	
(0.59
    	
)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
(0.47
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Weighted   average number of common shares outstanding
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Basic and diluted   (in thousands) (note 6)
    	
 
    	
172,048
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
212,452
    	
 
    

 

The accompanying notes are an integral part of these pro forma consolidated financial statements.

 

8

 

HudBay Minerals Inc.
  Notes to Pro Forma Consolidated Financial Statements
 (Unaudited)
  December 31, 2013

 

(expressed in thousands of Canadian Dollars)

 

1                 Basis of presentation

 

The unaudited pro forma consolidated balance sheet of Hudbay Minerals Inc. (the “Company” or “Hudbay”) as at December 31, 2013 and the unaudited pro forma consolidated statement of income for the year ended December 31, 2013 have been derived by management based on financial statements prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), for illustrative purposes only, after giving effect to the proposed acquisition of Augusta Resource Corporation (“Augusta”) by the Company. Adjustments applied are directly attributable to the transaction, factually supportable, and expected to have a continuing impact. Terms not otherwise defined herein have the meanings given thereto in the Company’s offer and take-over bid circular dated February 10, 2014, as amended.

 

These unaudited pro forma consolidated financial statements have been compiled as follows:

 

a)             an unaudited pro forma consolidated balance sheet giving effect to the transaction described in note 3, as if the transaction occurred on December 31, 2013 combining:

 

·                  the audited consolidated balance sheet of the Company as at December 31, 2013; and

 

·                  the audited consolidated statement of financial position of Augusta as at December 31, 2013.

 

b)             an unaudited pro forma consolidated income statement for the year ended December 31, 2013, which assumes the transaction occurred as of January 1, 2013, combining:

 

·                  the audited consolidated income statement of the Company for the year ended December 31, 2013; and

 

·                  the audited consolidated statement of comprehensive loss of Augusta for the year ended December 31, 2013.

 

It is management’s opinion that these unaudited pro forma consolidated financial statements include all adjustments necessary for the fair presentation, in all material respects, of the transactions described in notes 3 and 4 in accordance with IFRS, applied on a basis consistent with the Company’s accounting policies. The unaudited pro forma consolidated financial information is not necessarily indicative of the results of operations that might be obtained in the future.

 

The unaudited pro forma consolidated financial statements should be read in conjunction with the historical consolidated financial statements and notes thereto of the Company and Augusta.

 

9

 

HudBay Minerals Inc.
  Notes to Pro Forma Consolidated Financial Statements
 (Unaudited)
  December 31, 2013

 

(expressed in thousands of Canadian Dollars)

 

Augusta’s financial statements are presented in United States dollars. For the purposes of these unaudited pro forma consolidated financial statements, line items have been translated into Canadian dollars at the following rates:

 

·                  December 31, 2013 balance sheet at the exchange rate of $1.0636; and

 

·                  December 31, 2013 income statement at the average rate for the year of $1.0299.

 

All foreign exchange rates have been obtained from the Bank of Canada website. Unless where otherwise noted, these unaudited pro forma consolidated financial statements and their accompanying notes are presented in Canadian dollars.

 

Prior to the transaction described in note 3, the Company owned 23,058,585 shares of Augusta, which were recorded on the audited consolidated year-end balance sheet of the Company as at December 31, 2013 at a fair value of $34,127 (cost of $69,058).

 

The allocation of the preliminary purchase price to reflect the fair values of the assets acquired and liabilities assumed is based on management’s estimate of such assets and liabilities and, accordingly, the adjustments that have been included in the pro forma consolidated balance sheet may be subject to change. For purposes of these pro forma financial statements, the excess of the purchase price over the estimated fair value of the net assets acquired has been allocated to property, plant and equipment. The final purchase price allocations may differ materially from the allocations included herein.

 

2                 Summary of significant accounting policies

 

These unaudited pro forma consolidated financial statements have been compiled using the significant accounting policies, as set out in the audited consolidated financial statements of the Company as at December 31, 2013. Management has determined, based on their initial assessment, that certain adjustments are necessary to conform Augusta’s audited consolidated financial statements to the accounting policies used by the Company in the preparation of its audited consolidated financial statements:

 

a)             Stock based compensation - Augusta capitalizes stock based compensation related to personnel that service their development project to development costs. Hudbay expenses similar charges to various income statement accounts. The amount of the cumulative impact is unknown at the current time.

 

b)             Deposits and prepayments on long-lead equipment - Augusta presents this as a separate financial statement line item. Hudbay groups these assets within prepaid expenses. An amount of $12,413 has been reclassified to conform to Hudbay policies.

 

10

 

HudBay Minerals Inc.
  Notes to Pro Forma Consolidated Financial Statements
 (Unaudited)
  December 31, 2013

 

(expressed in thousands of Canadian Dollars)

 

3                 The transaction

 

Proposed transaction

 

Hudbay has offered to purchase all of the issued and outstanding common shares of Augusta, other than any Augusta Shares held directly or indirectly by Hudbay and its affiliates, including any Augusta Shares that may become issued and outstanding after the date hereof but before the expiry time upon the exercise, exchange or conversion of any convertible securities, together with the associated rights issued under the Shareholder Rights Plan.

 

The transaction will be accounted for as a business combination with Hudbay identified as the acquirer. A summary of the allocation of the preliminary purchase price to the acquired assets and liabilities assumed is as follows:

 

	
 
    	
 
    	
$
    	
 
    
	
Preliminary   purchase price
    	
 
    	
 
    	
 
    
	
Hudbay share   consideration (note 4(a(ii)))
    	
 
    	
379,800
    	
 
    
	
Fair value of   Augusta options settled in cash (note 4(f))
    	
 
    	
5,345
    	
 
    
	
Fair value of   Augusta warrants exchanged for Hudbay warrants (note 4(i))
    	
 
    	
642
    	
 
    
	
Fair value of   Augusta shares previously held by Hudbay (note 4(g))
    	
 
    	
68,276
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Total consideration
    	
 
    	
454,063
    	
 
    

 

11

 

HudBay Minerals Inc.
  Notes to Pro Forma Consolidated Financial Statements
 (Unaudited)
  December 31, 2013

 

(expressed in thousands of Canadian Dollars)

 

The preliminary purchase price has been allocated to the following net assets based on their estimated fair values as of December 31, 2013:

 

	
 
    	
 
    	
$
    	
 
    	
Pro forma
    presentation
    $
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Assets acquired and   liabilities assumed
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cash and cash   equivalents (note 4(c),(f))
    	
 
    	
 
    	
 
    	
14,622
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Accounts receivable
    	
 
    	
8,141
    	
 
    	
 
    	
 
    
	
Due from related   parties
    	
 
    	
15
    	
 
    	
 
    	
 
    
	
Trade and other   receivables
    	
 
    	
 
    	
 
    	
8,156
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Prepaids and other
    	
 
    	
4,544
    	
 
    	
 
    	
 
    
	
Deposits on   long-lead equipment
    	
 
    	
12,413
    	
 
    	
 
    	
 
    
	
Prepaid expenses   and other current assets
    	
 
    	
 
    	
 
    	
16,957
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Short-term   investments
    	
 
    	
146
    	
 
    	
 
    	
 
    
	
Other financial   assets - current
    	
 
    	
 
    	
 
    	
146
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Restricted funds
    	
 
    	
410
    	
 
    	
 
    	
 
    
	
Other assets
    	
 
    	
1,039
    	
 
    	
 
    	
 
    
	
Other financial   assets
    	
 
    	
 
    	
 
    	
1,449
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Other assets
    	
 
    	
1,485
    	
 
    	
 
    	
 
    
	
Intangible assets -   computer software
    	
 
    	
 
    	
 
    	
1,485
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Development costs
    	
 
    	
193,812
    	
 
    	
 
    	
 
    
	
Property, plant,   and equipment
    	
 
    	
91,887
    	
 
    	
 
    	
 
    
	
Mineral properties
    	
 
    	
26,156
    	
 
    	
 
    	
 
    
	
Property, plant and   equipment
    	
 
    	
 
    	
 
    	
311,855
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Current liabilities
    	
 
    	
 
    	
 
    	
(107,365
    	
)
    
	
Long-term   liabilities
    	
 
    	
 
    	
 
    	
(10,530
    	
)
    
	
Deferred tax   liabilities
    	
 
    	
 
    	
 
    	
(148,393
    	
)
    
	
Unallocated   purchase price (note 1)
    	
 
    	
 
    	
 
    	
365,681
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Total net assets   acquired
    	
 
    	
 
    	
 
    	
454,063
    	
 
    

 

The final purchase price and the fair value of the net assets of Augusta to be acquired will ultimately be determined after the closing of the transaction. Therefore, it is likely that the purchase price, including share consideration, and the fair values of assets acquired and liabilities assumed will vary from those shown above. These differences may be material. For purposes of sensitivity, a 10% increase in Hudbay share price is estimated to increase the purchase price by approximately $45,000.

 

12

 

HudBay Minerals Inc.
  Notes to Pro Forma Consolidated Financial Statements
 (Unaudited)
  December 31, 2013

 

(expressed in thousands of Canadian Dollars)

 

4                      Pro forma assumptions and adjustments

 

The unaudited pro forma consolidated financial statements reflect the following assumptions and adjustments to give effect to the acquisition of all of the issued and outstanding common shares of Augusta as described in note 3 as if the transactions had occurred on January 1, 2013 for statement of income items and December 31, 2013 for balance sheet items. Assumptions relating to the share price of Hudbay or Augusta have used the date of February 7, 2014 which represents the last trading day before February 10, 2014.

 

a)                  i)                               An adjustment to eliminate the historical equity accounts of Augusta.

 

ii)                  An adjustment to reflect the issuance of 40,404,237 Hudbay shares in exchange for 128,267,418 common shares of Augusta representing a share exchange ratio of 0.315 Hudbay share to 1 Augusta share. The closing price of Augusta shares on February 7, 2014 was $2.51. Future movements in share prices may impact the share numbers disclosed within.

 

b)                  An adjustment to reflect the transaction costs related to the transaction, including $7,000 of change of control payments and $13,000 in professional fees.

 

c)                   For purposes of pro forma presentation, no adjustment has been made to settle or convert the existing debt on Augusta’s statement of financial position on the assumption that this debt is out-of the money as at February 7, 2014.

 

On December 16, 2013, Augusta announced that it has closed an additional loan facility for US$26.6 million (the “Expanded Loan”) and has drawn down the first tranche of US$3.5 million. In connection with the Expanded Loan, Augusta paid an arrangement fee of US$1.12 million and issued a total of 3.3 million common share purchase warrants (“Warrants”) to the lender with an exercise price of US$2.12 per share, subject to amendment if certain conditions are not met. The Warrants expire on December 12, 2016.

 

An adjustment has been reflected for the impact of the exercise of these warrants upon change of control. The impact on the share consideration of the exercise of these warrants is an increase of $6,996 and the issuance of an additional 1,039,500 Hudbay common shares.

 

d)                  An adjustment to reflect the fair value of the property, plant, and equipment acquired, in excess of the book value and the resulting deferred tax liability, assuming an income tax rate of 39.6%. The applicable tax rate is based on the tax jurisdiction of the asset where it will be recovered through use.

 

e)                   On September 4, 2013, Augusta closed the first tranche for $2,000 of a previously announced financing for a total of $10,000 in convertible unsecured notes. The second tranche of $1,500 closed on September 19, 2013. The third tranche is assumed to have closed on October 25, 2013. The fourth tranche closed on October 25, 2013. Together, the third and fourth tranche totalled $3,250.

 

This disclosure is provided for informational purposes only.

 

13

 

HudBay Minerals Inc.
  Notes to Pro Forma Consolidated Financial Statements
 (Unaudited)
  December 31, 2013

 

(expressed in thousands of Canadian Dollars)

 

f)                    An adjustment to reflect the cash paid for the fair value of stock options issued by Augusta of $5,345, outstanding as at February 7, 2014 which are estimated to be out of-the-money. The options have been valued using a Black-Scholes model, using the share price of Augusta as at February 7, 2014, and the following assumptions: exercise prices ($2.78 to $4.35), life of options (3.13 to 3.54 years), interest rate (1.13%) and volatility rates (90.8% to 92.2%).

 

All other options that are estimated to be in-the-money as February 7, 2014, are assumed to be converted into common shares of Augusta, with the corresponding exercise price received as proceeds of $5,214.

 

g)                   An adjustment to re-measure the fair value of the Company’s existing investment in Augusta held prior to acquisition of control. This investment is designated as an available-for-sale investment by Hudbay, carried at fair value and all fair value changes are recognized in other comprehensive income (OCI), except for other than temporary decline in values recognized in the statement of comprehensive loss.

 

h)                  An adjustment to eliminate the Company’s existing investment in Augusta as at December 31, 2013 and an adjustment to eliminate the related accumulated fair value gains (losses) in reserves. Correspondingly, recognized fair value changes in the statement of income are eliminated of $8,314 for the year ended December 31, 2013.

 

i)                      An adjustment to reflect the warrants issued by Hudbay in exchange for the warrants issued by Augusta, outstanding as at February 7, 2014. For purposes of pro forma presentation, the warrants issued by Augusta are assumed to be out-of-the money (except for those noted in 4(c)) and therefore not exercised. Based on the exchange share ratio of Hudbay shares for Augusta shares (note 4(a)) of 0.315 to 1, respectively, 564,386 warrants were issued on February 7, 2014. The warrants have been valued using a Black-Scholes model using the following assumptions: exercise price of $12.22, interest rates of 0.78% to 1.13%, life of warrants of 1.47 to 2.47 years and volatility rates of 40.4% to 40.7%.

 

An adjustment was also made to eliminate losses arising in the year ended December 31, 2013 from re-measurement of warrants issued by Augusta recognized in its statement of comprehensive income of $100.

 

j)                     All unvested restricted shares and restricted share units of Augusta are assumed to vest immediately on February 10, 2014. An adjustment is made for the issuance of the common shares of $2,058.

 

5                      Pro forma share capital

 

	
 
    	
 
    	
Number of
    shares
    (000s)
    	
 
    	
$
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Hudbay’s common shares outstanding
    	
 
    	
172,078
    	
 
    	
1,021,088
    	
 
    
	
Hudbay’s common shares issued under the   proposed transaction (note 4(a))
    	
 
    	
40,404
    	
 
    	
379,800
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Pro forma share capital
    	
 
    	
212,482
    	
 
    	
1,400,888
    	
 
    

 

14

 

HudBay Minerals Inc.
  Notes to Pro Forma Consolidated Financial Statements
 (Unaudited)
  December 31, 2013

 

(expressed in thousands of Canadian Dollars)

 

6                      Pro forma loss per share

 

For the purposes of the unaudited pro forma consolidated financial statements, the loss per share has been calculated using the weighted average number of shares which would have been outstanding as at the year end, after giving effect to the transaction described in notes 3 and 4 as if it had occurred on January 1, 2013.

 

	
 
    	
 
    	
$
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Actual weighted average number of Hudbay   shares outstanding (thousands)
    	
 
    	
172,048
    	
 
    
	
Assumed number of Hudbay shares issued to   Augusta shareholders (note 4(a)) (thousands)
    	
 
    	
40,404
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Pro forma weighted average number of Hudbay   shares outstanding (thousands)
    	
 
    	
212,452
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Pro forma loss attributable to owners of the   Company
    	
 
    	
(99,636
    	
)
    
	
Pro forma loss per share - basic and diluted
    	
 
    	
(0.47
    	
)
    

 

15

 

SCHEDULE D

 

UNAUDITED PRO FORMA FINANCIAL STATEMENT

 

16

 

HudBay Minerals Inc.

 

Pro Forma Consolidated Financial Statements
 (Unaudited)
  December 31, 2013
 (expressed in thousands of Canadian Dollars)

 

17

 

HudBay Minerals Inc.
  Pro Forma Consolidated Balance Sheet
  (Unaudited) As at December 31, 2013

 

(expressed in thousands of Canadian Dollars)

 

	
 
    	
 
    	
Hudbay
    $
    	
 
    	
Adjustments
    $
    	
 
    	
Note 4
    	
 
    	
Pro forma
    consolidated
    $
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Assets
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Current   assets
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cash and cash   equivalents 
    	
 
    	
631,427
    	
 
    	
(13,000
    	
)
    	
(b)
    	
 
    	
618,427
    	
 
    
	
Trade and other   receivables 
    	
 
    	
168,298
    	
 
    	
—
    	
 
    	
 
    	
 
    	
168,298
    	
 
    
	
Inventories
    	
 
    	
52,201
    	
 
    	
—
    	
 
    	
 
    	
 
    	
52,201
    	
 
    
	
Prepaid expenses   and other current assets
    	
 
    	
28,917
    	
 
    	
—
    	
 
    	
 
    	
 
    	
28,917
    	
 
    
	
Other financial   assets
    	
 
    	
807
    	
 
    	
—
    	
 
    	
 
    	
 
    	
807
    	
 
    
	
Taxes receivable
    	
 
    	
37,644
    	
 
    	
—
    	
 
    	
 
    	
 
    	
37,644
    	
 
    
	
Assets held for   sale
    	
 
    	
5,864
    	
 
    	
—
    	
 
    	
 
    	
 
    	
5,864
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Total   current assets
    	
 
    	
925,158
    	
 
    	
(13,000
    	
)
    	
 
    	
 
    	
912,158
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Receivables
    	
 
    	
57,376
    	
 
    	
—
    	
 
    	
 
    	
 
    	
57,376
    	
 
    
	
Inventories
    	
 
    	
7,888
    	
 
    	
—
    	
 
    	
 
    	
 
    	
7,888
    	
 
    
	
Prepaid expenses
    	
 
    	
574
    	
 
    	
—
    	
 
    	
 
    	
 
    	
574
    	
 
    
	
Investment in   Augusta
    	
 
    	
—
    	
 
    	
142,532
    	
 
    	
(a)
    	
 
    	
142,533
    	
 
    
	
Other financial   assets - long-term
    	
 
    	
71,182
    	
 
    	
(34,126
    	
)
    	
(d)
    	
 
    	
37,055
    	
 
    
	
Intangible assets -   computer software
    	
 
    	
13,573
    	
 
    	
—
    	
 
    	
 
    	
 
    	
13,573
    	
 
    
	
Property, plant and   equipment
    	
 
    	
2,665,075
    	
 
    	
—
    	
 
    	
 
    	
 
    	
2,665,075
    	
 
    
	
Goodwill 
    	
 
    	
71,373
    	
 
    	
—
    	
 
    	
 
    	
 
    	
71,373
    	
 
    
	
Deferred tax assets
    	
 
    	
31,787
    	
 
    	
—
    	
 
    	
 
    	
 
    	
31,787
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Total   assets
    	
 
    	
3,843,986
    	
 
    	
95,406
    	
 
    	
 
    	
 
    	
3,939,392
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Liabilities
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Current   liabilities
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Trade and other   payables
    	
 
    	
218,898
    	
 
    	
—
    	
 
    	
 
    	
 
    	
218,898
    	
 
    
	
Taxes payable
    	
 
    	
33
    	
 
    	
—
    	
 
    	
 
    	
 
    	
33
    	
 
    
	
Other liabilities
    	
 
    	
41,139
    	
 
    	
—
    	
 
    	
 
    	
 
    	
41,139
    	
 
    
	
Other financial   liabilities - current
    	
 
    	
16,348
    	
 
    	
—
    	
 
    	
 
    	
 
    	
16,348
    	
 
    
	
Deferred revenue
    	
 
    	
65,616
    	
 
    	
—
    	
 
    	
 
    	
 
    	
65,616
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Total   current liabilities
    	
 
    	
342,034
    	
 
    	
—
    	
 
    	
 
    	
 
    	
342,034
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Other financial   liabilities
    	
 
    	
23,039
    	
 
    	
—
    	
 
    	
 
    	
 
    	
23,039
    	
 
    
	
Long-term debt
    	
 
    	
779,331
    	
 
    	
—
    	
 
    	
 
    	
 
    	
779,331
    	
 
    
	
Deferred revenue
    	
 
    	
464,135
    	
 
    	
—
    	
 
    	
 
    	
 
    	
464,135
    	
 
    
	
Provisions
    	
 
    	
146,062
    	
 
    	
—
    	
 
    	
 
    	
 
    	
146,062
    	
 
    
	
Pension obligations
    	
 
    	
25,931
    	
 
    	
—
    	
 
    	
 
    	
 
    	
25,931
    	
 
    
	
Other employee   benefits
    	
 
    	
142,114
    	
 
    	
—
    	
 
    	
 
    	
 
    	
142,114
    	
 
    
	
Deferred tax   liabilities
    	
 
    	
293,633
    	
 
    	
—
    	
 
    	
 
    	
 
    	
293,633
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Total   liabilities
    	
 
    	
2,216,279
    	
 
    	
—
    	
 
    	
 
    	
 
    	
2,216,279
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Shareholders’   Equity
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Share capital
    	
 
    	
1,021,088
    	
 
    	
74,256
    	
 
    	
(a)
    	
 
    	
1,095,344
    	
 
    
	
Reserves
    	
 
    	
49,557
    	
 
    	
(34,931
    	
)
    	
(d)
    	
 
    	
14,626
    	
 
    
	
Retained earnings
    	
 
    	
564,966
    	
 
    	
56,081
    	
 
    	
(b), (c)
    	
 
    	
621,047
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Total   equity attributable to Hudbay shareholders
    	
 
    	
1,635,611
    	
 
    	
95,406
    	
 
    	
 
    	
 
    	
1,731,017
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Non-controlling   interests
    	
 
    	
(7,904
    	
)
    	
—
    	
 
    	
 
    	
 
    	
(7,904
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Total   equity
    	
 
    	
1,627,707
    	
 
    	
95,406
    	
 
    	
 
    	
 
    	
1,723,113
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Total   liabilities and shareholders’ equity
    	
 
    	
3,843,986
    	
 
    	
95,406
    	
 
    	
 
    	
 
    	
1,731,017
    	
 
    

 

The accompanying notes are an integral part of these pro forma consolidated financial statements.

