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An oil well and storage tanks in Belfield, N.D. on Sept. 3, 2011.JIM WILSON

Legacy Oil + Gas Inc. is backstopping a loan for its chief executive officer after a drop in oil prices eroded the value of the company's shares.

Trent Yanko and his wife bought $5.684-million worth of Legacy shares in a margin account with the Bank of Nova Scotia last summer, according to financial documents Legacy released Wednesday. The Yankos exercised roughly 1.75 million warrants, converting them into Legacy shares at a strike price of $3.24 each, on July 17. Legacy's stock closed at $8.53 on the Toronto Stock Exchange that day and the benchmark price for oil in North America closed at $103.84 (U.S.) per barrel.

The Yankos' debt was "supported by the lending value" of the couple's 3.55 million Legacy shares, the company's disclosure document says. But by December, the value of these shares fell short of Scotiabank's margin requirements. Legacy closed at $2.63 per share on Dec. 1, with the price of North American crude closing at $68.98 (U.S.) that day.

This triggered a margin call. Scotiabank "gave notice to the Yankos that it intended to reduce the original indebtedness by arranging for the sale of the common shares held by the Yankos," Legacy's disclosure says. "The bank agreed, however, to refrain from such sales if it received a guarantee from the corporation."

Legacy's board, save for Mr. Yanko, "considered the matter and determined that it was in the best interests of Legacy to provide the guarantee to the bank as it would prevent involuntary sale of common shares by the president and chief executive officer at an inopportune time for Legacy and its shareholders and would remove external pressure on Mr. Yanko that might affect corporate decisions."

Legacy provided the debt repayment guarantee for up to $5.6-million, on Dec. 29. As of Dec. 31, there was $5.1-million owing on the credit facility and subject to Legacy's guarantee. The Yankos' aggregate 3.55 million shares supporting the margin account are pledged as security to the bank "for the amounts outstanding" under the credit facility.

The oil and gas firm can ask the bank to terminate Legacy's obligations should the company's stock trade at $5.00 (or more) each for 10 consecutive trading days, the document says. Legacy closed at $1.86 per share Wednesday.

Legacy provided the backstop after the Yankos agreed to the following conditions: compensate the company for any money it pays Scotiabank; grant "a security interest to Legacy" in all their property; and sign off on a clause designed to get Legacy out its obligations to Scotiabank.

Mr. Yanko was not immediately available for comment.

Legacy's chief financial officer Matt Janisch "stepped down" Wednesday, the company said in a press release. The statement did not explain why. Curt Ziemer, Legacy's vice-president in charge of the accounting department, will take over.

The oil and gas company on Wednesday cut its 2015 budget to $182-million, down from its December estimate of $238-million.

Legacy controlled 18 per cent of LGX Oil + Gas Inc. as of the end of 2014. Legacy's management team manages LGX. Mr. Yanko is LGX's CEO. LGX closed at 7 cents per share on Canada's venture exchange Wednesday. It was worth 47 cents per share July 17, the day the Yankos borrowed money on margin from Scotiabank.

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