Richards Oil & Gas announced that on June 25, 2009, it received a notice of event of default letter from the National Bank of Canada notifying the Company that it is in default under its loan agreement for failure to comply with certain covenants under the current loan agreement the Company has with the National Bank of Canada. As a result of the default, the National Bank of Canada has demanded the total amount due and owing under the loan agreement ($3,315,000) be repaid immediately. The Company is currently in negotiations with the National Bank of Canada introducing alternatives to meet their demand.
Earlier in 2009, and as previously reported by the Company, the combination of production challenges experienced on start-up at the Company's Thorsby property and the considerable decline in natural gas prices resulted in the Company not achieving positive cashflow from its operating activities and therefore relying solely on its credit facility for liquidity. In recognition of this concern, the Company initiated a process seeking strategic alternatives to continue operations.
To assist with this initiative and in its discussions with the National Bank of Canada, the Company engaged Mr. Michael Steele of Avonlea Ventures Inc. Mr. Steele will assist in seeking a sale of the assets of the Company, a sale or merger of the Company or a financial restructuring of the Company including raising new equity. Mr. Steele has considerable experience in the corporate finance and has been involved in several recent restructurings in the Canadian junior oil and gas industry. No decision on any particular alternative has been reached at this time and there can be no assurance that the process will result in any change in the Company's current condition, that the Company will pursue any particular transaction or that any transaction will be concluded.
Earlier in the month the Company gave notice to its Convertible Debenture Holders that in connection with its unsecured subordinated convertible debenture maturing June 26, 2011 (the "Debenture"), the Company intends to exercise its option, subject to regulatory approval, to pay the total accrued but unpaid interest due on June 30, 2009, namely $257,863, in common shares in the capital of the Company. Pursuant to the Debenture Agreement the per share value of the common shares issued to pay the total accrued but unpaid interest due on June 30, 2009 will be $0.05.
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