 

18

 

HudBay Minerals Inc.

Pro Forma Consolidated Financial Statements
 (Unaudited)
  December 31, 2013

 

(expressed in thousands of Canadian Dollars)

 

	
 
    	
 
    	
Hudbay
    $
    	
 
    	
Adjustments
    $
    	
 
    	
Note 4
    	
 
    	
Pro forma
    consolidated
    $
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Revenue
    	
 
    	
516,801
    	
 
    	
—
    	
 
    	
 
    	
 
    	
516,801
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cost   of sales
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Mining operating   costs
    	
 
    	
360,085
    	
 
    	
—
    	
 
    	
 
    	
 
    	
360,085
    	
 
    
	
Depreciation and   amortization
    	
 
    	
76,714
    	
 
    	
—
    	
 
    	
 
    	
 
    	
76,714
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
436,799
    	
 
    	
—
    	
 
    	
 
    	
 
    	
436,799
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Gross   profit
    	
 
    	
80,002
    	
 
    	
—
    	
 
    	
 
    	
 
    	
80,002
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Selling   and administrative expenses
    	
 
    	
39,956
    	
 
    	
—
    	
 
    	
 
    	
 
    	
39,956
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Exploration   and evaluation
    	
 
    	
23,286
    	
 
    	
—
    	
 
    	
 
    	
 
    	
23,286
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Other   operating income
    	
 
    	
(913
    	
)
    	
—
    	
 
    	
 
    	
 
    	
(913
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Other   operating expenses
    	
 
    	
9,197
    	
 
    	
—
    	
 
    	
 
    	
 
    	
9,197
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Asset   impairment loss
    	
 
    	
15,356
    	
 
    	
—
    	
 
    	
 
    	
 
    	
15,356
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Results   from operating activities
    	
 
    	
(6,880
    	
)
    	
—
    	
 
    	
 
    	
 
    	
(6,880
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Finance   income
    	
 
    	
(3,494
    	
)
    	
—
    	
 
    	
 
    	
 
    	
(3,494
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Finance   expenses
    	
 
    	
8,921
    	
 
    	
—
    	
 
    	
 
    	
 
    	
8,921
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Other   finance losses
    	
 
    	
43,697
    	
 
    	
(8,314
    	
)
    	
(d)
    	
 
    	
35,383
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Net   finance expense
    	
 
    	
49,124
    	
 
    	
(8,314
    	
)
    	
 
    	
 
    	
40,810
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Share   of investment in Augusta
    	
 
    	
 
    	
 
    	
(2,230
    	
)
    	
(e)
    	
 
    	
(2,230
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Loss   before tax
    	
 
    	
(56,004
    	
)
    	
6,084
    	
 
    	
 
    	
 
    	
(49,920
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Tax   expense
    	
 
    	
53,272
    	
 
    	
—
    	
 
    	
 
    	
 
    	
53,272
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Loss   for the year
    	
 
    	
(109,276
    	
)
    	
6,084
    	
 
    	
 
    	
 
    	
(103,192
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Attributable   to
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Owners of the   Company
    	
 
    	
(101,359
    	
)
    	
6,084
    	
 
    	
 
    	
 
    	
(95,275
    	
)
    
	
Non-controlling   interests
    	
 
    	
(7,917
    	
)
    	
—
    	
 
    	
 
    	
 
    	
(7,917
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Loss   for the year
    	
 
    	
(109,276
    	
)
    	
6,084
    	
 
    	
 
    	
 
    	
(103,192
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Loss   per share attributable to owners of the company
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Basic and diluted   (note 6)
    	
 
    	
(0.59
    	
)
    	
 
    	
 
    	
 
    	
 
    	
(0.53
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Weighted   average shares outstanding (thousands)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Basic and diluted   (in thousands) (note 6)
    	
 
    	
172,048
    	
 
    	
 
    	
 
    	
 
    	
 
    	
179,948
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    

 

The accompanying notes are an integral part of these pro forma consolidated financial statements.

 

19

 

HudBay Minerals Inc.
  Notes to Pro Forma Consolidated Financial Statements
 (Unaudited)
  December 31, 2013

 

(expressed in thousands of Canadian Dollars)

 

1                      Basis of presentation

 

The unaudited pro forma consolidated balance sheet of Hudbay Minerals Inc. (the “Company” or “Hudbay”) as at December 31, 2013 and the unaudited pro forma consolidated income statement for the year ended December 31, 2013 have been derived by management based on financial statements prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), for illustrative purposes only, after giving effect to the acquisition of a 33% interest in the share capital of Augusta Resource Corporation (“Augusta”) including common shares the Company owned prior to the Take-over Bid Circular, by the Company (note 3). Adjustments applied are directly attributable to the transaction, factually supportable, and expected to have a continuing impact. Terms not otherwise defined herein have the meanings given thereto in the Company’s offer and take0-over bid circular February 10, 2014, as amended.

 

These unaudited pro forma consolidated financial statements have been compiled as follows:

 

a)                  an unaudited pro forma consolidated balance sheet giving effect to the transaction described in note 3, as if the transaction occurred on December 31, 2013 based on:

 

·                      the audited consolidated balance sheet of the Company as at December 31, 2013; and

 

·                      information derived from the audited consolidated statement of financial position of Augusta as at December 31, 2013.

 

b)                  an unaudited pro forma consolidated income statement for the year ended December 31, 2013, which assumes the transaction occurred as of January 1, 2013, based on:

 

·                      the audited consolidated income statement of the Company for the year ended December 31, 2013; and

 

·                      information derived from the audited consolidated statement of comprehensive loss of Augusta for the year ended December 31, 2013.

 

It is management’s opinion that these unaudited pro forma consolidated financial statements include all adjustments necessary for the fair presentation, in all material respects, of the transactions described in notes 3 and 4 in accordance with IFRS, applied on a basis consistent with the Company’s accounting policies. The unaudited pro forma consolidated financial information is not necessarily indicative of the results of operations that might be obtained in the future.

 

The unaudited pro forma consolidated financial statements should be read in conjunction with the historical consolidated financial statements and notes thereto of the Company and Augusta.

 

Augusta’s financial statements are presented in United States dollars. For the purposes of these unaudited pro forma consolidated financial statements, line items have been translated into Canadian dollars at the following rates:

 

·                       December 31, 2013 balance sheet at the exchange rate of $1.0636; and

 

20

 

HudBay Minerals Inc.
  Notes to Pro Forma Consolidated Financial Statements
 (Unaudited)
  December 31, 2013

 

(expressed in thousands of Canadian Dollars)

 

·                       December 31, 2013 income statement at the average rate for the year of $1.0299.

 

All foreign exchange rates have been obtained from the Bank of Canada website. Unless where otherwise noted, these unaudited pro forma consolidated financial statements and their accompanying notes are presented in Canadian dollars.

 

Prior to the transaction described in note 3, the Company owned 23,058,585 shares of Augusta which were recorded on the audited consolidated year-end balance sheet of the Company at December 31, 2013 at a fair value of $34,127 (cost of $69,058).

 

The Company assumes it will have significant influence over Augusta subsequent to the transaction. The allocation of the preliminary purchase price to reflect the fair values of the identifiable net assets is based on management’s estimate of such assets and liabilities and, accordingly, the adjustments that have been included in the pro forma consolidated balance sheet may be subject to change. The final purchase price allocations may differ materially from the allocations included herein.

 

2                      Summary of significant accounting policies

 

These unaudited pro forma consolidated financial statements have been compiled using the significant accounting policies, as set out in the audited consolidated financial statements of the Company as at December 31, 2013. Management has determined, based on their initial assessment, that certain adjustments maybe necessary to conform Augusta’s audited consolidated financial statements to the accounting policies used by the Company in the preparation of its audited consolidated financial statements:

 

a)                  Stock based compensation — Augusta capitalizes stock based compensation related to personnel that service their development project to development costs. Hudbay expenses similar charges to various income statement accounts. The amount of the cumulative impact is unknown at the current time.

 

3                      The transaction

 

Proposed transaction

 

These pro forma financial statements have been prepared on the basis consistent with the terms of the Take-over Bid Circular, but under the assumption that Hudbay acquires 33% of the issued and outstanding common shares of Augusta, including any Augusta Shares held directly or indirectly by Hudbay and its affiliates prior to the Take-over Bid Circular.

 

21

 

HudBay Minerals Inc.
  Notes to Pro Forma Consolidated Financial Statements
 (Unaudited)
  December 31, 2013

 

(expressed in thousands of Canadian Dollars)

 

The transaction will be accounted for as an investment in associate under the equity method. A summary of the allocation of the preliminary purchase price to the acquired assets and liabilities assumed is as follows:

 

	
 
    	
 
    	
$
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Preliminary   purchase price
    	
 
    	
 
    	
 
    
	
Hudbay share   consideration (note 4(a))
    	
 
    	
74,256
    	
 
    
	
Fair value of   Augusta shares previously held by Hudbay (note 4(c))
    	
 
    	
68,276
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Total consideration
    	
 
    	
142,532
    	
 
    

 

The final purchase price and the Company’s share of Augusta’s fair value of the identifiable net assets acquired will ultimately be determined at the closing of the transaction. For these pro forma financial statements, the Company assumes that the fair value of net assets acquired is equal to the total consideration paid. It is likely that the purchase price, including share consideration, and the fair values of net assets acquired will vary from those shown above. These differences may be material.  For purposes of sensitivity, a 10% increase in Hudbay share price is estimated to increase the purchase price by approximately $14,000.

 

4                      Pro forma assumptions and adjustments

 

The unaudited pro forma consolidated financial statements reflect the following assumptions and adjustments to give effect to the acquisition of 33% of the issued and outstanding common shares of Augusta as described in note 3 as if the transactions had occurred on January 1, 2013 for statement of income items and December 31, 2013 for balance sheet items. Assumptions relating to the share price of Hudbay or Augusta have used the date of February 7, 2014 which represents the last trading day before February 10, 2014.

 

a)                  An adjustment to reflect the issuance of 7,899,596 Hudbay shares in exchange for 25,078,082 common shares of Augusta representing a share exchange ratio of 0.315 Hudbay share to 1 Augusta share and an adjustment to recognize the related investment in Augusta. The closing price of Augusta shares on February 7, 2014 was $2.51. Future movements in share prices may impact the share numbers disclosed within.

 

b)      An adjustment to reflect the transaction costs of $13,000 in professional fees.

 

c)                   An adjustment to re-measure the fair value of the Company’s existing investment in Augusta held prior to investment becoming an associate. This adjustment is recognized under the “Reserves” account in the pro forma consolidated balance sheet. The investment is designated as an available-for-sale investment by Hudbay, carried at fair value and all fair value changes are recognized in other comprehensive income (OCI), except for declines in values which are significant or prolonged which are recognized in the Company’s consolidated income statement.

 

d)                  An adjustment to eliminate the Company’s existing investment in Augusta as at December 31, 2013, previously held as an available for sale investment and an adjustment to eliminate the related accumulated fair value gains (losses) in reserves. Correspondingly, recognized fair value changes in the statement of income are eliminated of $8,314 for the year ended December 31, 2013.

 

22

 

HudBay Minerals Inc.
  Notes to Pro Forma Consolidated Financial Statements
 (Unaudited)
  December 31, 2013

 

(expressed in thousands of Canadian Dollars)

 

e)              An adjustment to recognize Hudbay’s proportionate share of Augusta’s loss for the period.

 

5                 Pro forma share capital

 

	
 
    	
 
    	
Number
    of shares
    (000s)
    	
 
    	
$
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Hudbay’s common   shares outstanding
    	
 
    	
172,078
    	
 
    	
1,021,088
    	
 
    
	
Hudbay’s common   shares issued under the proposed transaction (note 4(a))
    	
 
    	
7,900
    	
 
    	
74,256
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Pro forma share   capital
    	
 
    	
179,978
    	
 
    	
1,095,344
    	
 
    

 

6                 Pro forma loss per share

 

For the purposes of the unaudited pro forma consolidated financial statements, the loss per share has been calculated using the weighted average number of shares which would have been outstanding as at the year end, after giving effect to the transaction described in notes 3 and 4 as if it had occurred on January 1, 2013.

 

	
 
    	
 
    	
$
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Actual weighted   average number of Hudbay shares outstanding (thousands)
    	
 
    	
172,048
    	
 
    
	
Assumed number of   Hudbay shares issued to Augusta shareholders (note 4(a)) (thousands)
    	
 
    	
7,900
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Pro forma weighted   average number of Hudbay shares outstanding - basic (thousands)
    	
 
    	
179,948
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Pro forma loss   attributable to owners of the Company
    	
 
    	
(95,275
    	
)
    
	
Pro forma loss per   share — basic and diluted
    	
 
    	
(0.4453
    	
)
    

 

23

 

SCHEDULE E

 

UNAUDITED PRO FORMA FINANCIAL STATEMENT

 

24

 

HudBay Minerals Inc.

 

Pro Forma Consolidated Financial Statements
 (Unaudited)
  December 31, 2013
 (expressed in thousands of Canadian Dollars)

 

25

 

HudBay Minerals Inc.
  Pro Forma Consolidated Balance Sheet
  (Unaudited) As at December 31, 2013

 

(expressed in thousands of Canadian Dollars)

 

	
 
    	
 
    	
Hudbay
    $
    	
 
    	
Augusta
    $
    	
 
    	
Adjustments
    $
    	
 
    	
Note 4
    	
 
    	
Pro forma
    consolidated
    $
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
(note 1)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Assets
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Current   assets
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cash and cash   equivalents 
    	
 
    	
631,427
    	
 
    	
2,412
    	
 
    	
(13,135
    	
)
    	
(b),(c),(f)
    	
 
    	
620,704
    	
 
    
	
Trade and other   receivables 
    	
 
    	
168,298
    	
 
    	
8,156
    	
 
    	
—
    	
 
    	
 
    	
 
    	
176,454
    	
 
    
	
Inventories
    	
 
    	
52,201
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
52,201
    	
 
    
	
Prepaid expenses   and other current assets
    	
 
    	
28,917
    	
 
    	
16,957
    	
 
    	
—
    	
 
    	
 
    	
 
    	
45,874
    	
 
    
	
Other financial   assets - current
    	
 
    	
807
    	
 
    	
146
    	
 
    	
—
    	
 
    	
 
    	
 
    	
953
    	
 
    
	
Taxes receivable
    	
 
    	
37,644
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
37,644
    	
 
    
	
Assets held for   sale
    	
 
    	
5,864
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
5,864
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Total   current assets
    	
 
    	
925,158
    	
 
    	
27,671
    	
 
    	
(13,135
    	
)
    	
 
    	
 
    	
939,694
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Receivables
    	
 
    	
57,376
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
57,376
    	
 
    
	
Inventories
    	
 
    	
7,888
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
7,888
    	
 
    
	
Prepaid expenses
    	
 
    	
574
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
574
    	
 
    
	
Other financial   assets - long-term
    	
 
    	
71,182
    	
 
    	
1,449
    	
 
    	
(34,126
    	
)
    	
(g),(h)
    	
 
    	
38,505
    	
 
    
	
Intangible assets -   computer software
    	
 
    	
13,573
    	
 
    	
1,485
    	
 
    	
—
    	
 
    	
 
    	
 
    	
15,058
    	
 
    
	
Property, plant and   equipment
    	
 
    	
2,665,075
    	
 
    	
311,855
    	
 
    	
375,205
    	
 
    	
(d)
    	
 
    	
3,352,135
    	
 
    
	
Goodwill 
    	
 
    	
71,373
    	
 
    	
—
    	
 
    	
 
    	
 
    	
 
    	
 
    	
71,373
    	
 
    
	
Deferred tax assets
    	
 
    	
31,787
    	
 
    	
—
    	
 
    	
 
    	
 
    	
 
    	
 
    	
31,787
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Total   assets
    	
 
    	
3,843,986
    	
 
    	
342,460
    	
 
    	
327,944
    	
 
    	
 
    	
 
    	
4,514,390
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Liabilities
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Current   liabilities
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Trade and other   payables
    	
 
    	
218,898
    	
 
    	
4,707
    	
 
    	
—
    	
 
    	
 
    	
 
    	
223,605
    	
 
    
	
Taxes payable
    	
 
    	
33
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
33
    	
 
    
	
Other liabilities
    	
 
    	
41,139
    	
 
    	
3,194
    	
 
    	
—
    	
 
    	
 
    	
 
    	
44,333
    	
 
    
	
Other financial   liabilities - current
    	
 
    	
16,348
    	
 
    	
99,464
    	
 
    	
—
    	
 
    	
 
    	
 
    	
115,812
    	
 
    
	
Deferred revenue
    	
 
    	
65,616
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
65,616
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Total   current liabilities
    	
 
    	
342,034
    	
 
    	
107,365
    	
 
    	
—
    	
 
    	
 
    	
 
    	
449,399
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
—
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Other financial   liabilities
    	
 
    	
23,039
    	
 
    	
3,848
    	
 
    	
—
    	
 
    	
 
    	
 
    	
26,887
    	
 
    
	
Long-term debt
    	
 
    	
779,331
    	
 
    	
6,682
    	
 
    	
—
    	
 
    	
(e)
    	
 
    	
786,013
    	
 
    
	
Deferred revenue
    	
 
    	
464,135
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
464,135
    	
 
    
	
Provisions
    	
 
    	
146,062
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
146,062
    	
 
    
	
Pension obligations
    	
 
    	
25,931
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
25,931
    	
 
    
	
Other employee   benefits
    	
 
    	
142,114
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
142,114
    	
 
    
	
Deferred tax   liabilities
    	
 
    	
293,633
    	
 
    	
3,583
    	
 
    	
148,582
    	
 
    	
(d)
    	
 
    	
445,798
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Total   liabilities
    	
 
    	
2,216,279
    	
 
    	
121,478
    	
 
    	
148,582
    	
 
    	
 
    	
 
    	
2,486,339
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Shareholders’   Equity
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Share capital (note   5)
    	
 
    	
1,021,088
    	
 
    	
235,031
    	
 
    	
(74,789
    	
)
    	
(a),(c),(f),(j)
    	
 
    	
1,181,330
    	
 
    
	
Reserves
    	
 
    	
49,557
    	
 
    	
28,734
    	
 
    	
(28,873
    	
)
    	
(a),(i),(g),(h),(j)
    	
 
    	
49,418
    	
 
    
	
Retained earnings   (deficit)
    	
 
    	
564,966
    	
 
    	
(42,783
    	
)
    	
57,714
    	
 
    	
(a),(b),(h)
    	
 
    	
579,897
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Total   equity attributable to Hudbay shareholders
    	
 
    	
1,635,611
    	
 
    	
220,982
    	
 
    	
(45,948
    	
)
    	
 
    	
 
    	
1,810,645
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Non-controlling   interests
    	
 
    	
(7,904
    	
)
    	
—
    	
 
    	
225,310
    	
 
    	
(a)
    	
 
    	
217,406
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Total   equity
    	
 
    	
1,627,707
    	
 
    	
220,982
    	
 
    	
179,362
    	
 
    	
 
    	
 
    	
2,028,051
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Total   liabilities and shareholders’ equity
    	
 
    	
3,843,986
    	
 
    	
342,460
    	
 
    	
327,944
    	
 
    	
 
    	
 
    	
4,514,390
    	
 
    

 

The accompanying notes are an integral part of these pro forma consolidated financial statements.

