Diaz Resources Ltd.
TSX VENTURE : DZR

Diaz Resources Ltd.

October 19, 2012 09:00 ET

Diaz Announces Proposed Share Consolidation and Conversion of Debt to Equity

CALGARY, ALBERTA--(Marketwire - Oct. 19, 2012) - Diaz Resources Ltd. ("Diaz" or the "Company") (TSX VENTURE:DZR) today announced a proposal to reorganize the Company's capital structure and convert an aggregate of $15,085,000 of debt into equity, eliminating approximately $1,584,000 in annual interest payments, through a plan of arrangement under the Alberta Business Corporations Act (the "Share and Debt Reorganization"). Pursuant to the Share and Debt Reorganization: (i) Diaz's common shares ("Pre-Consolidation Shares") will be consolidated on the basis of 25 Pre-Consolidation Shares for one new post-consolidation common share ("New Diaz Share"); (ii) the outstanding 10.5% convertible unsecured subordinated debentures ("Unsecured Debentures") and all accrued and unpaid interest earned thereon will be converted into New Diaz Shares at a conversion price of $0.50 per share; and (iii) the outstanding 10.5% convertible secured subordinated debentures ("Secured Debentures") and all accrued and unpaid interest earned thereon will be converted into New Diaz Shares at a conversion price of $0.11 per share.

Support Agreements

There are currently outstanding 87,789,352 Pre-Consolidation Shares, $7,085,000 aggregate principal amount of Unsecured Debentures and $8,000,000 aggregate principal amount of Secured Debentures. Diaz has entered into support agreements with holders of approximately 39% of Diaz's outstanding common shares, approximately 57% of its Unsecured Debentures and approximately 96% of its Secured Debentures whereby such holders have agreed to vote to approve and otherwise support the Share and Debt Reorganization.

Reason for the Share and Debt Reorganization

If completed, management believes the Share and Debt Reorganization will strengthen the Company's balance sheet and better position Diaz to pursue financing or strategic alternatives that would facilitate the development of its asset base. In addition, as a consequence of continued challenging commodity prices and lower than expected production results, if the Share and Debt Reorganization is not completed Diaz may be unable to make the interest payments due on its debentures on December 31, 2012, which would result in Diaz being in breach of certain of its covenants under both the debentures and its bank facility and could result in the amounts owing under each being called for immediate repayment. If this occurred, subject to Diaz otherwise obtaining satisfactory alternative financing, Diaz would be unable to make such payments and the bank and the holders of its Secured Debentures could choose to act on their security. If Diaz's bank and the holders of its Secured Debentures exercised their security, and Diaz's assets were liquidated and sold to satisfy its obligations to the bank and the holders of Secured Debentures, Diaz does not believe there would be any net proceeds remaining after such payout for its shareholders or holders of Unsecured Debentures.

In light of the foregoing and other factors, the Board of Directors of Diaz (with non-independent directors abstaining from the vote) approved proceeding with the Share and Debt Reorganization. The board has engaged Sayer Securities Ltd. to advise the Board in respect to the fairness of the transaction.

Post-Reorganization Shareholdings

Following the Share and Debt Reorganization, assuming a closing date of December 14, 2012, there will be approximately 94,572,083 New Diaz Shares outstanding, of which current shareholders of the Company will hold approximately 3,511,574 New Diaz Shares representing approximately 4% of the outstanding New Diaz Shares and the holders of the Unsecured Debentures and Secured Debentures will hold approximately 14,848,882 New Diaz Shares and 76,211,627 New Diaz Shares, respectively, representing approximately 16% and 80% of the outstanding New Diaz Shares.

Mr. Robert Lamond, the Chairman, President and Chief Executive Officer of Diaz, together with Humboldt Capital Corporation ("Humboldt"), a company controlled by Mr. Lamond, beneficially own or control or direct approximately 31,924,467 Pre-Consolidation Shares representing approximately 36% of the outstanding Pre-Consolidation Shares and $7,340,000 principal amount of Secured Debentures representing approximately 92% of the outstanding Secured Debentures. Accordingly, following the proposed Share and Debt Reorganization, assuming a closing date of December 14, 2012 and accrued and unpaid interest on such Secured Debentures of $351,658, Mr. Lamond and Humboldt will beneficially own or control or direct approximately 71,201,144 New Diaz Shares representing approximately 75% of the outstanding New Diaz Shares.

