Diaz Resources Ltd.
TSX : DZR

Diaz Resources Ltd.

May 13, 2011 13:19 ET

Diaz Announces Proposed $8.0 Million Financing

CALGARY, ALBERTA--(Marketwire - May 13, 2011) -

NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

Diaz Resources Ltd ("Diaz" or the "Company") (TSX:DZR) today announced that it intends to sell by way of private placement $8 million aggregate principal amount of 10.5% secured subordinated convertible debentures (the Debentures") (the "Offering"). The proceeds of the Offering will be used to reduce the Company's bank debt, to repay a bridge financing loan from Humboldt Capital Corporation ("Humboldt") and for general corporate purposes, including the continued development of the Company's oil reserves.

Humboldt's Participation

R. W. Lamond, the Chairman, President and Chief Executive Officer of Diaz, is also the Chairman, President and Chief Executive Officer of Humboldt and owns 70.6 % of the outstanding common shares of Humboldt. Mr Lamond and Humboldt together own 33.5 % of the outstanding common shares of Diaz. Humboldt has agreed to subscribe for a minimum of $4.0 million of the Debentures plus any remaining Debentures not purchased by third parties (to a maximum of $7.8 million aggregate principal amount of Debentures). In consideration therefore, Diaz has agreed to repay the Humboldt $1.0 million bridge financing loan out of the net proceeds of the offering and to use commercially reasonable efforts to place the $4.0 million balance of the issue to third parties. Diaz will pay a commission of 5% of the total principal amount of Debentures sold by any registrant who is permitted under applicable securities laws to receive same. Assuming the Offering is fully subscribed and all of the Debentures are converted to common shares of the Company at the Conversion Price (as defined below), Humboldt and Mr. Lamond would hold, directly or indirectly, 83,820,800 to 134,487,467 common shares, representing approximately 42.4% to 68.1%, respectively, of the then outstanding common shares of the Company.

Closing

It is anticipated that closing of the Offering will occur on or about June 10 2011. Completion of the Offering is subject to certain conditions including the receipt of all necessary regulatory approvals, including listing on the Toronto Stock Exchange (the "TSX") of the common shares which may be issued on conversion of the Debentures. The Debentures and the common shares issuable upon conversion thereof will be subject to a hold period of four months and a day from the closing date.

The Debenture Terms

The Debentures will be due on March 31, 2016 and bear interest at 10.5% per annum payable semi-annually in arrears on June 30 and December 31 of each year, commencing December 31, 2011. Diaz will have the option to pay such interest by delivering common shares of the Company to a trustee for sale, in which event holders of the Debentures will be entitled to receive a cash payment equal to the interest owed from the proceeds of the sale of the requisite number of common shares by the trustee. Interest payments made to non-resident holders of the Debentures may be subject to withholding tax.

The Debentures will be secured and payment of the principal, premium (if any) and interest on the Debentures will be subordinated and postponed in right or payment to all senior indebtedness of Diaz.

The Debentures will be convertible into fully paid and non-assessable common shares of the Company at the option of the holder at any time prior to the close of business on the Maturity Date or the business day immediately preceding the date specified by the Company for redemption of the Debentures at a conversion price of $0.075 (the "Conversion Price") per common share. Holders converting their Debentures will receive accrued and unpaid interest thereon in cash for the period from the date of the last interest payment to the date of conversion. Assuming the Offering is fully subscribed, an aggregate of 106,666,667 common shares will be issuable upon conversion of the Debentures, representing approximately 117% of the currently issued and outstanding common shares of the Company.

The Debentures will not be redeemable on or before June 30, 2012. After June 30, 2012, and on or before June 30, 2015 the Debentures may be redeemed, in whole or in part, from time to time at the option of Diaz on not more than 60 days and not less than 30 days prior notice, at a price of $1,050 per Debenture when the 20 trading day volume weighted average price of the common shares of the Company ending five trading days prior to the date of the redemption notice is equal to or greater than 120% of the Conversion Price. After June 30, 2015, the Debentures may be redeemed, in whole or in part, from time to time at the option of Diaz on not more than 60 days and not less than 30 days prior notice, at a price of $1,025 per Debenture when the 20 trading day volume weighted average price of the common shares of the Company ending five trading days prior to the date of the redemption notice is equal to or greater than 120% of the Conversion Price.

On redemption or at maturity, Diaz may, at its option, on not more than 60 days and not less than 30 days prior notice and subject to regulatory approval, elect to satisfy its obligations to repay the principal of and premium (if any) on the Debentures then maturing or being redeemed by issuing and delivering that number of freely tradable common shares of Diaz obtained by dividing such principal and premium (if any) by 95% of the weighted average trading price of the common shares on the Toronto Stock Exchange (or such other stock exchange or over-the-counter market the common shares are then listed on) for the 20 consecutive trading days ending five trading days prior to the date fixed for redemption or maturity, as the case may be.

Special Committee

A special committee (the "Special Committee") of the board of directors of Diaz, free from any interest in the Offering and unrelated to Humboldt, has recommended proceeding with the Offering. Based upon, among other things, the determination of the Special Committee that Diaz is in serious financial difficulty due to inadequate liquidity and working capital, and the belief that the Offering will considerably improve Diaz's financial position, the Board believes that the Offering is reasonable in the circumstances.

Financial Hardship Exemption

As the number of common shares issuable pursuant to the potential conversion of the Debentures exceeds 25% of the issued and outstanding common shares and are issuable at a discount to market,, and given that the issuance of a minimum of $4 million of Debentures to Humboldt will entitle Humboldt, on the conversion of such Debentures, to acquire greater than 10% of the currently outstanding common shares, Diaz, on the recommendation of the Special Committee, is applying to the TSX for an exemption from the requirement to seek shareholder approval, as required pursuant to subsections 604(a) and 607(g) of the TSX Company Manual, in accordance with Section 604(e) of the TSX Company Manual on the basis of Diaz's financial hardship. Diaz believes that, upon completion of the Offering, it will be in compliance with TSX listing requirements.

The securities offered have not been and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. 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 in certain transactions exempt from the registration requirements of the U.S. Securities Act.

About Diaz

Diaz is an oil and gas exploration and production company based in Calgary, Alberta. Diaz's current focus is on oil development and exploration in Alberta and Saskatchewan.

ADVISORY: This press release contains forward looking statements. More particularly, this press release contains statements concerning the anticipated closing date of the Offering and the anticipated use of the proceeds of the Offering. Although Diaz believes that the expectations reflected in these forward looking statements are reasonable, undue reliance should not be placed on them because Diaz can give no assurance that they will prove to be correct. Since forward looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. The closing of the Offering could be delayed if Diaz is not able to obtain the necessary regulatory and stock exchange approvals on the timelines it has planned. The Offering will not be completed at all if these approvals are not obtained or some other condition to the closing is not satisfied. Accordingly, there is a risk that the Offering will not be completed within the anticipated time or at all. The intended use of the proceeds of the Offering by Diaz, might change if the board of directors of Diaz determines that it would be in the best interests of Diaz to deploy the proceeds for some other purpose.

The forward looking statements contained in this press release are made as of the date hereof and Diaz undertakes no obligations to update publicly or revise any forward looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

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