 

26

 

HudBay Minerals Inc.
  Pro Forma Consolidated Statement of Income
  (Unaudited) For the year ended December 31, 2013

 

(expressed in thousands of Canadian Dollars)

 

	
 
    	
 
    	
Hudbay
    $
    	
 
    	
Augusta
    $
    	
 
    	
Adjustments
    $
    	
 
    	
Note 4
    	
 
    	
Pro forma
    consolidated
    $
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
(note 1)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Revenue   
    	
 
    	
516,801
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
516,801
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cost   of sales 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Mining operating   costs
    	
 
    	
360,085
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
360,085
    	
 
    
	
Depreciation and   amortization
    	
 
    	
76,714
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
76,714
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
436,799
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
436,799
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Gross   profit 
    	
 
    	
80,002
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
80,002
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Selling   and administrative expenses
    	
 
    	
39,956
    	
 
    	
6,737
    	
 
    	
—
    	
 
    	
 
    	
 
    	
46,693
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Exploration   and evaluation
    	
 
    	
23,286
    	
 
    	
1,493
    	
 
    	
—
    	
 
    	
 
    	
 
    	
24,779
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Other   operating income
    	
 
    	
(913
    	
)
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
(913
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Other   operating expenses
    	
 
    	
9,197
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
9,197
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Asset   impairment loss
    	
 
    	
15,356
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
15,356
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Results   from operating activities 
    	
 
    	
(6,880
    	
)
    	
(8,230
    	
)
    	
—
    	
 
    	
 
    	
 
    	
(15,110
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Finance   income
    	
 
    	
(3,494
    	
)
    	
(811
    	
)
    	
—
    	
 
    	
 
    	
 
    	
(4,305
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Finance   expenses
    	
 
    	
8,921
    	
 
    	
249
    	
 
    	
—
    	
 
    	
 
    	
 
    	
9,170
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Other   finance losses
    	
 
    	
43,697
    	
 
    	
(826
    	
)
    	
(8,414
    	
)
    	
(h)
    	
 (i)
    	
34,457
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Net   finance expense
    	
 
    	
49,124
    	
 
    	
(1,388
    	
)
    	
(8,414
    	
)
    	
 
    	
 
    	
39,322
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Loss   before tax
    	
 
    	
(56,004
    	
)
    	
(6,842
    	
)
    	
8,414
    	
 
    	
 
    	
 
    	
(54,432
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Tax   expense (recovery)
    	
 
    	
53,272
    	
 
    	
(151
    	
)
    	
—
    	
 
    	
 
    	
 
    	
53,121
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Loss   for the period
    	
 
    	
(109,276
    	
)
    	
(6,691
    	
)
    	
8,414
    	
 
    	
 
    	
 
    	
(107,553
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Attributable   to
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Owners of the   Company
    	
 
    	
(101,359
    	
)
    	
(6,691
    	
)
    	
11,692
    	
 
    	
 
    	
 
    	
(96,358
    	
)
    
	
Non-controlling   interests
    	
 
    	
(7,917
    	
)
    	
—
    	
 
    	
(3,278
    	
)
    	
(a)
    	
 
    	
(11,195
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Loss   for the period
    	
 
    	
(109,276
    	
)
    	
(6,691
    	
)
    	
8,414
    	
 
    	
 
    	
 
    	
(107,553
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Loss   per share attributable to owners of the company
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Basic and diluted   (note 6)
    	
 
    	
(0.59
    	
)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
(0.51
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Weighted   average number of common shares outstanding
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Basic and diluted   (in thousands) (note 6)
    	
 
    	
172,048
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
189,095
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    

 

The accompanying notes are an integral part of these pro forma consolidated financial statements.

 

27

 

HudBay Minerals Inc.
  Notes to Pro Forma Consolidated Financial Statements
  (Unaudited) December 31, 2013

 

(expressed in thousands of Canadian Dollars)

 

1       Basis of presentation

 

The unaudited pro forma consolidated balance sheet of Hudbay Minerals Inc. (the “Company” or “Hudbay”) as at December 31, 2013 and the unaudited pro forma consolidated statements of income for the year ended December 31, 2013 have been derived by management based on financial statements prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), for illustrative purposes only, after giving effect to the acquisition of 51% of the share capital of Augusta Resource Corporation (“Augusta”) including common shares the Company owned prior to the Take-over Bid Circular, by the Company (note 3). Adjustments applied are directly attributable to the transaction, factually supportable, and expected to have a continuing impact. Terms not otherwise defined herein have the meanings given thereto in the Company’s offer and take-over bid circular dated February 10, 2014, as amended.

 

These unaudited pro forma consolidated financial statements have been compiled as follows:

 

a)      an unaudited pro forma consolidated balance sheet giving effect to the transaction described in note 3, as if the transaction occurred on December 31, 2013 combining:

 

·       the audited consolidated balance sheet of the Company as at December 31, 2013; and

 

·       the audited consolidated statements of financial position of Augusta as at December 31, 2013.

 

b)      an unaudited pro forma consolidated income statement for the year ended December 31, 2013, which assumes the transaction occurred as of January 1, 2013, combining:

 

·       the audited consolidated income statement of the Company for the year ended December 31, 2013; and

 

·       the audited consolidated statements of comprehensive loss of Augusta for the year ended December 31, 2013.

 

It is management’s opinion that these unaudited pro forma consolidated financial statements include all adjustments necessary for the fair presentation, in all material respects, of the transactions described in notes 3 and 4 in accordance with IFRS, applied on a basis consistent with the Company’s accounting policies. The unaudited pro forma consolidated financial information is not necessarily indicative of the results of operations that might be obtained in the future.

 

The unaudited pro forma consolidated financial statements should be read in conjunction with the historical consolidated financial statements and notes thereto of the Company and Augusta.

 

Augusta’s financial statements are presented in United States dollars. For the purposes of these unaudited pro forma consolidated financial statements, line items have been translated into Canadian dollars at the following rates:

 

·        December 31, 2013 balance sheet at the exchange rate of $1.0636; and

·        December 31, 2013 income statement at the average rate for the year of $1.0299.

 

28

 

HudBay Minerals Inc.
  Notes to Pro Forma Consolidated Financial Statements
  (Unaudited) December 31, 2013

 

(expressed in thousands of Canadian Dollars)

 

All foreign exchange rates have been obtained from the Bank of Canada website. Unless where otherwise noted, these unaudited pro forma consolidated financial statements and their accompanying notes are presented in Canadian dollars.

 

Prior to the transaction described in Note 3, the Company owned 23,058,585 shares of Augusta which were recorded on the audited consolidated year-end balance sheet of the Company at December 31, 2013 at a fair value of $34,127 (cost of $69,058).

 

The allocation of the preliminary purchase price to reflect the fair values of the assets acquired and liabilities assumed is based on management’s estimate of such assets and liabilities and, accordingly, the adjustments that have been included in the pro forma consolidated balance sheet may be subject to change. For purposes of these pro forma financial statements, the excess of the purchase price over the estimated fair value of the net assets acquired has been allocated to property, plant and equipment. The final purchase price allocations may differ materially from the allocations included herein.

 

2                      Summary of significant accounting policies

 

These unaudited pro forma consolidated financial statements have been compiled using the significant accounting policies, as set out in the audited consolidated financial statements of the Company as at December 31, 2013. Management has determined, based on their initial assessment, that certain adjustments are necessary to conform Augusta’s audited consolidated financial statements to the accounting policies used by the Company in the preparation of its audited consolidated financial statements:

 

a)                  Stock based compensation — Augusta capitalizes stock based compensation related to personnel that service their development project to development costs. Hudbay expenses similar charges to various income statement accounts. The amount of the cumulative impact is unknown at the current time.

 

b)                  Deposits and prepayments on long-lead equipment - Augusta presents this as a separate financial statement line item. Hudbay groups these assets within prepaid expenses. An amount of $12,413 has been reclassified to conform to Hudbay policies.

 

3                      The transaction

 

Proposed transaction

 

These pro forma financial statements have been prepared on the basis consistent with the terms of the Take-over Bid Circular, but under the assumption that Hudbay acquires 51% of the issued and outstanding common shares of Augusta, including any Augusta Shares held directly or indirectly by Hudbay and its affiliates prior to the Take-over Bid Circular, and any Augusta Shares that may become issued and outstanding after the date hereof but before the expiry time upon the exercise, exchange or conversion of any convertible securities, together with the associated rights issued under the Shareholder Rights Plan.

 

29

 

HudBay Minerals Inc.
  Notes to Pro Forma Consolidated Financial Statements
  (Unaudited) December 31, 2013

 

(expressed in thousands of Canadian Dollars)

 

The transaction will be accounted for as a business combination with Hudbay identified as the acquirer. A summary of the allocation of the preliminary purchase price to the acquired assets and liabilities assumed is as follows:

 

	
 
    	
 
    	
$
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Preliminary   purchase price
    	
 
    	
 
    	
 
    
	
Hudbay share   consideration (note 4(a(ii)))
    	
 
    	
160,242
    	
 
    
	
Fair value of   Augusta options settled in cash (note 4(f))
    	
 
    	
5,345
    	
 
    
	
Fair value of   Augusta warrants exchanged for Hudbay warrants (note 4(i))
    	
 
    	
642
    	
 
    
	
Fair value of   Augusta shares previously held by Hudbay (note 4(g))
    	
 
    	
68,276
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Total consideration
    	
 
    	
234,505
    	
 
    

 

The preliminary purchase price has been allocated to the following net assets based on their estimated fair values as of December 31, 2013:

 

	
 
    	
 
    	
$
    	
 
    	
Pro forma
    presentation
    $
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Assets acquired and liabilities assumed
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cash and cash   equivalents (note 4 (c),(f))
    	
 
    	
 
    	
 
    	
14,622
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Accounts receivable
    	
 
    	
8,141
    	
 
    	
 
    	
 
    
	
Due from related   parties
    	
 
    	
15
    	
 
    	
 
    	
 
    
	
Trade and other   receivables
    	
 
    	
 
    	
 
    	
8,156
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Prepaids and other
    	
 
    	
4,544
    	
 
    	
 
    	
 
    
	
Deposits on   long-lead equipment
    	
 
    	
12,413
    	
 
    	
 
    	
 
    
	
Prepaid expenses   and other current assets
    	
 
    	
 
    	
 
    	
16,957
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Short-term   investments
    	
 
    	
146
    	
 
    	
 
    	
 
    
	
Other financial   assets-current
    	
 
    	
 
    	
 
    	
146
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Restricted funds
    	
 
    	
410
    	
 
    	
 
    	
 
    
	
Other assets
    	
 
    	
1,039
    	
 
    	
 
    	
 
    
	
Other financial   assets
    	
 
    	
 
    	
 
    	
1,449
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Other assets
    	
 
    	
1,485
    	
 
    	
 
    	
 
    
	
Intangible   assets-computer software
    	
 
    	
 
    	
 
    	
1,485
    	
 
    
	
Development costs
    	
 
    	
193,812
    	
 
    	
 
    	
 
    
	
Property, plant,   and equipment
    	
 
    	
91,887
    	
 
    	
 
    	
 
    
	
Mineral properties
    	
 
    	
26,156
    	
 
    	
 
    	
 
    
	
Property, plant and   equipment
    	
 
    	
 
    	
 
    	
311,855
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Current liabilities
    	
 
    	
 
    	
 
    	
(107,365
    	
)
    
	
Long-term   liabilities
    	
 
    	
 
    	
 
    	
(10,530
    	
)
    
	
Deferred tax   liabilities
    	
 
    	
 
    	
 
    	
(152,165
    	
)
    
	
Unallocated   purchase price (note 1)
    	
 
    	
 
    	
 
    	
375,205
    	
 
    
	
Total net assets
    	
 
    	
 
    	
 
    	
459,815
    	
 
    
	
Less:   Non-controlling interest
    	
 
    	
 
    	
 
    	
(225,310
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Total net assets   acquired
    	
 
    	
 
    	
 
    	
234,505
    	
 
    

 

30

 

HudBay Minerals Inc.
  Notes to Pro Forma Consolidated Financial Statements
  (Unaudited) December 31, 2013

 

(expressed in thousands of Canadian Dollars)

 

The final purchase price and the fair value of the net assets of Augusta to be acquired will ultimately be determined after the closing of the transaction. Therefore, it is likely that the purchase price, including share consideration, and the fair values of assets acquired and liabilities assumed will vary from those shown above. These differences may be material. For purposes of sensitivity, a 10% increase in Hudbay share price is estimated to increase the purchase price by approximately $23,000.

 

4                      Pro forma assumptions and adjustments

 

The unaudited pro forma consolidated financial statements reflect the following assumptions and adjustments to give effect to the acquisition of 51% of the issued and outstanding common shares of Augusta as described in note 3 as if the transactions had occurred on January 1, 2013 for statement of income items and December 31, 2013 for balance sheet items. Assumptions relating to the share price of Hudbay or Augusta have used the date of February 7, 2014 which represents the last trading day before February 10, 2014.

 

a)                  i)                               An adjustment to eliminate the historical equity accounts of Augusta.

 

ii)                  An adjustment to reflect the issuance of 17,047,068 Hudbay shares in exchange for 54,117,677 common shares of Augusta representing a share exchange ratio of 0.315 Hudbay share to 1 Augusta share. The closing price of Augusta shares on February 7, 2014 was $2.51. Future movements in share prices may impact the share numbers disclosed within.

 

iii)               An adjustment to reflect the 49% non-controlling interest component of the pro forma adjustments.

 

b)                  An adjustment to reflect the transaction costs related to the transaction, including $7,000 of change of control payments and $13,000 in professional fees.

 

c)                   For purposes of pro forma presentation, no adjustment has been made to settle or convert the existing debt on Augusta’s statement of financial position on the assumption that this debt is out-of the money as at February 7, 2014.

 

On December 16, 2013, Augusta announced that it has closed an additional loan facility for US$26.6 million (the “Expanded Loan”) and has drawn down the first tranche of US$3.5 million. In connection with the Expanded Loan, Augusta paid an arrangement fee of US$1.12 million and issued a total of 3.3 million common share purchase warrants (“Warrants”) to the lender with an exercise price of US$2.12 per share, subject to amendment if certain conditions are not met. The Warrants expire on December 12, 2016.

 

An adjustment has been reflected in the pro forma consolidated financial statements related to this event as these additional warrants are in-the-money. The impact on the share consideration of the exercise of these warrants is an increase of cash of $6,996 and the issuance of an additional 1,039,500 Hudbay common shares.

 

31

 

HudBay Minerals Inc.
  Notes to Pro Forma Consolidated Financial Statements
  (Unaudited) December 31, 2013

 

(expressed in thousands of Canadian Dollars)

 

d)                  An adjustment to reflect the fair value of the property, plant, and equipment acquired, in excess of the book value and the resulting deferred tax liability, assuming an income tax rate of 39.6%. The applicable tax rate is based on the tax jurisdiction of the asset where it will be recovered through use.

 

e)                   On September 4, 2013, Augusta closed the first tranche for $2,000 of a previously announced financing for a total of $10,000 in convertible unsecured notes. The second tranche of $1,500 closed on September 19, 2013. The third tranche is assumed to have closed on October 25, 2013. The fourth tranche closed on October 25, 2013.  Together, the third and fourth tranche totalled $3,250.

 

This disclosure is provided for informational purposes only.

 

f)                    An adjustment to reflect the cash paid for the fair value of stock options issued by Augusta of $5,345, outstanding as at February 7, 2014 which are estimated to be out of-the-money. The options have been valued using a Black-Scholes model, using the share price of Augusta as at February 7, 2014, and the following assumptions: exercise prices ($2.78 to $4.35), life of options (3.13 to 3.54 years), interest rate (1.13%) and volatility rates (90.8% to 92.2%).

 

All other options that are estimated to be in-the-money as February 7, 2014, are assumed to be converted into common shares of Augusta, with the corresponding exercise price received as proceeds of $5,214.

 

g)                   An adjustment to re-measure the fair value of the Company’s existing investment in Augusta held prior to acquisition of control. This adjustment is recognized under the “Reserves” account in the pro forma consolidated balance sheet. The investment is designated as an available-for-sale investment by Hudbay, carried at fair value and all fair value changes are recognized in other comprehensive income (OCI), except for other than temporary decline in values recognized in the statement of comprehensive loss.

 

h)                  An adjustment to eliminate the Company’s existing investment in Augusta as at December 31, 2013 and an adjustment to eliminate the related accumulated fair value gains (losses) in reserves. Correspondingly, recognized fair value changes in the statement of income are eliminated of $8,314 for the year ended December 31, 2013.

 

i)                      An adjustment to reflect the warrants issued by Hudbay in exchange for the warrants issued by Augusta, outstanding as at February 7, 2014. For purposes of pro forma presentation, the warrants issued by Augusta are assumed to be out-of-the money (except for those noted in c) above) and therefore not exercised. Based on the exchange share ratio of Hudbay shares for Augusta shares (note 4(a)) of 0.315 to 1, respectively, 564,386 warrants were issued on February 7, 2014. The warrants have been valued using a Black-Scholes model using the following assumptions: exercise price of $12.22, interest rates of 0.78% to 1.13%, life of warrants of 1.47 to 2.47 years and volatility rates of 40.4% to 40.7%.