In addition, Mr. Charles Teare, a director of both Diaz and Humboldt, beneficially owns 1,322,794 Pre-Consolidation Shares and $50,000 principal amount of Unsecured Debentures, and following the Share and Debt Reorganization will beneficially own approximately 157,703 New Diaz Shares representing less than 0.2% of the outstanding New Diaz Shares.

Approvals

The proposed Share and Debt Reorganization requires the approval of at least two-thirds of the votes cast by Diaz shareholders, holders of Unsecured Debentures and holders of Secured Debentures at a special meeting (the "Securityholder Meeting") of shareholders and debentureholders to be called to consider the Share and Debt Reorganization (with each class of securityholders voting separately) as well as the approval of a majority of the votes cast by Diaz shareholders after excluding the votes of Humboldt and the directors and senior officers of each of Diaz and Humboldt who are also shareholders of Diaz (including Messrs. Lamond and Teare). The Share and Debt Reorganization is also subject to customary stock exchange and court approvals.

An information circular further describing the Share and Debt Reorganization and the background thereto is expected to be mailed to shareholders and debentureholders in November. Shareholders and debentureholders of record will be entitled to vote on the Share and Debt Reorganization at the Securityholder Meeting, which is expected to be held on or about December 14, 2012. Assuming that all approvals are obtained and that all other conditions precedent are satisfied, closing of the Share and Debt Reorganization is expected to occur as soon as possible following the Securityholder Meeting.

ADVISORY: Certain information provided in this press release constitutes forward-looking statements. The words "anticipate", "expect", "project", "estimate", "forecast", "plan", "believe" and similar expressions are intended to identify such forward-looking statements. This press release contains forward-looking statements pertaining to, without limitation: the proposed terms of the Share and Debt Reorganization; the proposed timing for holding the Securityholder Meeting and for closing the Share and Debt Reorganization; the anticipated benefits of completing the Share and Debt Reorganization; the amount of interest that will have accrued on the debentures at the time of completion of the Share and Debt Reorganization; the number of New Diaz Shares that will be issued under the Share and Debt Reorganization; and the possible consequences of failing to complete the Share and Debt Reorganization. We have made various assumptions relating to the forward-looking statements contained herein, including in respect of: our ability to obtain all requisite approvals and otherwise satisfy the conditions precedent to closing the Share and Debt Reorganization; commodity prices and production rates for the remainder of the year; and the availability to us of alternative means of financing .
Although we believe that the expectations reflected in these forward-looking statements, and the assumptions on which they are made, are reasonable, undue reliance should not be placed on them as we can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions and are based on various assumptions, by their very nature they involve inherent risks and uncertainties that contribute to the possibility that the forward-looking statements may not be accurate, which may cause our actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things: failure to obtain requisite third party and regulatory consents and approvals required to complete the Share and Debt Reorganization and otherwise satisfy all of the conditions precedent to closing the Share and Debt Reorganization; failure to complete the Share and Debt Reorganization on the terms described herein or at all; failure to realize the anticipated benefits of the Share and Debt Reorganization; the possibility that we will not be able to complete the Share and Debt Reorganization and that as a result we may default in performing our covenants under the debentures and our bank facility; as a result of any such default, the debentureholders and our bank will be entitled to exercise their respective remedies under the debentures and the bank facility, including exercising any security they have against our assets; and the other factors described in our public filings available at www.sedar.com. Readers are cautioned that this list of risk factors should not be construed as exhaustive. The forward-looking statements contained in this press release are made as of the date hereof and we undertake no obligation to publicly update 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. The forward-looking statements contained in this document are expressly qualified by this cautionary statement.

Diaz Announces Proposed Share Consolidation And Conversion Of Debt To Equity

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