Item 1.01 Entry into a Material
Definitive Agreement
On April 26, 2017, Solitario Exploration &
Royalty Corp. (“Solitario”) and Zazu Metals Corporation entered into an arrangement agreement (the “Arrangement
Agreement”) pursuant to which Solitario will acquire all of the issued and outstanding common shares of Zazu. The principal
asset of Zazu is the Lik deposit in Alaska, USA.
Arrangement Agreement
The acquisition is structured as a Plan of
Arrangement (the “Arrangement”) under the Canada Business Corporations Act (British Columbia) and is subject to approval
by the Ontario Superior Court of Justice (the “Court”). Under the terms of the Agreement, each issued and
outstanding Zazu common share will be converted into the right to receive 0.3572 of a share of common stock of Solitario (the "Exchange
Ratio"). Following the completion of the Arrangement, it is expected that the current shareholders of Zazu will own approximately
34% of Solitario’s issued and outstanding common stock, and current Solitario shareholders are expected to hold the remaining
66%. As part of the Arrangement, existing Zazu option holders will receive options to purchase Solitario common stock, with each
current Zazu option converted at the Exchange Ratio and existing price of the Zazu options adjusted for the Exchange Ratio (the
“Exchange Options”). Issuance of the Exchange Options will be conditioned on the completion of the Arrangement and
Solitario shareholder approval of any requisite amendments of the 2013 Solitario Exploration & Royalty Corp. Omnibus Stock
and Incentive Plan. All Exchange Options will be fully vested on grant and have an expiration date of no more than 18 months from
the date of grant.
The Arrangement was unanimously approved by
the board of directors of both Solitario and Zazu.
The Arrangement will be carried out by way
of a court-approved plan of arrangement and will require the approval by Zazu Shareholders. Zazu directors, officers and certain
significant shareholders representing a total of approximately 47% of the issued and outstanding Zazu common shares have entered
into voting and support agreements with Solitario agreeing to vote in favor of the Arrangement.
The Arrangement also requires the approval
by Solitario shareholders of the issuance of Solitario’s common stock to Zazu shareholders. Solitario directors, officers
and certain significant shareholders representing approximately 7% of the issued and outstanding shares of Solitario common stock
have entered into voting and support agreements with Solitario agreeing to vote in favor of the Arrangement.
The Arrangement Agreement includes customary
provisions, including with respect to non-solicitation, a right granted to Solitario to match superior proposals and fiduciary-out
provisions, as well as representations, covenants and conditions which are customary for transactions of this nature. In addition,
Zazu and Solitario have each agreed to pay a termination fee in the amount of US$0.75 million to the other party upon the occurrence
of certain termination events, including if Zazu’s Board of Directors accepts, approves, recommends, or enters into a legally
binding agreement that constitutes a “Superior Proposal” or an “Acquisition Proposal” (as defined in the
Arrangement Agreement).
Completion of the Arrangement is subject to
a number of conditions, including, but not limited to (i) Toronto Stock Exchange and TSX Venture Exchange acceptance; (ii) approvals
by both Solitario’s shareholders and Zazu’s shareholders; (iii) approval for listing by the NYSE-MKT of the Solitario
common shares issuable to Zazu shareholders; (iv) approval for listing by the NYSE-MKT of Solitario common shares to be made available
for potential issuance for Exchange Options; and (v) receipt of a final order from the Court. There can be no assurance that the
Arrangement will be completed as proposed or at all. None of the NYSE MKT, the Toronto Stock Exchange nor the TSX Venture Exchange
have passed upon the merits of the proposed Arrangement.
The Arrangement Agreement has been included
to provide investors and shareholders with information regarding its terms. It is not intended to provide any other factual information
about Solitario. The representations, warranties and covenants contained in the Arrangement Agreement were made only for purposes
of that agreement and as of specific dates, were solely for the benefit of the parties to the Arrangement Agreement, may be subject
to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes
of allocating contractual risk between the parties to the Arrangement Agreement instead of establishing these matters as facts
and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors.
Shareholders are not third-party beneficiaries under the Arrangement Agreement and should not rely on the representations, warranties
and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of Solitario or Zazu
or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations,
warranties and covenants may change after the date of the Arrangement Agreement, which subsequent information may or may not be
fully reflected in the Company’s public disclosures.
Convertible Debenture Financing
Concurrent with the signing of the Arrangement
Agreement, Solitario agreed to provide Zazu interim debt financing through a secured convertible debenture issued by Zazu in the
principal amount of US$1.5 million (the "Debenture"). The Debenture is subject to approval of the TSX Venture Exchange.
The Debenture is secured by way of a general security and pledge agreement and bears interest at a rate of 5% per annum. If the
Arrangement Agreement is terminated prior to the effective date of the Arrangement, all principal amounts outstanding and any interest
payable under the Debenture will become payable two years following the issuance of the Debenture. In certain circumstances, the
Debenture is convertible at the option of Solitario into Zazu common shares at a price of US$0.22 per Zazu Share. Completion of
the interim financing is not contingent on completion of the Arrangement. The funds from the Debenture will be used by Zazu for
general corporate purposes prior to the completion of the Arrangement.
The foregoing description of the Agreement
and the Debenture is not a complete description of all the parties’ rights and obligations under the Agreement or the Debenture. The
above description is qualified in its entirety by reference to the Agreement, which is filed as Exhibit 2.1 hereto and the Debenture,
which is filed as Exhibit 4.1 hereto, both of which are incorporated herein by reference.