 

An adjustment was also made to eliminate losses arising in the year ended December 31, 2013 from re-measurement of warrants issued by Augusta recognized in its statement of comprehensive income of $100.

 

j)                     All unvested restricted shares and restricted share units of Augusta are assumed to vest immediately on February 10, 2014. An adjustment is made for the issuance of the common shares of $2,058.

 

32

 

HudBay Minerals Inc.
  Notes to Pro Forma Consolidated Financial Statements
  (Unaudited) December 31, 2013

 

(expressed in thousands of Canadian Dollars)

 

5                      Pro forma share capital

 

	
 
    	
 
    	
December 31, 2013
    	
 
    
	
 
    	
 
    	
Number
    of shares
    (000s)
    	
 
    	
$
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Hudbay’s common shares outstanding
    	
 
    	
172,078
    	
 
    	
1,021,088
    	
 
    
	
Hudbay’s common shares issued under the   proposed transaction (note 4(a))
    	
 
    	
17,047
    	
 
    	
160,242
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Pro forma share capital
    	
 
    	
189,125
    	
 
    	
1,181,330
    	
 
    

 

33

 

HudBay Minerals Inc.
  Notes to Pro Forma Consolidated Financial Statements
  (Unaudited) December 31, 2013

 

(expressed in thousands of Canadian Dollars)

 

6                      Pro forma loss per share

 

For the purposes of the unaudited pro forma consolidated financial statements, the loss per share has been calculated using the weighted average number of shares which would have been outstanding as at the year end, after giving effect to the transaction described in notes 3 and 4 as if it had occurred on January 1, 2013.

 

	
 
    	
 
    	
December 31, 2013
   $
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Actual weighted average number of Hudbay   shares outstanding (thousands)
    	
 
    	
172,048
    	
 
    
	
Assumed number of Hudbay shares issued to   Augusta shareholders (note 4(a)) (thousands)
    	
 
    	
17,047
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Pro forma weighted average number of Hudbay   shares outstanding - Basic and diluted (thousands)
    	
 
    	
189,095
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Pro forma loss attributable to owners of the   Company
    	
 
    	
(96,358
    	
)
    
	
Pro forma loss per share - basic and diluted
    	
 
    	
(0.51
    	
)
    

 

34

 

2.                                      Time for Acceptance

 

The Offer is open for acceptance until 5:00 p.m. (Toronto Time) on May 5, 2014. Shareholders who have validly deposited and not withdrawn their Augusta Shares need take no further action to accept the Offer. If, at the time immediately prior to 5:00 p.m. (Toronto Time) on May 5, 2014, all of the conditions of the Offer are satisfied or waived by the Offeror, then the Initial Offering Period will end at such time and all Augusta Shares deposited under the Offer and not withdrawn will be taken up by the Offeror. If the Offeror elects to provide for a Subsequent Offering Period, it will do so by extending the Expiry Time beyond the end of the Initial Offering Period.

 

3.                                      Manner of Acceptance

 

Augusta Shares may be deposited to the Offer in accordance with the provisions of Section 3 of the Original Offer, “Manner of Acceptance”.

 

4.                                      Take-Up of and Payment for Deposited Augusta Shares

 

If all the conditions of the Offer have been satisfied or waived by the Offeror, the Offeror will take up Augusta Shares validly deposited under the Offer and not properly withdrawn no later than 9:00 a.m. on the first business day following the end of the Initial Offering Period. The Offeror will pay for Augusta Shares taken up as soon as practicable thereafter and in any event within three business days thereafter. By so taking up and paying for Augusta Shares validly deposited under the Offer and not properly withdrawn, the Offeror will comply with the requirement under Canadian law to take up such Augusta Shares within ten days following the end of the Initial Offering Period and paying for such shares within three business days thereafter. See Section 6 of the Original Offer, “Take Up of and Payment for Deposited Augusta Shares”.

 

5.                                      Withdrawal of Deposited Augusta Shares

 

Augusta Shares deposited under the Offer may be withdrawn by or on behalf of the depositing Augusta Shareholder at any time before the Augusta Shares have been taken up by the Offeror under the Offer (including during any Subsequent Offering Period) and in the other circumstances described in Section 8 of the Original Offer, “Withdrawal of Deposited Augusta Shares”. Except as so indicated or as otherwise required or permitted by applicable Laws, deposits of Augusta Shares are irrevocable.

 

6.                                      Consequential Amendments to the Original Offer and Circular and Other Documents

 

The Original Offer and Circular, Letter of Transmittal and Notice of Guaranteed Delivery shall be read together with this Notice of Change and are hereby amended to the extent necessary to reflect the amendments contemplated by, and the information contained in, this Notice of Change.

 

Except as otherwise set forth in or amended by this Notice of Change, the terms and conditions of the Offer and the information in the Original Offer and Circular, the Letter of Transmittal and the Notice of Guaranteed Delivery continue to be applicable in all respects.

 

7.                                      Statutory Rights

 

Securities legislation in the provinces and territories of Canada provides security holders of Augusta with, in addition to any other rights they may have at law, one or more rights of rescission, price revision or to damages, if there is a misrepresentation in a circular or a notice that is required to be delivered to those security holders. However, such rights must be exercised within prescribed time limits. Security holders should refer to the applicable provisions of the securities legislation of their province or territory for particulars of those rights or consult with a lawyer.

 

8.                                      Directors’ Approval

 

The contents of this Notice of Change have been approved, and the sending thereof to the Augusta Shareholders has been authorized by the Hudbay Board of Directors.

 

35

 

APPROVAL AND CERTIFICATE OF HUDBAY MINERALS INC.

 

The foregoing, together with the Original Offer and Circular, contains no untrue statement of a material fact and does not omit to state a material fact that is required to be stated or that is necessary to make a statement not misleading in light of the circumstances in which it was made.

 

Dated: April 24, 2014.

 

 

	
(Signed) DAVID GAROFALO
    	
 
    	
(Signed) DAVID S. BRYSON
    
	
 
    	
 
    	
 
    
	
President and Chief   Executive Officer
    	
 
    	
Senior Vice President and   Chief Financial Officer
    
	
 
    	
 
    	
 
    
	
On behalf of the Board of   Directors
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
(Signed) G. WESLEY VOORHEIS
    	
 
    	
(Signed) SARAH B. KAVANAGH
    
	
Director
    	
 
    	
Director
    

 

 

The Depositary for the Offer is:

 

 

By Registered Mail, Mail, Hand or Courier

 

Toronto

200 University Avenue 
 Suite 300
 Toronto, Ontario

M5H 4H1

Attention:  Corporate Actions

 

Inquiries

 

North American Toll Free:  1-866-393-4891

Telephone:  416-361-0930 ext. 205

Facsimile:  416-361-0470

E-Mail:  corporateactions@equityfinancialtrust.com

 

THE INFORMATION AGENT FOR THE OFFER IS:

 

 

The Exchange Tower

130 King Street West, Suite 2950, P.O. Box 361

Toronto, Ontario M5X 1E2

North American Toll Free Phone:

1-866-229-8874

E-mail: contactus@kingsdaleshareholder.com

Facsimile: 416-867-2271

Toll Free Facsimile: 1-866-545-5580

Outside North America, Banks and Brokers Call Collect: 416-867-2272Exhibit 10.1

 

$600,000,000

 

ANTERO RESOURCES CORPORATION

 

5.125% Senior Notes due 2022

 

Purchase Agreement

 

April 23, 2014

 

J.P. Morgan Securities LLC

As Representative of the
 several Initial Purchasers listed
 in Schedule 1 hereto

 

c/o J.P. Morgan Securities LLC
 383 Madison Avenue
 New York, New York 10179

 

Ladies and Gentlemen:

 

Antero Resources Corporation, a Delaware corporation (the “Company”), proposes to issue and sell to the several initial purchasers listed in Schedule 1 hereto (the “Initial Purchasers”), for whom you are acting as representative (the “Representative”), $600,000,000 aggregate principal amount of its 5.125% Senior Notes due 2022 (the “Securities”).  The Securities will be issued pursuant to an Indenture (the “Indenture”), to be dated as of the Closing Date (as defined below), among the Company, the guarantors listed in Schedule 2 hereto (the “Guarantors”), and Wells Fargo Bank, National Association, as trustee (the “Trustee”), and will be guaranteed on an unsecured senior basis by each of the Guarantors (the “Guarantees”).  The Company and the Guarantors are referred to collectively herein as the “Antero Entities.”

 

The Securities will be sold to the Initial Purchasers without registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon an exemption from registration thereunder.  The Antero Entities have prepared a preliminary offering memorandum dated April 23, 2014 (the “Preliminary Offering Memorandum”) and will prepare an offering memorandum dated the date hereof (the “Offering Memorandum”) setting forth information concerning the Company, the Guarantors and the Securities.  Copies of the Preliminary Offering Memorandum have been, and copies of the Offering Memorandum will be, delivered by the Company to the Initial Purchasers pursuant to the terms of this purchase agreement (this “Agreement”).  The Company hereby confirms that it has authorized the use of the Preliminary Offering Memorandum, the other Time of Sale Information (as defined below) and the Offering Memorandum in connection with the offering and resale of the Securities by the Initial Purchasers in the manner contemplated by this Agreement.  Capitalized terms used but not defined herein shall have the meanings given to such terms in the Preliminary Offering Memorandum.  References herein to the Preliminary Offering Memorandum, the Time of Sale Information and the Offering Memorandum shall be deemed to refer to and include any document incorporated by reference therein and any reference to “amend,” “amendment” or “supplement” with respect to the Preliminary Offering Memorandum or the Offering Memorandum shall be deemed to refer to and include any documents filed after such date and incorporated by reference therein.

 

At or prior to the time when sales of the Securities were first made (the “Time of Sale”), the Antero Entities prepared the following information (collectively, the “Time of Sale Information”): the

 

 

Preliminary Offering Memorandum, as supplemented and amended by the written communications listed on Annex A hereto.

 

Holders of the Securities (including the Initial Purchasers and their direct and indirect transferees) will be entitled to the benefits of a Registration Rights Agreement, to be dated the Closing Date (as defined below), substantially in the form attached hereto as Exhibit A (the “Registration Rights Agreement”), pursuant to which the Antero Entities will agree to file one or more registration statements with the Securities and Exchange Commission (the “Commission”) providing for the registration under the Securities Act of the Securities or the Exchange Securities referred to (and as defined) in the Registration Rights Agreement.

 

The Antero Entities hereby confirm their agreement with the several Initial Purchasers concerning the purchase and resale of the Securities, as follows:

 

1.                                      Purchase and Resale of the Securities.  The Company agrees to issue and sell the Securities to the several Initial Purchasers as provided in this Agreement, and each Initial Purchaser, on the basis of the representations, warranties and agreements set forth herein and subject to the conditions set forth herein, agrees, severally and not jointly, to purchase from the Company the respective principal amount of Securities set forth opposite such Initial Purchaser’s name in Schedule 1 hereto at a price equal to 98.75% of the principal amount thereof plus accrued interest, if any, from May 6, 2014 to the Closing Date.  The Company will not be obligated to deliver any of the Securities except upon payment for all the Securities to be purchased as provided herein.

 

(a)                                 The Company understands that the Initial Purchasers intend to offer the Securities for resale on the terms set forth in the Time of Sale Information.  Each Initial Purchaser, severally and not jointly, represents and warrants to, and agrees with, the Company that:

 

(i)                                     it is a qualified institutional buyer within the meaning of Rule 144A under the Securities Act (a “QIB”) and an accredited investor within the meaning of Rule 501(a) of Regulation D under the Securities Act (“Regulation D”);

 

(ii)                                  it has not solicited offers for, or offered or sold, and will not solicit offers for, or offer or sell, the Securities by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) of Regulation D or in any manner involving a public offering within the meaning of Section 4(a)(2) of the Securities Act;

 

(iii)                               it has not solicited offers for, or offered or sold, and will not solicit offers for, or offer or sell the Securities as part of its initial offering except within the United States to persons whom it reasonably believes to be QIBs in transactions pursuant to Rule 144A under the Securities Act (“Rule 144A”) and in connection with each such sale, it has taken or will take reasonable steps to ensure that the purchaser of the Securities is aware that such sale is being made in reliance on Rule 144A; and

 

(iv)                              it has not solicited offers for, or offered or sold, and will not solicit offers for, or offer or sell, the Securities as part of its initial offering except outside of the United States in accordance with the restrictions set forth in Annex D hereto.

 

(b)                                 Each Initial Purchaser acknowledges and agrees that the Company and, for purposes of the “no registration” opinions to be delivered to the Initial Purchasers pursuant to Sections 6(f) and 6(g), counsel for the Company and counsel for the Initial Purchasers, respectively, may rely upon the accuracy of the representations and warranties of the Initial Purchasers, and compliance by the Initial

 

2

 

Purchasers with their agreements, contained in paragraph (a) above (including Annex D hereto), and each Initial Purchaser hereby consents to such reliance.

 

(c)                                  The Company acknowledges and agrees that the Initial Purchasers may offer and sell Securities to or through any affiliate of an Initial Purchaser and that any such affiliate may offer and sell Securities purchased by it to or through any Initial Purchaser.

 

(d)                                 The Antero Entities acknowledge and agree that each Initial Purchaser is acting solely in the capacity of an arm’s length contractual counterparty to the Antero Entities with respect to the offering of Securities contemplated hereby (including in connection with determining the terms of the offering) and not as a financial advisor or fiduciary to, or an agent of, the Antero Entities or any other person.  Additionally, neither the Representative nor any other Initial Purchaser is advising the Company, the Guarantors or any other person as to any legal, tax, investment, accounting or regulatory matters in any jurisdiction.  The Antero Entities shall consult with their own advisors concerning such matters and shall be responsible for making their own independent investigation and appraisal of the transactions contemplated hereby, and neither the Representative nor any other Initial Purchaser shall have any responsibility or liability to the Company or the Guarantors with respect thereto.  Any review by the Representative or any Initial Purchaser of the Company, the Guarantors and the transactions contemplated hereby or other matters relating to such transactions will be performed solely for the benefit of the Representative or such Initial Purchaser, as the case may be, and shall not be on behalf of the Company, the Guarantors or any other person.

 

2.                                      Payment and Delivery.  Payment for and delivery of the Securities will be made at the offices of Vinson & Elkins L.L.P., 1001 Fannin Street, Suite 2500, Houston, Texas 77002 at 10:00 A.M., New York City time, on May 6, 2014, or at such other time or place on the same or such other date, not later than the fifth business day thereafter, as the Representative and the Company may agree upon in writing.  The time and date of such payment and delivery is referred to herein as the “Closing Date.”

 

(a)                                 Payment for the Securities shall be made by wire transfer in immediately available funds to the account(s) specified by the Company to the Representative against delivery to the nominee of The Depository Trust Company (“DTC”), for the account of the Initial Purchasers, of one or more global notes representing the Securities (collectively, the “Global Note”), with any transfer taxes payable in connection with the sale of the Securities duly paid by the Company.

 

3.                                      Representations and Warranties of the Antero Entities.  The Antero Entities jointly and severally represent and warrant to each Initial Purchaser that:

 

(a)                                 Preliminary Offering Memorandum, Time of Sale Information and Offering Memorandum.  The Preliminary Offering Memorandum, as of its date, did not, the Time of Sale Information, at the Time of Sale, did not, and at the Closing Date, will not, and the Offering Memorandum, in the form first used by the Initial Purchasers to confirm sales of the Securities and as of the Closing Date, will not, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, that the Antero Entities make no representation or warranty with respect to any statements or omissions made in reliance upon and in conformity with information relating to any Initial Purchaser furnished to the Company in writing by such Initial Purchaser through the Representative expressly for use in the Preliminary Offering Memorandum, the Time of Sale Information or the Offering Memorandum, which information is specified in the last sentence of Section 7(b).

 

(b)                                 Additional Written Communications.  The Antero Entities (including their agents and representatives, other than the Initial Purchasers in their capacity as such) have not prepared, made,

 

3

 

used, authorized, approved or referred to and will not prepare, make, use, authorize, approve or refer to any written communication that constitutes an offer to sell or solicitation of an offer to buy the Securities (each such communication by the Antero Entities or their agents and representatives (other than a communication referred to in clauses (i), (ii) and (iii) below) an “Issuer Written Communication”) other than (i) the Preliminary Offering Memorandum, (ii) the Offering Memorandum, (iii) the documents listed on Annex A hereto, including a term sheet substantially in the form of Annex B hereto, which constitute part of the Time of Sale Information and (iv) any electronic road show or other written communications, in each case used in accordance with Section 4(c).  Each such Issuer Written Communication, when taken together with the Time of Sale Information at the Time of Sale, did not, and at the Closing Date will not, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Antero Entities make no representation and warranty with respect to any statements or omissions made in each such Issuer Written Communication in reliance upon and in conformity with information relating to any Initial Purchaser furnished to the Company in writing by such Initial Purchaser through the Representative expressly for use in any Issuer Written Communication, which information is specified in the last sentence of Section 7(b).

 

(c)                                  Incorporated Documents.  The documents incorporated by reference in each of the Time of Sale Information and the Offering Memorandum, when filed with the Commission, conformed or will conform, as the case may be, in all material respects to the requirements of the Securities Act or the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations of the Commission thereunder, as applicable, and did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.

 

(d)                                 Financial Statements.  The financial statements and the related notes and supporting schedules thereto included or incorporated by reference in each of the Time of Sale Information and the Offering Memorandum present fairly the consolidated financial position of the Company and its subsidiaries as of the dates indicated and the results of their operations and the changes in their cash flows for the periods specified; such financial statements have been prepared in conformity with generally accepted accounting principles accepted in the United States applied on a consistent basis throughout the periods covered thereby, except to the extent disclosed therein.  The other financial information included or incorporated by reference in each of the Time of Sale Information and the Offering Memorandum has been derived from the accounting records of the Company and its subsidiaries and presents fairly in all material respects the information shown thereby.  The interactive data in eXtensible Business Reporting Language included or incorporated by reference in each of the Preliminary Offering Memorandum, the Time of Sale Information and the Offering Memorandum fairly presents the information called for in all material respects and is prepared in accordance with the Commission’s rules and guidelines applicable thereto.

 

(e)                                  No Material Adverse Change.  Since the date of the most recent financial statements included or incorporated by reference in each of the Time of Sale Information and the Offering Memorandum (i) there has not been any change in the capital stock or long-term debt of the Company or any of its subsidiaries, or any dividend or distribution of any kind declared, set aside for payment, paid or made by the Company or any of its subsidiaries on any class of equity interests, or any material adverse change, or any development involving a prospective material adverse change, in or affecting the business, properties, management, financial position or results of operations of the Company and its subsidiaries taken as a whole; (ii) neither the Company nor any of its subsidiaries has entered into any transaction or agreement that is material to the Company and its subsidiaries taken as a whole or incurred any liability or obligation, direct or contingent, that is material to the Company and its subsidiaries taken as a whole; (iii)

 

4

 

neither the Company nor any of its subsidiaries has sustained any material loss or interference with its business from fire, explosion, flood or other calamity, or from any labor disturbance or dispute or any action, order or decree of any court or arbitrator or governmental or regulatory authority; and (iv) neither the Company nor any of its subsidiaries has issued or granted any securities, except in each case as otherwise disclosed in each of the Time of Sale Information and the Offering Memorandum.

