NorZinc Enters into Arrangement Agreement in Connection with Proposed Acquisition by RCF

30 September 2022

Shareholders who have questions about the proposed acquisition by RCF can contact NorZinc Ltd.’s strategic advisor and proxy solicitation agent Laurel Hill Advisory Group at 1-877-452-7184 or by e-mail at assistance@laurelhill.com.

Vancouver, British Columbia – September 30, 2022 ? NorZinc Ltd. (TSX: NZC; OTCQB: NORZF) (the “Company” or “NorZinc”) announced today that, based on the unanimous recommendation of an independent special committee (the “Special Committee”) of its board of directors (the “Board”) as well as unanimous approval by the Board, it has entered into an arrangement agreement (the “Arrangement Agreement”) with RCF VI CAD LLC (“RCF”), in respect of a transaction whereby RCF will acquire all of the issued and outstanding common shares of the Company that RCF and its affiliates do not currently own pursuant to a court-approved plan of arrangement for $0.0325 in cash per NorZinc share, which represents a 3.5% premium to the 45-day VWAP of $0.0314 per share, (the “Transaction”). RCF and its affiliates currently hold approximately 48.31% of the outstanding common shares of the Company.

Concurrently with signing of the Arrangement Agreement, NorZinc and RCF have amended and restated the credit facility dated May 19, 2022, to provide for an increase in the commitment thereunder by US$11 million (the “Amended and Restated Credit Agreement”).

Rohan Hazelton, President & CEO, NorZinc stated, “The Company has been working to address challenges with respect to its debt situation and capital funding needs given the current market conditions. Considering the interests of all stakeholders in the Company and its Prairie Creek Project, and in order to maintain the current development work at and accessing the site, The Board has explored all viable strategic alternatives. Ultimately, it has concluded that the unsolicited all-cash offer to the minority shareholders contained within the Arrangement Agreement is in the best interests of the Company and its stakeholders. While we believe this asset has an exciting future, given the current capital markets, debt and equity position of the Company, we believe this is the best alternative for the Company and its shareholders at the present time. We are proud of the recent milestones achieved in permitting and indigenous community agreements that have advanced Prairie Creek development and remain bullish on the long-term viability of the Project and the positive impact it will have on the local region.”

Highlights of the Transaction

The Special Committee and the Board considered the Transaction with reference to the best interests of the Company, its stakeholders, ongoing project development, as well as its prospects, strategic alternatives and competitive position, including the risks involved in achieving those prospects and pursuing those alternatives in light of current market conditions and the Company's financial position.

The Special Committee and Board recommend the Transaction to securityholders based on a number of reasons, including, among others:

Certain and immediate value for shareholders. The consideration payable to shareholders pursuant to the Transaction is all cash which provides shareholders with the opportunity to immediately realize cash for their investment.
Significant growth and debt repayment funding required. The Company requires significant funding to advance its Prairie Creek Project particularly at this crucial point as major work on site and access development is in progress. The Company currently has limited cash, and negative working capital, to fund the necessary capital projects, significant debt that is subject to covenants, including the need to enter into a large near-term financing. The Company has been seeking funding to support its long-term business plan since early 2021 and has been unsuccessful to date. Equity financing sufficient to satisfy covenants on the debt, repay debt and fund the progress of the Company's business plan, if available, may be significantly dilutive to shareholders.
Status of debt obligations. The Company currently has $6.14 million including capitalized interest in debt which is outstanding. As is typical for companies at the stage of the Company, the debt is subject to a number of conditions and covenants. The Company has been trying to satisfy certain of these covenants without success and believes there is a material risk of failure. Failure to satisfy such covenants would give rise to an event of default and trigger an obligation to repay the facility. The Company expects that it would be unable to satisfy such an obligation and that it could be exposed to creditor enforcement proceedings that may significantly prejudice, or deprive, shareholders of any value of their investment.
Arm's length negotiations and attractive value relative to alternatives. The consideration offered to shareholders pursuant to the Transaction is more favourable (and can be achieved with less risk) than the value that might have been realized through pursuing other alternatives available to the Company and is a result of a rigorous strategic process that was undertaken at arm's length with the oversight and participation of the Board, the Special Committee and the Company's external financial and legal advisors. As part of this process, the Company sought alternative transactions and negotiated with RCF to determine the best possible conditions for the Transaction and the position of RCF in relation to alternative transactions.
Project execution and development risk. The consideration pursuant to the Transaction provides shareholders with certainty of value without the near and long-term risk associated with the development and execution of the Company's project. To that end, it will be several years before the Prairie Creek Project reaches commercial production, if at all.
Valuation. National Bank Financial (“National Bank”) provided a valuation to the Special Committee which concludes that, subject to the analyses, assumptions, qualifications and limitations discussed therein, as of September 29, 2022, the fair market value of the Company is in the range of $0.03 to $0.07 per share. The consideration payable pursuant to the Transaction is within the fair market value set out in the valuation. The full text of this opinion will be set out in the information circular in connection with the meeting to consider the Transaction.
Fairness opinion. Each of National Bank and Scotia Capital (“Scotiabank”), have provided the Special Committee and Board, respectively, with a fairness opinion from their financial advisors to the effect that, as of the date hereof, subject to the assumptions, limitations and qualifications set out therein, the consideration payable pursuant to the Transaction is fair from a financial point of view to shareholders, other than RCF and its affiliates. The full text of these opinions will be set out in the information circular in connection with the meeting to consider the Transaction.
Dissent Rights. The terms of the Transaction provide that registered shareholders who oppose the arrangement may, upon compliance with certain conditions, have the ability to exercise dissent rights and, if ultimately successful, to receive fair value for their common shares (as described in the plan of arrangement).
Voting Support Agreements. RCF has entered into voting and support agreements (each, a "Voting Support Agreement") with each director and senior officer of the Company that owns securities (collectively, the "Supporting Securityholders"), pursuant to which the Supporting Securityholders have agreed, subject to the terms and conditions of the relevant Voting Support Agreement, to, among other things, vote their common shares or other securities they hold in the Company in favour of the Transaction. The Supporting Securityholders represent in aggregate approximately 0.8% of the outstanding common shares and 5.74% of the securities entitled to vote on the resolution approving the Transaction.
Ability to Respond to Superior Proposals. Subject to the terms of the Arrangement Agreement, the Board is able to respond to any bona fide written proposal from a third party that, if consummated, may lead to a transaction more favourable to shareholders, from a financial point of view, than the Transaction. The termination payment payable by the Company in certain circumstances, would not, in the view of the Board and the Special Committee, after consultation with their legal and financial advisors, preclude a third party from potentially making a superior proposal.

The full background to the transaction and reasons for the recommendations of the Special Committee and Board will be set out in the information circular in connection with the meeting to consider the Transaction. The Special Committee and Board strongly recommend that securityholders read and consider the full text of the circular when it is provided to them.

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