 

(f)                                   Organization and Good Standing.  The Company and each of its subsidiaries have been duly organized and are validly existing and in good standing under the laws of their respective jurisdictions of organization, are duly qualified to do business and are in good standing in each jurisdiction in which their respective ownership or lease of property or the conduct of their respective businesses requires such qualification, and have all power and authority necessary to own or hold their respective properties and to conduct the businesses in which they are engaged, except where the failure to be so qualified, in good standing or have such power or authority would not, individually or in the aggregate, (A) have a material adverse effect on the business, properties, management, financial position or results of operations of the Company and its subsidiaries taken as a whole or (B) materially impair the ability of the Antero Entities to perform their respective obligations under the Transaction Documents (as defined below) (a “Material Adverse Effect”).  The Company does not own or control, directly or indirectly, any corporation, association or other entity other than the subsidiaries listed in Schedule 3 to this Agreement.

 

(g)                                  Capitalization.  The Company has an authorized capitalization as set forth in each of the Time of Sale Information and the Offering Memorandum under the heading “Capitalization”; and, except with respect to the special membership interest in Antero Resources Midstream LLC owned by Antero Resources Midstream Management LLC, the Company owns 100% of the limited liability company interests of each subsidiary of the Company, and all of the outstanding equity interests of each subsidiary of the Company has been duly and validly authorized and issued, are fully paid and non-assessable and are owned directly or indirectly by the Company, free and clear of any lien, charge, encumbrance, security interest, restriction on voting or transfer or any other claim of any third party (“Liens”), except as described in each of the Time of Sale Information and the Offering Memorandum.

 

(h)                                 Due Authorization.  Each of the Antero Entities has or had, as applicable, full right, power and authority to execute and deliver, as applicable, this Agreement, the Securities, the Indenture (including each Guarantee of each of the Guarantors set forth therein), the Exchange Securities (including the related Guarantees), and the Registration Rights Agreement (collectively, the “Transaction Documents”) and to perform their respective obligations hereunder and thereunder.

 

(i)                                     The Indenture.  The Indenture has been duly authorized by each of the Antero Entities and, when duly executed and delivered, will constitute a valid and legally binding agreement of each of the Antero Entities enforceable against each of the Antero Entities in accordance with its terms, except as enforceability may be limited (A) by applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally or by equitable principles (whether considered in a proceeding at law or in equity) relating to enforceability and (B) by public policy, applicable law relating to fiduciary duties and indemnification and an implied covenant of good faith and fair dealing (collectively, the “Enforceability Exceptions”).

 

(j)                                    The Securities and the Guarantees.  The Securities have been duly authorized for issuance and sale by the Company pursuant to this Agreement and the Indenture and, when duly executed, authenticated, issued and delivered as provided in the Indenture and paid for as provided herein, will be duly and validly issued and outstanding and will constitute valid and legally binding obligations of the Company enforceable against the Company in accordance with their terms, subject to the Enforceability Exceptions, and will be entitled to the benefits of the Indenture; and the Guarantees have been duly

 

5

 

authorized for issuance by each of the Guarantors pursuant to this Agreement and the Indenture and, when the Securities have been duly executed, authenticated, issued and delivered as provided in the Indenture and paid for as provided herein, will be valid and legally binding obligations of each of the Guarantors, enforceable against each of the Guarantors in accordance with their terms, subject to the Enforceability Exceptions, and will be entitled to the benefits of the Indenture.

 

(k)                                 The Exchange Securities.  On the Closing Date, the Exchange Securities (including the related Guarantees) will have been duly authorized for issuance by each of the Antero Entities and, when duly executed, authenticated, issued and delivered as contemplated by the Registration Rights Agreement, will be duly and validly issued and outstanding and will constitute valid and legally binding obligations of the Company, as issuer, and each of the Guarantors, as guarantor, enforceable against each of the Antero Entities in accordance with their terms, subject to the Enforceability Exceptions, and will be entitled to the benefits of the Indenture.

 

(l)                                     Purchase and Registration Rights Agreements.  This Agreement has been duly authorized, executed and delivered by each of the Antero Entities; and the Registration Rights Agreement has been duly authorized by each of the Antero Entities and on the Closing Date will be duly executed and delivered by each of the Antero Entities and, when duly executed and delivered in accordance with its terms by each of the parties thereto, the Registration Rights Agreement will constitute a valid and legally binding agreement of each of the Antero Entities enforceable against each of the Antero Entities in accordance with its terms, except as enforceability may be limited by the Enforceability Exceptions.

 

(m)                             Descriptions of the Transaction Documents.  Each Transaction Document conforms in all material respects to the description thereof contained in each of the Time of Sale Information and the Offering Memorandum.

 

(n)                                 No Violation or Default.  Neither the Company nor any of its subsidiaries is (i) in violation of its charter or bylaws or similar organizational documents; (ii) in default, and no event has occurred that, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject; or (iii) in violation of any law or statute or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority; except, in the case of clauses (ii) and (iii) above, for any such default or violation that would not, individually or in the aggregate, have a Material Adverse Effect.

 

(o)                                 No Conflicts.  The execution, delivery and performance by each of the Antero Entities of each of the Transaction Documents to which each is a party, the issuance and sale of the Securities (including the related Guarantees) and compliance by each of the Antero Entities with the terms thereof, the application of the proceeds from the sale of the Securities as described under “Use of Proceeds” in each of the Time of Sale Information and the Offering Memorandum and the consummation of the transactions contemplated by the Transaction Documents will not (i) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any Lien upon any property or assets of the Company or any of its subsidiaries pursuant to, any indenture, mortgage, deed of trust, loan agreement, license, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property, right or assets of the Company or any of its subsidiaries is subject, (ii) result in any violation of the provisions of the charter or bylaws or similar organizational documents of the Company or any of its subsidiaries or (iii) result in any violation of any law or statute or any judgment, order, decree, rule or regulation of any court or arbitrator or governmental

 

6

 

or regulatory authority, except, in the case of clauses (i) and (iii) above, for any such conflict, breach, violation or default that would not, individually or in the aggregate, have a Material Adverse Effect.

 

(p)                                 No Consents.  No consent, approval, authorization or order of, or filing, registration or qualification (“consent”) of or with any court or arbitrator or governmental or regulatory authority is required for (i) the execution, delivery and performance by each of the Antero Entities of each of the Transaction Documents to which each is a party, (ii) the issuance and sale of the Securities (including the related Guarantees) and compliance by each of the Antero Entities with the terms thereof, (iii) the application of the proceeds from the sale of the Securities as described under “Use of Proceeds” in each of the Time of Sale Information and the Offering Memorandum, and (iv) the consummation of the transactions contemplated by the Transaction Documents, except (A) such as have been, or prior to the Closing Date, will be, obtained or made, (B) for such consents as may be required (1) under applicable state securities laws in connection with the purchase and resale of the Securities by the Initial Purchasers and (2) with respect to the Exchange Securities (including the related Guarantees), under the Securities Act, the Trust Indenture Act of 1939, as amended, and applicable state securities laws as contemplated by the Registration Rights Agreement and (C) for such consents which, if not obtained or made, would not, individually or in the aggregate, have a Material Adverse Effect.

 

(q)                                 Legal Proceedings.  Except as described in each of the Time of Sale Information and the Offering Memorandum, there are no legal, governmental or regulatory investigations, actions, suits or proceedings pending to which the Company or any of its subsidiaries is or may be a party or to which any property, right or asset of the Company or any of its subsidiaries is or may be the subject that, individually or in the aggregate, if determined adversely to the Company or any of its subsidiaries, could reasonably be expected to have a Material Adverse Effect; and to the knowledge of the Antero Entities, no such investigations, actions, suits or proceedings are threatened or contemplated by any governmental or regulatory authority or by others.

 

(r)                                    Independent Accountants.  KPMG LLP, which has certified certain financial statements of the Company and its subsidiaries, is an independent public accounting firm with respect to the Company and its subsidiaries within the applicable rules and regulations adopted by the Commission and the Public Company Accounting Oversight Board (United States) and as required by the Securities Act.

 

(s)                                   Reserve Data.  The oil and natural gas reserve estimates of the Company and its subsidiaries as of December 31, 2011, 2012 and 2013 contained or incorporated by reference in the Preliminary Offering Memorandum, the Time of Sale Information and the Offering Memorandum are derived from reports that have been audited by either (a) DeGolyer and MacNaughton or (b) Ryder Scott Company, L.P., as set forth and to the extent indicated therein; and such estimates fairly reflect, in all material respects, the oil and natural gas reserves of the Company and its subsidiaries, at the dates indicated therein and are in accordance, in all material respects, with Commission rules and guidelines that are currently in effect for oil and gas producing companies applied on a consistent basis throughout the periods covered.

 

(t)                                    Independent Petroleum Engineers.  Each of DeGolyer and MacNaughton and Ryder Scott Company, L.P. have represented to the Company that they are, and the Company believes them to be, independent petroleum engineers with respect to the Company and its subsidiaries for the periods set forth in the Time of Sale Information and the Offering Memorandum.

 

(u)                                 Title to Real and Personal Property.  The Company and its subsidiaries have good and marketable title to, or have valid rights to lease or otherwise use, all items of real property and personal property that are material to the respective businesses of the Company and its subsidiaries, in

 

7

 

each case free and clear of all Liens except those that (i) do not materially interfere with the use made and proposed to be made of such property by the Company and its subsidiaries or (ii) could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

 

(v)                                 Title to Intellectual Property.  The Company and its subsidiaries own or possess adequate rights to use all material patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses and know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) necessary for the conduct of their respective businesses, except as could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

 

(w)                               No Undisclosed Relationships.  No relationship, direct or indirect, exists between or among the Company or any of its subsidiaries, on the one hand, and the directors, officers, stockholders or other affiliates of the Company or any of its subsidiaries, on the other hand, that would be required by the Securities Act to be described in a registration statement on Form S-1 to be filed with the Commission and that is not so described in each of the Time of Sale Information and the Offering Memorandum.

 

(x)                                 Investment Company Act.  Neither the Company nor any of its subsidiaries is, and after giving effect to the offering and sale of the Securities and the application of the proceeds thereof as described in each of the Time of Sale Information and the Offering Memorandum none of them will be, (i) an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended, and the rules and regulations of the Commission thereunder (collectively, the “Investment Company Act”) or (ii) a “business development company” (as defined in Section 2(a)(48) of the Investment Company Act).

 

(y)                                 Taxes.  The Company and its subsidiaries have paid all federal, state, local and foreign taxes and filed all tax returns required to be paid or filed through the date hereof; and except as otherwise disclosed in each of the Time of Sale Information and the Offering Memorandum or as would not, individually or in the aggregate, have a Material Adverse Effect, there is no tax deficiency that has been, or could reasonably be expected to be, asserted against the Company or any of its subsidiaries or any of their respective properties or assets.

 

(z)                                  Licenses and Permits.  The Company and its subsidiaries possess all licenses, certificates, permits and other authorizations issued by, and have made all declarations and filings with, the appropriate federal, state, local or foreign governmental or regulatory authorities (“Permits”) that are necessary for the ownership or lease of their respective properties or the conduct of their respective businesses as described in each of the Time of Sale Information and the Offering Memorandum, except where the failure to possess or make the same would not, individually or in the aggregate, have a Material Adverse Effect; and except as described in each of the Time of Sale Information and the Offering Memorandum, neither the Company nor any of its subsidiaries has received notice of any revocation or modification of any such Permit or has any reason to believe that any such Permit will not be renewed in the ordinary course.

 

(aa)                          No Labor Disputes.  No labor disturbance by or dispute with employees of the Company or any of its subsidiaries exists or, to the knowledge of the Company, is contemplated or threatened, and the Company is not aware of any existing or imminent labor disturbance by, or dispute with, the employees of any of the Company’s or any of its subsidiaries’ contractors, except as could not be reasonably expected to have a Material Adverse Effect.

 

8

 

(bb)                          Compliance With Environmental Laws.  Except as described in each of the Time of Sale Information and the Offering Memorandum: (i) the Company and its subsidiaries (x) are and, during the relevant time periods specified in all applicable statutes of limitations, have been in compliance with all applicable federal, state, local and foreign laws, rules, regulations, requirements, decisions and orders relating to the protection of human health or safety (to the extent such human health or safety protection is related to exposure to hazardous or toxic substances or wastes, pollutants or contaminants), the environment, natural resources, hazardous or toxic substances or wastes, pollutants or contaminants (collectively, “Environmental Laws”), (y) have received and are in compliance with all permits, licenses, certificates or other authorizations or approvals required of them under applicable Environmental Laws to conduct their respective businesses, and (z) have not received any written notice of any actual or potential liability under or relating to any Environmental Laws, including for the investigation or remediation of any disposal or release of hazardous or toxic substances or wastes, pollutants or contaminants, and have no knowledge of any event or condition that would reasonably be expected to result in any such notice; (ii) there are no costs or liabilities associated with Environmental Laws of or relating to the Company or its subsidiaries, except in the case of each of (i) and (ii) above, for any such failure to comply, or failure to receive required permits, licenses or approvals, or cost or liability, as would not, individually or in the aggregate, have a Material Adverse Effect; (iii) there are no proceedings that are pending or, to the knowledge of the Antero Entities, threatened against the Company or any of its subsidiaries alleging a material liability under any Environmental Laws in which a governmental authority is also a party; and (iv) the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, as of the date it was filed with the Commission, complied with Item 103 of Regulation S-K under the Securities Act.

 

(cc)                            Compliance With ERISA.  Each employee benefit plan, within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), that is maintained, administered or contributed to by the Company or any of its affiliates for employees or former employees of the Company and its affiliates has been maintained in compliance in all material respects with its terms and the requirements of any applicable statutes, orders, rules and regulations, including, but not limited to, ERISA and the Internal Revenue Code of 1986, as amended (the “Code”); no prohibited transaction, within the meaning of Section 406 of ERISA or Section 4975 of the Code, has occurred with respect to any such plan excluding transactions effected pursuant to a statutory or administrative exemption, and transactions which, individually or in the aggregate, would not have a Material Adverse Effect, and no such plan is subject to the funding rules of Section 412 of the Code or Section 302 of ERISA; and neither the Company nor any of its subsidiaries has any reasonable expectation of incurring any liabilities under Title IV of ERISA.

 

(dd)                          Disclosure Controls.  The Company and its subsidiaries maintain an effective system of disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) that is designed to ensure that information required to be disclosed by the Company and its subsidiaries in reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, including controls and procedures designed to ensure that such information is accumulated and communicated to the Company’s management, including its principal executive officer(s) and principal financial officer(s), as appropriate to allow timely decisions regarding required disclosure to be made.  The Company and its subsidiaries have carried out evaluations of the effectiveness of their disclosure controls and procedures as required by Rule 15d-15(b) of the Exchange Act.

 

(ee)                            Accounting Controls.  The Company and its subsidiaries maintain systems of “internal control over financial reporting” (as such term is defined in Rule 15d-15(f) of the Exchange Act) that complies with the requirements of the Exchange Act and that has been designed by, or under the supervision of, the Company’s principal executive officer(s) and principal financial officer(s), to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial

 

9

 

statements for external purposes in accordance with generally accepted accounting principles in the United States, including, but not limited to, internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of the Company’s consolidated financial statements in conformity with U.S. generally accepted accounting principles and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences; and (v) interactive data in eXtensible Business Reporting Language included or incorporated by reference in each of the Preliminary Offering Memorandum, the Time of Sale Information and the Offering Memorandum is prepared in accordance with the Commission’s rules and guidelines applicable thereto.  As of the date of the most recent balance sheet of the Company and its consolidated subsidiaries reviewed or audited by KPMG LLP, there were no material weaknesses or significant deficiencies in the Company’s internal controls.

 

(ff)                              Insurance.  The Company and its subsidiaries have insurance covering their respective properties, operations, personnel and businesses, which insurance is in reasonable amounts and insures against such losses and risks as are reasonably adequate to protect the Company and its subsidiaries and their respective businesses; and neither the Company nor any of its subsidiaries has (i) received notice from any insurer or agent of such insurer that capital improvements or other expenditures are required or necessary to be made in order to continue such insurance or (ii) any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage at reasonable cost from similar insurers as may be necessary to continue its business.

 

(gg)                            No Unlawful Payments.  Neither the Company nor any of its subsidiaries nor, to the knowledge of each of the Antero Entities, any director, officer, agent, employee or other person associated with or acting on behalf of the Company or any of its subsidiaries has (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) made or taken an act in furtherance of an offer, promise or authorization of any direct or indirect unlawful payment or benefit to any foreign or domestic government official or employee , including of any government-owned or controlled entity or of a public international organization, or any person acting in an official capacity for or on behalf of any of the foregoing, or any political party or party official or candidate for political office; (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977, as amended, or any applicable law or regulation implementing the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, or committed an offence under the Bribery Act 2010 of the United Kingdom, or any other applicable anti-bribery or anti-corruption law; or (iv) made, offered, agreed, requested or taken an act in furtherance of any unlawful bribe or other unlawful benefit, including, without limitation, any rebate, payoff, influence payment, kickback or other unlawful or improper payment or benefit.  The Company and its subsidiaries have instituted, maintain and enforce, and will continue to maintain and enforce, policies and procedures designed to promote and ensure compliance with all applicable anti-bribery and anti-corruption laws.

 

(hh)                          Compliance with Money Laundering Laws.  The operations of the Company and its subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements, including those of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the applicable money laundering statutes of all jurisdictions where the Company or any of its subsidiaries conducts business, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the “Anti-Money Laundering Laws”), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of

 

10

 

its subsidiaries with respect to the Anti-Money Laundering Laws is pending or, to the knowledge of the Antero Entities, threatened.

 

(ii)                                  No Conflicts with Sanctions Laws.  Neither the Company, any of its subsidiaries or, to the knowledge of the Company, any director, officer, agent, employee, affiliate or other person associated with or acting on behalf of the Company or any of its subsidiaries is currently the subject or the target of any sanctions administered or enforced by the U.S. government, (including, without limitation, the Office of Foreign Assets Control of the U.S. Department of the Treasury (“OFAC”) or the U.S. Department of State and including, without limitation, the designation as a “specially designated national” or “blocked person”), the United Nations Security Council (“UNSC”), the European Union, Her Majesty’s Treasury (“HMT”), or other relevant sanctions authority (collectively, “Sanctions”), nor is the Company, any of its subsidiaries or any of the Guarantors located, organized or resident in a country or territory that is the subject or target of Sanctions, including, without limitation, Cuba, Burma (Myanmar), Iran, North Korea, Sudan and Syria (each, a “Sanctioned Country”); and none of the Antero Entities will directly or indirectly use the proceeds of the offering of the Securities hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity (i) to fund or facilitate any activities of or business with any person that, at the time of such funding or facilitation, is the subject or target of Sanctions, (ii) to fund or facilitate any activities of or business in any Sanctioned Country or (iii) in any other manner that will result in a violation by any person (including any person participating in the transaction, whether as underwriter, initial purchaser, advisor, investor or otherwise) of Sanctions.  For the past five years, the Company and its subsidiaries have not knowingly engaged in, are not now knowingly engaged in and will not engage in any dealings or transactions with any person that at the time of the dealing or transaction is or was the subject or the target of Sanctions or with any Sanctioned Country.

 

(jj)                                Solvency.  On and immediately after the Closing Date, the Company and its subsidiaries (after giving effect to the issuance of the Securities and the other transactions related thereto as described in each of the Time of Sale Information and the Offering Memorandum) will be Solvent.  As used in this paragraph, the term “Solvent” means, with respect to a particular date, that on such date (i) the present fair market value (or present fair saleable value) of the assets of the Company and its subsidiaries are not less than the total amount required to pay the liabilities of the Company and its subsidiaries on their total existing debts and liabilities (including contingent liabilities) as they become absolute and matured; (ii) the Company and its subsidiaries are able to realize upon their assets and pay their debts and other liabilities, contingent obligations and commitments as they mature and become due in the normal course of business; (iii) assuming consummation of the issuance of the Securities as contemplated by this Agreement, the Time of Sale Information and the Offering Memorandum, the Company and its subsidiaries are not incurring debts or liabilities beyond their ability to pay as such debts and liabilities mature; and (iv) the Company and its subsidiaries are not a defendant in any civil action that would result in a judgment that the Company and its subsidiaries are or would become unable to satisfy.

 

(kk)                          No Restrictions on Subsidiaries.  Except as disclosed in the Time of Sale Information and the Offering Memorandum, no subsidiary of the Company is currently prohibited, directly or indirectly, under any agreement or other instrument to which it is a party or is subject, from paying any dividends to the Company, from making any other distribution on such subsidiary’s capital stock, from repaying to the Company any loans or advances to such subsidiary from the Company or from transferring any of such subsidiary’s properties or assets to the Company or any other subsidiary of the Company.

 

(ll)                                  No Broker’s Fees.  Neither the Company nor any of its subsidiaries is a party to any contract, agreement or understanding with any person (other than this Agreement) that would give

 

11

 

rise to a valid claim against any of them or any Initial Purchaser for a brokerage commission, finder’s fee or like payment in connection with the offering and sale of the Securities.

 

(mm)                  Rule 144A Eligibility.  On the Closing Date, the Securities will not be of the same class as securities listed on a national securities exchange registered under Section 6 of the Exchange Act or quoted in an automated inter-dealer quotation system; and each of the Preliminary Offering Memorandum and the Offering Memorandum, as of its respective date, contains or will contain all the information that, if requested by a prospective purchaser of the Securities, would be required to be provided to such prospective purchaser pursuant to Rule 144A(d)(4) under the Securities Act.

 

(nn)                          No Integration.  Neither the Company nor any of its affiliates (as defined in Rule 501(b) of Regulation D) has, directly or through any agent, sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Securities Act), that is or will be integrated with the sale of the Securities in a manner that would require registration of the Securities under the Securities Act, the rules and regulations thereunder or the interpretations thereof by the Commission.

 

(oo)                          No General Solicitation or Directed Selling Efforts.  None of the Company or any of its affiliates or any other person acting on its or their behalf (other than the Initial Purchasers, as to which no representation is made) has (i) solicited offers for, or offered or sold, the Securities by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) of Regulation D or in any manner involving a public offering within the meaning of Section 4(a)(2) of the Securities Act or (ii) engaged in any directed selling efforts within the meaning of Regulation S under the Securities Act (“Regulation S”), and all such persons have complied with the offering restrictions requirement of Regulation S.

 

(pp)                          Securities Law Exemptions.  Assuming the accuracy of the representations and warranties of the Initial Purchasers contained in Section 1(b) (including Annex D hereto) and their compliance with their agreements set forth therein, it is not necessary, in connection with the issuance and sale of the Securities to the Initial Purchasers and the offer, resale and delivery of the Securities by the Initial Purchasers in the manner contemplated by this Agreement, the Time of Sale Information and the Offering Memorandum, to register the Securities under the Securities Act or to qualify the Indenture under the Trust Indenture Act.

 

(qq)                          No Stabilization.  Neither the Company nor any of the Guarantors has taken, directly or indirectly, any action designed to or that could reasonably be expected to cause or result in any stabilization or manipulation of the price of the Securities.

 

(rr)                                Statistical and Market Data.  Nothing has come to the attention of the Company that has caused the Company to believe that the statistical and market-related data included or incorporated by reference in each of the Time of Sale Information and the Offering Memorandum is not based on or derived from sources that are reliable and accurate in all material respects.

 

(ss)                              Sarbanes-Oxley Act.  There is and has been no failure on the part of the Company or any of the Company’s directors or officers, in their capacities as such, to comply with any provision of the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations promulgated in connection therewith applicable to the Company, including Section 402 related to loans and Sections 302 and 906 related to certifications.

 

Any certificate signed by any officer of an Antero Entity and delivered to the Representatives or counsel for the Initial Purchasers in connection with this Agreement or the consummation of the

 

12

 

transactions contemplated hereby shall be deemed a representation and warranty by such Antero Entity, as to matters covered thereby, to each Initial Purchaser.

 

4.                                      Further Agreements of the Antero Entities.  Each of the Antero Entities jointly and severally covenants and agrees with each Initial Purchaser that:

 

(a)                                 Delivery of Copies.  The Company will deliver, without charge, to the Initial Purchasers as many copies of the Preliminary Offering Memorandum, any other Time of Sale Information, any Issuer Written Communication and the Offering Memorandum (including all amendments and supplements thereto) as the Representative may reasonably request.

 

(b)                                 Offering Memorandum, Amendments or Supplements.  Before finalizing the Offering Memorandum or making or distributing any amendment or supplement to any of the Time of Sale Information or the Offering Memorandum or filing with the Commission any document that will be incorporated by reference therein, the Company will furnish to the Representative and counsel for the Initial Purchasers a copy of the proposed Offering Memorandum or such amendment or supplement or document to be incorporated by reference therein for review, and will not distribute any such proposed Offering Memorandum, amendment or supplement or file any such document with the Commission to which the Representative reasonably objects.

 

(c)                                  Additional Written Communications.  Before making, preparing, using, authorizing, approving or referring to any Issuer Written Communication, the Antero Entities will furnish to the Representative and counsel for the Initial Purchasers a copy of such written communication for review and will not make, prepare, use, authorize, approve or refer to any such written communication to which the Representative reasonably objects.

 

(d)                                 Notice to the Representative.  The Company will advise the Representative promptly, and confirm such advice in writing, (i) of the issuance by any governmental or regulatory authority of any order preventing or suspending the use of any of the Time of Sale Information, any Issuer Written Communication or the Offering Memorandum or the initiation or threatening of any proceeding for that purpose; (ii) of the occurrence of any event at any time prior to the completion of the initial offering of the Securities as a result of which any of the Time of Sale Information, any Issuer Written Communication or the Offering Memorandum as then amended or supplemented would include any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances existing when such Time of Sale Information, Issuer Written Communication or the Offering Memorandum is delivered to a purchaser, not misleading; and (iii) of the receipt by the Company of any notice with respect to any suspension of the qualification of the Securities for offer and sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and the Company will use its reasonable best efforts to prevent the issuance of any such order preventing or suspending the use of any of the Time of Sale Information, any Issuer Written Communication or the Offering Memorandum or suspending any such qualification of the Securities and, if any such order is issued, will obtain as soon as possible the withdrawal thereof.

 

(e)                                  Time of Sale Information.  If at any time prior to the Closing Date (i) any event shall occur or condition shall exist as a result of which any of the Time of Sale Information as then amended or supplemented would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading or (ii) it is necessary to amend or supplement any of the Time of Sale Information to comply with law, the Company will immediately notify the Initial Purchasers thereof and forthwith prepare and, subject to paragraph (b) above, furnish to the Initial Purchasers such amendments or supplements to any of the Time of Sale Information (or any document to be filed with the

 

13

 

Commission and incorporated by reference therein) as may be necessary so that the statements in any of the Time of Sale Information as so amended or supplemented (including such documents to be incorporated by reference therein) will not, in the light of the circumstances under which they were made, be misleading or so that any of the Time of Sale Information will comply with law.

 

(f)                                   Ongoing Compliance of the Offering Memorandum.  If at any time prior to the completion of the initial offering of the Securities (i) any event shall occur or condition shall exist as a result of which the Offering Memorandum as then amended or supplemented would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances existing when the Offering Memorandum is delivered to a purchaser, not misleading or (ii) it is necessary to amend or supplement the Offering Memorandum to comply with law, the Company will as soon as practicable notify the Initial Purchasers thereof and forthwith prepare and, subject to paragraph (b) above, furnish to the Initial Purchasers such amendments or supplements to the Offering Memorandum (or any document to be filed with the Commission and incorporated by reference therein) as may be necessary so that the statements in the Offering Memorandum as so amended or supplemented (including such document to be incorporated by reference therein) will not, in the light of the circumstances existing when the Offering Memorandum is delivered to a purchaser, be misleading or so that the Offering Memorandum will comply with law.

 

(g)                                  Blue Sky Compliance.  The Company will qualify the Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions as the Representative shall reasonably request and will continue such qualifications in effect so long as required for the offering and resale of the Securities; provided that neither the Company nor any of the Guarantors shall be required to (i) qualify as a foreign corporation, limited partnership, limited liability company or other entity or as a dealer in securities in any such jurisdiction where it would not otherwise be required to so qualify, (ii) file any general consent to service of process in any such jurisdiction or (iii) subject itself to taxation in any such jurisdiction if it is not otherwise so subject.

 

(h)                                 Clear Market.  During the period from the date hereof through and including the date that is 60 days after the date hereof, each of the Antero Entities will not, without the prior written consent of the Representative, offer, sell, contract to sell or otherwise dispose of any debt securities issued or guaranteed by the Company or any of the Guarantors and having a tenor of more than one year.

 

(i)                                     Use of Proceeds.  The Company will apply the net proceeds from the sale of the Securities as described in each of the Time of Sale Information and the Offering Memorandum under the heading “Use of Proceeds.”

 

(j)                                    Supplying Information.  While the Securities remain outstanding and are “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act, each of the Antero Entities will, during any period in which the Company is not subject to and in compliance with Section 13 or 15(d) of the Exchange Act, furnish to holders of the Securities and prospective purchasers of the Securities designated by such holders, upon the request of such holders or such prospective purchasers, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.

 

(k)                                 DTC.  The Company will assist the Initial Purchasers in arranging for the Securities to be eligible for clearance and settlement through DTC.

 

(l)                                     No Resales by the Company.  The Company will not, and will not permit any of its affiliates (as defined in Rule 144 under the Securities Act) to, resell any of the Securities that have been acquired by any of them, except for Securities purchased by the Company or any of its affiliates and resold in a transaction registered under the Securities Act.

 

14

 

(m)                             No Integration.  Neither the Company nor any of its affiliates (as defined in Rule 501(b) of Regulation D) will, directly or through any agent, sell, offer for sale, solicit offers to buy or otherwise negotiate in respect of, any security (as defined in the Securities Act), that is or will be integrated with the sale of the Securities in a manner that would require registration of the Securities under the Securities Act.

 

(n)                                 No General Solicitation or Directed Selling Efforts.  None of the Company or any of its affiliates or any other person acting on its or their behalf (other than the Initial Purchasers, as to which no covenant is given) will (i) solicit offers for, or offer or sell, the Securities by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) of Regulation D without the prior written consent of the Representative or in any manner involving a public offering within the meaning of Section 4(a)(2) of the Securities Act or (ii) engage in any directed selling efforts within the meaning of Regulation S, and all such persons will comply with the offering restrictions requirement of Regulation S.

 

(o)                                 No Stabilization.  Neither the Company nor any of the Guarantors will take, directly or indirectly, any action designed to or that could reasonably be expected to cause or result in any stabilization or manipulation of the price of the Securities.

 

5.                                      Certain Agreements of the Initial Purchasers.  Each Initial Purchaser hereby represents and agrees that it has not and will not use, authorize use of, refer to, or participate in the planning for use of, any written communication that constitutes an offer to sell or the solicitation of an offer to buy the Securities other than (i) the Preliminary Offering Memorandum and the Offering Memorandum, (ii) a written communication that contains either (A) no “issuer information” (as defined in Rule 433(h)(2) under the Securities Act) or (B) “issuer information” that was included (including through incorporation by reference) in the Time of Sale Information or the Offering Memorandum, (iii) any written communication listed on Annex A or prepared pursuant to Section 4(c) above (including any electronic road show), (iv) any written communication prepared by such Initial Purchaser and approved by the Company in advance in writing or (v) any written communication relating to or that contains the terms of the Securities and/or other information that was included (including through incorporation by reference) in the Time of Sale Information or the Offering Memorandum.

 

6.                                      Conditions of Initial Purchasers’ Obligations.  The obligation of each Initial Purchaser to purchase Securities on the Closing Date as provided herein is subject to the performance by each of the Antero Entities of their respective covenants and other obligations hereunder and to the following additional conditions:

 

(a)                                 Representations and Warranties.  The representations and warranties of the Antero Entities contained herein shall be true and correct on the date hereof and on and as of the Closing Date; and the statements of the Company, the Guarantors and their respective officers made in any certificates delivered pursuant to this Agreement shall be true and correct on and as of the Closing Date.

 

(b)                                 No Downgrade.  Subsequent to the earlier of (A) the Time of Sale and (B) the execution and delivery of this Agreement, (i) no downgrading shall have occurred in the rating accorded the Securities or any other debt securities or preferred stock issued or guaranteed by the Company or any of its subsidiaries by any “nationally recognized statistical rating organization,” as such term is defined under Section 3(a)(62) under the Exchange Act; and (ii) no such organization shall have publicly announced that it has under surveillance or review, or has changed its outlook with respect to, its rating of the Securities or of any other debt securities or preferred stock issued or guaranteed by the Company or any of its subsidiaries (other than an announcement with positive implications of a possible upgrading).

 

15

 

(c)                                  No Material Adverse Change.  No event or condition of a type described in Section 3(e) hereof shall have occurred or shall exist, which event or condition is not described in each of the Time of Sale Information (excluding any amendment or supplement thereto) and the Offering Memorandum (excluding any amendment or supplement thereto), the effect of which, in the judgment of the Representative, makes it impracticable or inadvisable to proceed with the offering, sale or delivery of the Securities on the terms and in the manner contemplated by this Agreement, the Time of Sale Information and the Offering Memorandum.

 

(d)                                 Officer’s Certificate.  The Representative shall have received on and as of the Closing Date a certificate of an executive officer of the Company and of each Guarantor who has specific knowledge of the Company’s or such Guarantor’s financial matters and is satisfactory to the Representative (i) confirming that such officer has carefully reviewed the Time of Sale Information and the Offering Memorandum and, to the knowledge of such officer, the representations set forth in Sections 3(a) and 3(b) hereof are true and correct, (ii) confirming that the other representations and warranties of the Antero Entities in this Agreement are true and correct and that the Antero Entities have complied with all agreements and satisfied all conditions on their part to be performed or satisfied hereunder at or prior to the Closing Date and (iii) to the effect set forth in paragraphs (b) and (c) above.

 

(e)                                  Comfort Letters.  On the date of this Agreement and on the Closing Date, KPMG LLP shall have furnished to the Representative, at the request of the Company, letters, dated the respective dates of delivery thereof and addressed to the Initial Purchasers, in form and substance reasonably satisfactory to the Representative, containing statements and information of the type customarily included in accountants’ “comfort letters” to underwriters with respect to the financial statements and certain financial information contained or incorporated by reference in each of the Time of Sale Information and the Offering Memorandum; provided that the letter delivered on the Closing Date shall use a “cut-off” date no more than three business days prior to the Closing Date.

 

(f)                                   Opinion and 10b-5 Statement of Counsel for the Antero Entities.  Vinson & Elkins L.L.P., counsel for the Antero Entities, shall have furnished to the Representative, at the request of the Company, their written opinion and 10b-5 statement, dated the Closing Date and addressed to the Initial Purchasers, in form and substance reasonably satisfactory to the Representative, to the effect set forth in Annex C hereto.

 

(g)                                  Opinion and 10b-5 Statement of Counsel for the Initial Purchasers.  The Representative shall have received on and as of the Closing Date an opinion and 10b-5 statement of Latham & Watkins LLP, counsel for the Initial Purchasers, with respect to such matters as the Representative may reasonably request, and such counsel shall have received such documents and information as they may reasonably request to enable them to pass upon such matters.

 

(h)                                 Reserve Letters.  On the date of this Agreement and on the Closing Date, as the case may be, each of DeGolyer and MacNaughton and Ryder Scott Company, L.P. shall have furnished to the Representative, at the request of the Company, reserve report confirmation letters, dated the respective dates of delivery thereof and addressed to the Initial Purchasers, in form and substance reasonably satisfactory to the Representative, containing statements and information of the type customarily included in such letters to underwriters with respect to the reserve and other operational information contained in the Preliminary Offering Memorandum, the Time of Sale Information and the Offering Memorandum.

 

(i)                                     No Legal Impediment to Issuance.  No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any federal, state or foreign governmental or regulatory authority that would, as of the Closing Date, prevent the issuance or sale of the Securities or the issuance of the Guarantees; and no injunction or order of any federal, state or foreign

 

16

 

court shall have been issued that would, as of the Closing Date, prevent the issuance or sale of the Securities or the issuance of the Guarantees.

 

(j)                                    Registration Rights Agreement.  The Initial Purchasers shall have received a counterpart of the Registration Rights Agreement that shall have been executed and delivered by a duly authorized officer of each of the Antero Entities.

 

(k)                                 DTC.  The Securities shall be eligible for clearance and settlement through DTC.

 

(l)                                     Indenture and Securities.  The Indenture shall have been duly executed and delivered by a duly authorized officer of the Company, each of the Guarantors and the Trustee, and the Global Note shall have been duly executed and delivered by a duly authorized officer of the Company and duly authenticated by the Trustee.

 

(m)                             CFO’s Certificate.  At the time of execution of this Agreement, the Representative shall have received from the chief financial officer of the Company a certificate, in form and substance reasonably satisfactory to the Representative (the “Initial CFO Certificate”), containing statements with respect to certain financial information included or incorporated by reference in each of the Time of Sale Information and the Offering Memorandum.  At the Closing Date, the Representative shall have received from the chief financial officer of the Company a certificate (the “Bring-Down CFO Certificate”) (i) stating, as of the date of the Bring-Down CFO Certificate (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Offering Memorandum, as of a date not more than three days prior to the date of the Bring-Down CFO Certificate), the conclusions and findings of the chief financial officer with respect to the financial information and other matters covered by the Initial CFO Certificate and (ii) confirming in all material respects the conclusions and findings set forth in the Initial CFO Certificate.

 

(n)                                 Additional Documents.  On or prior to the Closing Date, the Antero Entities shall have furnished to the Representative such further certificates and documents as the Representative may reasonably request.

 

All opinions, letters, certificates and evidence mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory to counsel for the Initial Purchasers.

 

7.                                      Indemnification and Contribution.

 

(a)                                 Indemnification of the Initial Purchasers.  Each of the Antero Entities jointly and severally agree to indemnify and hold harmless each Initial Purchaser, its affiliates, selling agents, directors and officers and each person, if any, who controls such Initial Purchaser within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, legal fees and other expenses incurred in connection with any suit, action or proceeding or any claim asserted, as such fees and expenses are incurred), joint or several, that arise out of, or are based upon, any untrue statement or alleged untrue statement of a material fact contained in the Preliminary Offering Memorandum, any of the other Time of Sale Information, any Issuer Written Communication or the Offering Memorandum (or any amendment or supplement thereto) or any omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, in each case except insofar as such losses, claims, damages or liabilities arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance

 

17

 

upon and in conformity with any information relating to any Initial Purchaser furnished to the Company in writing by such Initial Purchaser through the Representative expressly for use therein.

 

(b)                                 Indemnification of the Antero Entities.  Each Initial Purchaser agrees, severally and not jointly, to indemnify and hold harmless each of the Antero Entities, each of their respective directors and officers and each person, if any, who controls any of the Antero Entities within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the indemnity set forth in paragraph (a) above, but only with respect to any losses, claims, damages or liabilities that arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to such Initial Purchaser furnished to the Company in writing by such Initial Purchaser through the Representative expressly for use in the Preliminary Offering Memorandum, any of the other Time of Sale Information, any Issuer Written Communication or the Offering Memorandum (or any amendment or supplement thereto), it being understood and agreed that the only such information consists of the following: the second and third sentences of the third paragraph and the paragraph regarding overallotment, stabilization transactions and syndicate covering transactions under the caption “Plan of Distribution” in the Preliminary Offering Memorandum, the Time of Sale Information and the Offering Memorandum.

 

(c)                                  Notice and Procedures.  If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any person in respect of which indemnification may be sought pursuant to either paragraph (a) or (b) above, such person (the “Indemnified Person”) shall promptly notify the person against whom such indemnification may be sought (the “Indemnifying Person”) in writing; provided that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may have under paragraph (a) or (b) above except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided, further, that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may have to an Indemnified Person otherwise than under paragraph (a) or (b) above.  If any such proceeding shall be brought or asserted against an Indemnified Person and it shall have notified the Indemnifying Person thereof, the Indemnifying Person shall retain counsel reasonably satisfactory to the Indemnified Person (who shall not, without the consent of the Indemnified Person, be counsel to the Indemnifying Person) to represent the Indemnified Person and any others entitled to indemnification pursuant to this Section 7 that the Indemnifying Person may designate in such proceeding and shall pay the fees and expenses of such proceeding and shall pay the fees and expenses of such counsel related to such proceeding, as incurred.  In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed to the contrary; (ii) the Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to the Indemnified Person; (iii) the Indemnified Person shall have reasonably concluded that there may be legal defenses available to it that are different from or in addition to those available to the Indemnifying Person; or (iv) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them.  It is understood and agreed that the Indemnifying Person shall not, in connection with any proceeding or related proceeding in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be reimbursed as they are incurred.  Any such separate firm for any Initial Purchaser, its affiliates, selling agents, directors and officers and any control persons of such Initial Purchaser shall be designated in writing by J.P. Morgan Securities LLC and any such separate firm for the Antero Entities, their respective directors and officers and any control persons of the Antero Entities shall be designated in writing by the Company.  The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, but if settled

 

18

 

with such consent or if there be a final judgment for the plaintiff, the Indemnifying Person agrees to indemnify each Indemnified Person from and against any loss or liability by reason of such settlement or judgment.  No Indemnifying Person shall, without the written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnification could have been sought hereunder by such Indemnified Person, unless such settlement (x) includes an unconditional release of such Indemnified Person, in form and substance reasonably satisfactory to such Indemnified Person, from all liability on claims that are the subject matter of such proceeding and (y) does not include any statement as to or any admission of fault, culpability or a failure to act by or on behalf of any Indemnified Person.

 

(d)                                 Contribution.  If the indemnification provided for in paragraph (a) or (b) above is unavailable to an Indemnified Person or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Antero Entities on the one hand and the Initial Purchasers on the other from the offering of the Securities or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of the Antero Entities on the one hand and the Initial Purchasers on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations.  The relative benefits received by the Antero Entities on the one hand and the Initial Purchasers on the other shall be deemed to be in the same respective proportions as the net proceeds (before deducting expenses) received by the Company from the sale of the Securities and the total discounts and commissions received by the Initial Purchasers in connection therewith, as provided in this Agreement, bear to the aggregate offering price of the Securities.  The relative fault of the Antero Entities on the one hand and the Initial Purchasers on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or any Guarantor or by the Initial Purchasers and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

 

(e)                                  Limitation on Liability.  The Company, the Guarantors and the Initial Purchasers agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Initial Purchasers were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (d) above.  The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in paragraph (d) above shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such Indemnified Person in connection with any such action or claim.  Notwithstanding the provisions of this Section 7, in no event shall an Initial Purchaser be required to contribute any amount in excess of the amount by which the total discounts and commissions received by such Initial Purchaser with respect to the offering of the Securities exceeds the amount of any damages that such Initial Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.  No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.  The Initial Purchasers’ obligations to contribute pursuant to this Section 7 are several in proportion to their respective purchase obligations hereunder and not joint.

 

(f)                                   Non-Exclusive Remedies.  The remedies provided for in this Section 7 are not exclusive and shall not limit any rights or remedies that may otherwise be available to any Indemnified Person at law or in equity.

 

19

 

8.                                      Termination.  This Agreement may be terminated in the absolute discretion of the Representative, by notice to the Company, if after the execution and delivery of this Agreement and on or prior to the Closing Date (i) trading generally shall have been suspended or materially limited on the New York Stock Exchange or the over-the-counter market; (ii) trading of any securities issued or guaranteed by the Company or any of the Guarantors shall have been suspended on any exchange or in any over-the-counter market; (iii) a general moratorium on commercial banking activities shall have been declared by federal or New York State authorities; or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis, either within or outside the United States, that, in the judgment of the Representative, is material and adverse and makes it impracticable or inadvisable to proceed with the offering, sale or delivery of the Securities on the terms and in the manner contemplated by this Agreement, the Time of Sale Information and the Offering Memorandum.

 

9.                                      Defaulting Initial Purchaser.  If, on the Closing Date, any Initial Purchaser defaults on its obligation to purchase the Securities that it has agreed to purchase hereunder, the non-defaulting Initial Purchasers may in their discretion arrange for the purchase of such Securities by other persons satisfactory to the Company on the terms contained in this Agreement.  If, within 36 hours after any such default by any Initial Purchaser, the non-defaulting Initial Purchasers do not arrange for the purchase of such Securities, then the Company shall be entitled to a further period of 36 hours within which to procure other persons satisfactory to the non-defaulting Initial Purchasers to purchase such Securities on such terms.  If other persons become obligated or agree to purchase the Securities of a defaulting Initial Purchaser, either the non-defaulting Initial Purchasers or the Company may postpone the Closing Date for up to five full business days in order to effect any changes that in the opinion of counsel for the Company or counsel for the Initial Purchasers may be necessary in the Time of Sale Information, the Offering Memorandum or in any other document or arrangement, and the Company agrees to promptly prepare any amendment or supplement to the Time of Sale Information or the Offering Memorandum that effects any such changes.  As used in this Agreement, the term “Initial Purchaser” includes, for all purposes of this Agreement unless the context otherwise requires, any person not listed in Schedule 1 hereto that, pursuant to this Section 9, purchases Securities that a defaulting Initial Purchaser agreed but failed to purchase.

 

(a)                                 If, after giving effect to any arrangements for the purchase of the Securities of a defaulting Initial Purchaser or Initial Purchasers by the non-defaulting Initial Purchasers and the Company as provided in paragraph (a) above, the aggregate principal amount of such Securities that remains unpurchased does not exceed one-eleventh of the aggregate principal amount of all the Securities, then the Company shall have the right to require each non-defaulting Initial Purchaser to purchase the principal amount of Securities that such Initial Purchaser agreed to purchase hereunder plus such Initial Purchaser’s pro rata share (based on the principal amount of Securities that such Initial Purchaser agreed to purchase hereunder) of the Securities of such defaulting Initial Purchaser or Initial Purchasers for which such arrangements have not been made.

 

(b)                                 If, after giving effect to any arrangements for the purchase of the Securities of a defaulting Initial Purchaser or Initial Purchasers by the non-defaulting Initial Purchasers and the Company as provided in paragraph (a) above, the aggregate principal amount of such Securities that remains unpurchased exceeds one-eleventh of the aggregate principal amount of all the Securities, or if the Company shall not exercise the right described in paragraph (b) above, then this Agreement shall terminate without liability on the part of the non-defaulting Initial Purchasers.  Any termination of this Agreement pursuant to this Section 9 shall be without liability on the part of the Company or the Guarantors, except that each of the Antero Entities will continue to be liable for the payment of expenses as set forth in Section 10 hereof and except that the provisions of Section 7 hereof shall not terminate and shall remain in effect.

 

20

 

(c)                                  Nothing contained herein shall relieve a defaulting Initial Purchaser of any liability it may have to the Antero Entities or any non-defaulting Initial Purchaser for damages caused by its default.

 

10.                               Payment of Expenses.  Whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated, each of the Antero Entities jointly and severally agree to pay or cause to be paid all costs and expenses incident to the performance of their respective obligations hereunder, including without limitation, (i) the costs incident to the authorization, issuance, sale, preparation and delivery of the Securities and any taxes payable in that connection; (ii) the costs incident to the preparation and printing of the Preliminary Offering Memorandum, any other Time of Sale Information, any Issuer Written Communication and the Offering Memorandum (including any amendment or supplement thereto) and the distribution thereof; (iii) the costs of reproducing and distributing each of the Transaction Documents; (iv) the fees and expenses of the Company’s and the Guarantors’ counsel, independent accountants and independent reserve engineers; (v) the fees and expenses incurred in connection with the registration or qualification and determination of eligibility for investment of the Securities under the laws of such jurisdictions as the Representative may designate and the preparation, printing and distribution of a Blue Sky Memorandum (including the related fees and expenses of counsel for the Initial Purchasers); (vi) any fees charged by rating agencies for rating the Securities; (vii) the fees and expenses of the Trustee and any paying agent (including related fees and expenses of any counsel to such parties); (viii) all expenses and application fees incurred in connection with the approval of the Securities for book-entry transfer by DTC; and (ix) all expenses incurred by the Company in connection with any “road show” presentation to potential investors.

 

(a)                                 If (i) this Agreement is terminated pursuant to Section 8(ii), (ii) the Company for any reason fails to tender the Securities for delivery to the Initial Purchasers or (iii) the Initial Purchasers decline to purchase the Securities for any other reason permitted under this Agreement, each of the Antero Entities jointly and severally agree to reimburse the Initial Purchasers for all out-of-pocket costs and expenses (including the fees and expenses of their counsel) reasonably incurred by the Initial Purchasers in connection with this Agreement and the offering contemplated hereby.

 

11.                               Persons Entitled to Benefit of Agreement.  This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and any controlling persons referred to herein, and the affiliates, officers and directors of each Initial Purchaser referred to in Section 7 hereof.  Nothing in this Agreement is intended or shall be construed to give any other person any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein.  No purchaser of Securities from any Initial Purchaser shall be deemed to be a successor merely by reason of such purchase.

 

12.                               Survival.  The respective indemnities, rights of contribution, representations, warranties and agreements of the Company, the Guarantors and the Initial Purchasers contained in this Agreement or made by or on behalf of the Company, the Guarantors or the Initial Purchasers pursuant to this Agreement or any certificate delivered pursuant hereto shall survive the delivery of and payment for the Securities and shall remain in full force and effect, regardless of any termination of this Agreement or any investigation made by or on behalf of the Company, the Guarantors or the Initial Purchasers.

 

13.                               Certain Defined Terms.  For purposes of this Agreement, (a) except where otherwise expressly provided, the term “affiliate” has the meaning set forth in Rule 405 under the Securities Act; (b) the term “business day” means any day other than a day on which banks are permitted or required to be closed in New York City; (c) the term “subsidiary” has the meaning set forth in Rule 405 under the Securities Act; and (d) the term “written communication” has the meaning set forth in Rule 405 under the Securities Act.

 

21

 

14.                               Compliance with USA Patriot Act.  In accordance with the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), the Initial Purchasers are required to obtain, verify and record information that identifies their respective clients, including the Company, which information may include the name and address of their respective clients, as well as other information that will allow the Initial Purchasers to properly identify their respective clients.

 

15.                               Miscellaneous.  Authority of the Representative.  Any action by the Initial Purchasers hereunder may be taken by J.P. Morgan Securities LLC on behalf of the Initial Purchasers, and any such action taken by J.P. Morgan Securities LLC shall be binding upon the Initial Purchasers.

 

(a)                                 Notices.  All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted and confirmed by any standard form of telecommunication.  Notices to the Initial Purchasers shall be given to the Representative c/o J.P. Morgan Securities LLC, 383 Madison Avenue, New York, New York 10179 (fax: (917)-456-3534); Attention: Catherine O’Donnell, with a copy (which shall not constitute notice) to: Ryan J. Maierson, Esq., Latham & Watkins LLP, 811 Main Street, Houston, Texas 77002 (fax: (713) 546-5401).  Notices to the Antero Entities shall be given to them at 1625 17 Street, Denver, Colorado 80202, (fax: (303) 357-7299); Attention: Glen C. Warren, Jr., with a copy (which shall not constitute notice) to: Matthew R. Pacey, Vinson & Elkins, L.L.P., First City Tower, 1001 Fannin Street, Suite 2500, Houston, TX 77002-6760, (fax: (713) 615-5650).

 

(b)                                 Governing Law.  This Agreement and any claim, controversy or dispute arising under or related to this Agreement shall be governed by and construed in accordance with the laws of the State of New York.

 

(c)                                  Counterparts.  This Agreement may be signed in counterparts (which may include counterparts delivered by any standard form of telecommunication), each of which shall be an original and all of which together shall constitute one and the same instrument.

 

(d)                                 Amendments or Waivers.  No amendment or waiver of any provision of this Agreement, nor any consent or approval to any departure therefrom, shall in any event be effective unless the same shall be in writing and signed by the parties hereto.

 

(e)                                  Headings.  The headings herein are included for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement.

 

[Signature Pages Follow]

 

22

 

If the foregoing is in accordance with your understanding, please indicate your acceptance of this Agreement by signing in the space provided below.

 

	
 
    	
Very   truly yours,
    
	
 
    	
 
    
	
 
    	
ANTERO   RESOURCES CORPORATION
    
	
 
    	
 
    
	
 
    	
By   
    	
/s/   Alvyn A. Schopp
    
	
 
    	
 
    	
Name:
    	
Alvyn   A. Schopp
    
	
 
    	
 
    	
Title:
    	
Chief   Administrative Officer and Regional Vice President
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Guarantors:
    
	
 
    	
 
    
	
 
    	
ANTERO   RESOURCES MIDSTREAM LLC
    
	
 
    	
 
    
	
 
    	
By   
    	
/s/   Alvyn A. Schopp
    
	
 
    	
 
    	
Name:
    	
Alvyn   A. Schopp
    
	
 
    	
 
    	
Title:
    	
Chief   Administrative Officer and Regional Vice President
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
ANTERO   MIDSTREAM LLC
    
	
 
    	
 
    
	
 
    	
By   
    	
/s/   Alvyn A. Schopp
    
	
 
    	
 
    	
Name:
    	
Alvyn   A. Schopp
    
	
 
    	
 
    	
Title:
    	
Chief   Administrative Officer and Regional Vice President
    
	
 
    	
 
    	
:
    

 

 

	
Accepted:   April 23, 2014
    	
 
    
	
 
    	
 
    
	
J.P.   MORGAN SECURITIES LLC
    	
 
    
	
 
    	
 
    
	
For   itself and on behalf of the
    	
 
    
	
several   Initial Purchasers listed
    	
 
    
	
in   Schedule 1 hereto.
    	
 
    
	
 
    	
 
    
	
By   
    	
/s/   Catherine O’Donnell
    	
 
    
	
 
    	
Authorized   Signatory
    	
 
    

 

 

Schedule 1

 

	
Initial Purchaser
    	
 
    	
Principal Amount
    	
 
    
	
J.P. Morgan Securities LLC 
    	
 
    	
$
    	
210,000,000
    	
 
    
	
Citigroup Global   Markets Inc. 
    	
 
    	
60,000,000
    	
 
    
	
Wells Fargo Securities,   LLC  
    	
 
    	
60,000,000
    	
 
    
	
Barclays Capital Inc. 
    	
 
    	
42,000,000
    	
 
    
	
Capital One   Securities, Inc. 
    	
 
    	
42,000,000
    	
 
    
	
Credit Agricole   Securities (USA) Inc. 
    	
 
    	
42,000,000
    	
 
    
	
BMO Capital Markets   Corp. 
    	
 
    	
18,000,000
    	
 
    
	
Credit Suisse   Securities (USA) LLC  
    	
 
    	
18,000,000
    	
 
    
	
Mitsubishi UFJ   Securities (USA), Inc. 
    	
 
    	
18,000,000
    	
 
    
	
Scotia Capital (USA)   Inc.  
    	
 
    	
12,000,000
    	
 
    
	
TD Securities (USA) LLC  
    	
 
    	
12,000,000
    	
 
    
	
U.S. Bancorp   Investments, Inc.  
    	
 
    	
12,000,000
    	
 
    
	
ABN AMRO Securities   (USA) LLC  
    	
 
    	
6,750,000
    	
 
    
	
BB&T Capital   Markets, 
   a division of BB&T Securities, LLC  
    	
 
    	
6,750,000
    	
 
    
	
CIBC World Markets   Corp.  
    	
 
    	
6,750,000
    	
 
    
	
Comerica   Securities, Inc.  
    	
 
    	
6,750,000
    	
 
    
	
Fifth Third   Securities, Inc.  
    	
 
    	
6,750,000
    	
 
    
	
KeyBanc Capital Markets   Inc.  
    	
 
    	
6,750,000
    	
 
    
	
PNC Capital Markets LLC  
    	
 
    	
6,750,000
    	
 
    
	
SMBC Nikko Securities   America, Inc.  
    	
 
    	
6,750,000
    	
 
    
	
Total
    	
 
    	
$
    	
600,000,000
    	
 
    

 

 

Schedule 2

 

Guarantors

 

Antero Resources Midstream LLC
 Antero Midstream LLC

 

 

Schedule 3

 

Subsidiaries of the Company

 

	
Entity Name
    	
 
    	
Jurisdiction of Incorporation or Formation
    
	
Antero Resources Midstream LLC
    	
 
    	
Delaware
    
	
Antero Midstream LLC
    	
 
    	
Delaware
    

 

 

ANNEX A

 

a.                                      Additional Time of Sale Information

 

1.                                      Term sheet containing the terms of the Securities, substantially in the form of Annex B.

 

A-1

 

ANNEX B

 

Pricing Term Sheet dated April 23, 2014

to Preliminary Offering Memorandum dated April 23, 2014

Strictly Confidential

 

Antero Resources Corporation

 

5.125% Senior Notes due 2022

 

Pricing Term Sheet

 

April 23, 2014

 

The notes have not been registered under the Securities Act of 1933, as amended (the “Securities Act”). The notes may not be offered or sold in the United States or to U.S. persons except to qualified institutional buyers in reliance on Rule 144A. You are hereby notified that sellers of the notes may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A. Any sales of the notes outside the United States may only be made in accordance with applicable selling restrictions.

 

The information in this term sheet supplements Antero Resources Corporation’s preliminary offering memorandum dated April 23, 2014 (the “Preliminary Offering Memorandum”) and supersedes the information in the Preliminary Offering Memorandum to the extent inconsistent with the information in the Preliminary Offering Memorandum. This pricing term sheet is qualified in its entirety by reference to the Preliminary Offering Memorandum.

 

	
Issuer:
    	
Antero Resources Corporation
    
	
 
    	
 
    
	
Size:
    	
$600,000,000
    
	
 
    	
 
    
	
Gross Proceeds:
    	
$600,000,000
    
	
 
    	
 
    
	
Form of Offering:
    	
144A/Reg S with Registration Rights as set forth   in the Preliminary Offering Memorandum
    
	
 
    	
 
    
	
Maturity:
    	
December 1, 2022
    
	
 
    	
 
    
	
Coupon:
    	
5.125%
    
	
 
    	
 
    
	
Price:
    	
100% of face amount plus accrued interest, if any, from May 6, 2014
    
	
 
    	
 
    
	
Spread to Treasury:
    	
+256 basis points
    
	
 
    	
 
    
	
Benchmark Treasury:
    	
UST 1.625% due November 15,   2022
    
	
 
    	
 
    
	
Interest Payment Dates:
    	
June 1 and December 1,   commencing December 1,   2014
    
	
 
    	
 
    
	
Record Dates:
    	
May 15 and November 15
    
	
 
    	
 
    
	
Redemption Provisions:
    	
 
    
	
 
    	
 
    
	
First Call Date:
    	
June 1, 2017
    

 

B-1

 

	
Make-Whole Call:
    	
Before the first call date at redemption price   equal to 100.0% of the principal   amount thereof, plus the “Applicable Premium” as described in the Preliminary   Offering Memorandum, plus accrued and unpaid interest, if any, to the date of   redemption then on or after the following dates at the following redemption   prices:
    
	
 
    	
 
    
	
 
    	
June 1, 2017: 103.844%

June 1, 2018: 102.563%

June 1, 2019: 101.281%

June 1, 2020: 100.000%
    
	
 
    	
 
    
	
Redemption with Proceeds of Equity Offering:
    	
On or prior to June 1, 2017, up to 35% may be redeemed at 105.125% 
    
	
 
    	
 
    
	
Change of Control:
    	
Prior to December 1, 2015, call at 110% of principal plus accrued interest; put at 101%   of principal plus accrued interest
    
	
 
    	
 
    
	
Trade Date:
    	
April 23, 2014
    
	
 
    	
 
    
	
Settlement:
    	
T+9; May 6, 2014
    
	
 
    	
 
    
	
Denominations:
    	
$2,000 and integral multiples of $1,000
    
	
 
    	
 
    
	
CUSIP/ISIN:
    	
144A:  03674XAA4 / US03674XAA46
   Regulation S:  U0018LAA8 / USU0018LAA80
    
	
 
    	
 
    
	
Ratings:(1)
    	
Moody’s: B1

S&P: BB-
    
	
 
    	
 
    
	
Joint Book-Running Managers:
    	
J.P. Morgan Securities LLC
   Citigroup Global Markets Inc.
   Wells Fargo Securities, LLC
   Barclays Capital Inc.
   Capital One Securities, Inc.

Credit Agricole Securities (USA) Inc.
    
	
 
    	
 
    
	
Senior Co-Managers:
    	
BMO Capital Markets Corp.
   Credit Suisse Securities (USA) LLC
   Mitsubishi UFJ Securities (USA), Inc.
    
	
 
    	
 
    
	
Co-Managers:
    	
Scotia Capital (USA) Inc.

TD Securities (USA) LLC

U.S. Bancorp Investments, Inc.

ABN AMRO Securities (USA) LLC

BB&T Capital Markets,

        a   division of BB&T Securities, LLC

CIBC World Markets Corp.

Comerica Securities, Inc.

Fifth Third Securities, Inc.

KeyBanc Capital Markets Inc.

PNC Capital Markets LLC

SMBC Nikko Securities America, Inc.
    

 

B-2

 

(1) Note:  A securities rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawn at any time.

 

Additional Information:

 

The information under the captions “Use of Proceeds” and “Capitalization” in the Preliminary Offering Memorandum and each other location where it appears in the Preliminary Offering Memorandum is hereby replaced in its entirety with the following information:

 

Use of Proceeds

 

We expect the net proceeds from this offering to be approximately $591.6 million, after deducting the initial purchasers’ discounts and our estimated expenses. We intend to use $277.5 million of the net proceeds from this offering to finance the redemption of our outstanding 2019 notes, exclusive of accrued interest.  We intend to use the remaining net proceeds to repay a portion of the outstanding borrowings under our credit facility.

 

As of March 31, 2014, we had approximately $745 million of outstanding borrowings and $73 million of letters of credit outstanding under our credit facility, which matures in May 2016 and bears interest at a variable rate, which was approximately 1.94% as of March 31, 2014. The borrowings to be repaid were incurred primarily for our drilling and development program and for general corporate purposes. We may at any time reborrow amounts repaid under our credit facility.

 

Affiliates of certain of the initial purchasers of the notes may own some of the 2019 notes and, if so, would receive a portion of the net proceeds of this offering. In addition, affiliates of certain of the initial purchasers are lenders under our credit facility and, accordingly, will receive a portion of the net proceeds of this offering.  See “Plan of Distribution.”

 

Capitalization

 

The following table sets forth our cash and cash equivalents and capitalization as of December 31, 2013:

 

·                  on an actual basis; and

 

·                  on an as adjusted basis to give effect to the issuance of the notes offered hereby and the application of estimated net proceeds as described in “Use of Proceeds.”

 

This table should be read in conjunction with, and is qualified in its entirety by reference to, “Use of Proceeds” and our historical audited consolidated financial statements and the accompanying notes in our Annual Report on Form 10-K for the year ended December 31, 2013, which is incorporated by reference into the Preliminary Offering Memorandum.

 

B-3

 

	
 
    	
 
    	
As of December 31, 2013
    	
 
    
	
 
    	
 
    	
Actual
    	
 
    	
As adjusted
    	
 
    
	
 
    	
 
    	
(in thousands)
    	
 
    
	
Cash and cash equivalents(1)(2) 
    	
 
    	
$
    	
17,487
    	
 
    	
$
    	
43,565
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Indebtedness:
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Senior secured revolving credit facility(1)(2) 
    	
 
    	
288,000
    	
 
    	
—
    	
 
    
	
7.25% senior notes due 2019 
    	
 
    	
260,000
    	
 
    	
—
    	
 
    
	
6.0% senior notes due 2020 
    	
 
    	
525,000
    	
 
    	
525,000
    	
 
    
	
5.375% senior notes due 2021 
    	
 
    	
1,000,000
    	
 
    	
1,000,000
    	
 
    
	
5.125% senior notes due 2022 
    	
 
    	
—
    	
 
    	
600,000
    	
 
    
	
Net unamortized premium 
    	
 
    	
5,999
    	
 
    	
5,999
    	
 
    
	
Total indebtedness 
    	
 
    	
2,078,999
    	
 
    	
2,130,999
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Equity:
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Common stock, $1.00 par value (actual); $0.01 par   value (as adjusted); 1,000,000,000 shares authorized (as adjusted);   262,049,659 shares outstanding (as adjusted) 
    	
 
    	
2,620
    	
 
    	
2,620
    	
 
    
	
Preferred stock; $0.01 par value; 50,000,000   shares authorized (as adjusted); no shares issued and outstanding (as   adjusted) 
    	
 
    	
—
    	
 
    	
—
    	
 
    
	
Additional paid in capital 
    	
 
    	
3,402,180
    	
 
    	
3,402,180
    	
 
    
	
Accumulated earnings(3) 
    	
 
    	
193,860
    	
 
    	
180,970
    	
 
    
	
Total equity 
    	
 
    	
3,598,660
    	
 
    	
3,585,770
    	
 
    
	
Total capitalization 
    	
 
    	
$
    	
5,677,659
    	
 
    	
$
    	
5,716,769
    	
 
    

 

(1) On February 28, 2014, we entered into an amendment to our credit facility and into the new midstream credit facility in order to provide for separate borrowings attributable to our midstream business. The aggregate borrowing availability under our credit facility and the midstream credit facility did not change. As of March 31, 2014, we had $745 million of borrowings and $73 million of letters of credit outstanding under our credit facility and the midstream credit facility. See “Description of Other Indebtedness—Credit Facilities.”

 

(2) Does not give effect to the payment of accrued but unpaid interest on the 2019 notes payable in connection with the proposed redemption of the 2019 notes, which we expect to fund with the net proceeds of this offering.

 

(3) Reflects adjustments for after-tax charges of approximately $12.9 million, including the write-off of approximately $2.1 million of net unamortized costs associated with the issuance of the 2019 notes and redemption premiums of approximately $10.8 million associated with the anticipated redemption of the 2019 notes.

 

B-4

 

ANNEX C

 

Form of Opinion of Vinson & Elkins L.L.P.

 

(a) Each of the Antero Entities is validly existing and in good standing under the laws of the State of Delaware, with corporate or limited liability company power and authority, as appropriate, necessary to own or hold their respective properties and conduct their respective businesses as described in each of the Time of Sale Information and the Offering Memorandum.

 

(b) Except with respect to the special membership interest in Antero Resources Midstream LLC owned by Antero Resources Midstream Management LLC, the Company owns 100% of the limited liability company interests in the each Guarantor, and all of the outstanding equity interests of each Guarantors have been duly and validly authorized and issued, are fully paid (to the extent required under their limited liability company agreements) and non-assessable (except as such nonassessability may be affected by Sections 18-607 and 18-804 of the Delaware Limited Liability Company Act).

 

(c) The Indenture has been duly authorized, executed and delivered by each of the Antero Entities and, assuming due execution and delivery thereof by the Trustee, constitutes the valid and legally binding agreement of each of the Antero Entities, enforceable against each of the Antero Entities in accordance with its terms, subject to the Enforceability Exceptions.

 

(d) The Notes have been duly authorized, executed and delivered by the Company and, when each global certificate representing the Notes has been duly executed and authenticated as provided in the Indenture and the Notes have been paid for as provided in the Purchase Agreement, will constitute valid and legally binding obligations of the Company, enforceable against the Company in accordance with their terms, subject to the Enforceability Exceptions, and will be entitled to the benefits of the Indenture.

 

(e) The Guarantees have been duly authorized by each of the Guarantors and, when each global certificate representing the Notes has been duly executed and authenticated as provided in the Indenture and the Notes have been paid for as provided in the Purchase Agreement, will constitute valid and legally binding obligations of each of the Guarantors, enforceable against each of the Guarantors in accordance with their terms, subject to the Enforceability Exceptions, and will be entitled to the benefits of the Indenture.

 

(f) The Exchange Securities described in the Registration Rights Agreement (including the related Guarantees) have been duly authorized by the Company and each of the Guarantors and, when duly executed, authenticated, issued and delivered as contemplated by the Indenture and the Registration Rights Agreement, will be duly and validly issued and outstanding and will constitute valid and legally binding obligations of the Company, as issuer, and each of the Guarantors, as guarantor, enforceable against the Company and each of the Guarantors in accordance with their terms, subject to the Enforceability Exceptions, and will be entitled to the benefits of the Indenture.

 

(g) The Purchase Agreement has been duly authorized, executed and delivered by each of the Antero Entities.

 

(h) The Registration Rights Agreement has been duly authorized, executed and delivered by each of the Antero Entities and, when duly authorized, executed and delivered by the other parties thereto, the Registration Rights Agreement will constitute the valid and legally binding agreement of each of the Antero Entities, enforceable against each of the Antero Entities in accordance with its terms, subject to the Enforceability Exceptions.

 

C-1

 

(i) Each Transaction Document conforms in all material respects to the description thereof contained in each of the Time of Sale Information and the Offering Memorandum.

 

(j) The execution, delivery and performance by each of the Antero Entities of each of the Transaction Documents to which it is a party, the issuance and sale of the Securities (including the related Guarantees) and compliance by each of the Antero Entities with the terms thereof, the application of the proceeds from the sale of the Securities as described under “Use of Proceeds” in each of the Time of Sale Information and the Offering Memorandum and the consummation of the transactions contemplated by the Transaction Documents will not (i) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge, encumbrance, security interest, restriction on voting or transfer or any other claim of any third party upon any property or assets of the Antero Entities pursuant to, any indenture, mortgage, deed of trust, loan agreement, license, lease or other agreement or instrument filed or incorporated by reference as an exhibit to the Incorporated Documents (collectively, the “Applicable Contracts”), (ii) result in any violation of the provisions of the charter or bylaws or similar organizational documents of the Company or any of its subsidiaries or (iii) result in any violation of any Applicable Laws or, to our knowledge, any judgment, order, decree, rule or regulation of any United States federal, New York or Delaware state court or arbitrator or governmental or regulatory authority, except, in the case of clauses (i) and (iii) above, for any such conflict, breach, violation or default that would not, individually or in the aggregate, have a Material Adverse Effect. With respect to clause (iii) above, we express no opinion as to any federal or state securities or Blue Sky laws or federal or state antifraud laws, rules or regulations.

 

(k) No consent, approval, authorization or order of, or filing, registration or qualification (“consent”) of or with any United States federal, New York or Delaware state court or arbitrator or governmental or regulatory authority is required for (i) the execution, delivery and performance by each of the Antero Entities of each of the Transaction Documents to which it is a party, (ii) the issuance and sale of the Securities (including the related Guarantees) and compliance by each of the Antero Entities with the terms thereof, (iii) the application of the proceeds from the sale of the Securities as described under “Use of Proceeds” in each of the Time of Sale Information and the Offering Memorandum and (iv) the consummation of the transactions contemplated by the Transaction Documents, except (A) such as have been, or prior to the date hereof, will be, obtained or made, (B) for such consents as may be required (1) under applicable state securities laws in connection with the purchase and resale of the Securities by the Initial Purchasers and (2) with respect to the Exchange Securities (including the related Guarantees), under the Securities Act, the Trust Indenture Act of 1939, as amended (the “Trust Indenture Act”), and applicable state securities laws as contemplated by the Registration Rights Agreement and (C) for such consents which, if not obtained or made, would not, individually or in the aggregate, have a Material Adverse Effect.

 

(1) The statements included in each of the Time of Sale Information and the Offering Memorandum under the caption “Certain U.S. Federal Income Tax Considerations,” insofar as they refer to statements of law or legal conclusions, are accurate in all material respects.

 

(m) None of the Antero Entities is, and after giving effect to the offering and sale of the Securities and the application of the proceeds thereof as described in each of the Time of Sale Information and the Offering Memorandum, none of them will be, required to register as an “investment company” within the meaning of the Investment Company Act.

 

(n) Assuming the accuracy of the representations, warranties and agreements of the Company, the Guarantors and the Initial Purchasers contained in the Purchase Agreement, it is not necessary, in connection with the issuance and sale of the Securities to the Initial Purchasers and the initial resale and delivery of the Securities by the Initial Purchasers in the manner contemplated by the Purchase 

 

C-2

 

Agreement, the Time of Sale Information and the Offering Memorandum, to register the sale or resale of the Securities under the Securities Act or to qualify the Indenture under the Trust Indenture Act. We express no opinion, however, as to when or under what circumstances any Securities initially sold by the Initial Purchasers may be reoffered or resold.

 

(o) The documents incorporated by reference in each of the Time of Sale Information and the Offering Memorandum (other than the financial statements and other financial and reserve information contained therein, as to which we express no opinion), when filed with the Securities and Exchange Commission (the “Commission”), appeared on their face to comply as to form in all material respects with the requirements of the Securities Act or Exchange Act and the rules and regulations of the Commission thereunder, as applicable.

 

In addition, we have participated in conferences with representatives of the Antero Entities and with representatives of their independent accountants and independent reserve engineers and with the Initial Purchasers and their counsel at which conferences the contents of the Time of Sale Information and the Offering Memorandum (in each case, excluding the Incorporated Documents) and related matters were discussed. Although we have not independently verified, are not passing upon and do not assume any responsibility for the accuracy, completeness or fairness of the Time of Sale Information and the Offering Memorandum (except as expressly provided in paragraphs (i) and (l) above), based on the participation described above (relying as to factual matters with respect to the determination of materiality to the extent we deem reasonable upon statements of fact made to us by the Antero Entities), nothing has come to our attention to cause us to believe that (i) the Time of Sale Information (including the Incorporated Documents incorporated or deemed incorporated by reference therein), at the Time of Sale (which we have assumed to be [ · ] p.m., New York time, on April [ · ], 2014), contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or (ii) that the Offering Memorandum (including the Incorporated Documents incorporated or deemed incorporated by reference therein), as of its date and as of the date hereof, included or includes an untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. In making the foregoing statement, we express no comment or belief as to the financial statements (including the related notes and schedules thereto), the other financial or accounting information or the oil and natural gas reserve estimates contained in, incorporated or deemed incorporated by reference in, or omitted from the Time of Sale Information or the Offering Memorandum.

 

C-3

 

ANNEX D

 

Restrictions on Offers and Sales Outside the United States

 

In connection with offers and sales of Securities outside the United States:

 

(a)                                 Each Initial Purchaser acknowledges that the Securities have not been registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in transactions not subject to, the registration requirements of the Securities Act.

 

(b)                                 Each Initial Purchaser, severally and not jointly, represents, warrants and agrees that:

 

(i)                       Such Initial Purchaser has offered and sold the Securities, and will offer and sell the Securities, (A) as part of their distribution at any time and (B) otherwise until 40 days after the later of the commencement of the offering of the Securities and the Closing Date, only in accordance with Regulation S under the Securities Act (“Regulation S”) or Rule 144A or any other available exemption from registration under the Securities Act.

 

(ii)                    None of such Initial Purchaser or any of its affiliates or any other person acting on its or their behalf has engaged or will engage in any directed selling efforts with respect to the Securities, and all such persons have complied and will comply with the offering restrictions requirement of Regulation S.

 

(iii)                 At or prior to the confirmation of sale of any Securities sold in reliance on Regulation S, such Initial Purchaser will have sent to each distributor, dealer or other person receiving a selling concession, fee or other remuneration that purchases Securities from it during the distribution compliance period a confirmation or notice to substantially the following effect:

 

“The Securities covered hereby have not been registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”), and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering of the Securities and the date of original issuance of the Securities, except in accordance with Regulation S or Rule 144A or any other available exemption from registration under the Securities Act. Terms used above have the meanings given to them by Regulation S.”

 

(iv)                Such Initial Purchaser has not and will not enter into any contractual arrangement with any distributor with respect to the distribution of the Securities, except with its affiliates or with the prior written consent of the Company.

 

Terms used in paragraph (a) and this paragraph (b) and not otherwise defined in this Agreement have the meanings given to them by Regulation S.

 

(c)                                  Each Initial Purchaser acknowledges that no action has been or will be taken by the Company that would permit a public offering of the Securities, or possession or distribution of any of the Time of Sale Information, the Offering Memorandum, any Issuer Written Communication or any other offering or publicity material relating to the Securities, in any country or jurisdiction where action for that purpose is required.

 

D-1

 

(d)                                 Each Initial Purchaser, severally and not jointly, represents, warrants and agrees that it:

 

(i)                                     has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of Section 21 of the United Kingdom Financial Services and Markets Act 2000 (the “FSMA”)) received by it in connection with the issue or sale of any Securities in circumstances in which Section 21(1) of the FSMA does not apply to the Company or the Guarantors; and

 

(ii)                                  has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Securities in, from or otherwise involving the United Kingdom.

 

D-2

 

EXHIBIT A

 

Form of Registration Rights Agreement

 

[Attached]

 

Ex-A-1

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00229-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00229-of-00352.parquet"}]]