LOAN AGREEMENT by DAYBREAK OIL & GAS INC

Exhibit 10.1

LOAN AGREEMENT

This Agreement between Luberski, Inc., a California corporation (hereinafter “Lender”) on one hand and RTG Steel Company, LLC, an Arizona limited liability company and Daybreak Oil and Gas, Inc., a Washington corporation (“Daybreak”)(collectively referred to as “Borrowers”), is entered into as of this _18th_day of May 2012 (the “Effective Date”).  All references to “Borrowers” and/or “Lender” in this Agreement shall also refer to all employees, consultants, agents or representatives of “Borrowers” and/or “Lender.”  This Agreement cancels and supersedes all prior agreements with respect to the subject matter of this Agreement.

WHEREAS, Lender agrees to loan Borrowers One Million Five Hundred Thousand Dollars($1,500,000.00) (the “Loan”).

WHEREAS, the Principal of the Loan ($1,500,000.00) shall be due and payable within 120 days of the Effective Date.

WHEREAS, the Loan will be repaid via 50% of all A/R payments received from customers of RTG until the Loan is repaid.

WHEREAS, interest at a rate of five percent (5%) per month shall be due and payable within 120 days of the Effective date.

WHEREAS, Borrowers agree to pay minimum interest in the amount of $150,000.00 (10% of the Principal of the Loan) regardless of the date that Borrowers repay the Loan.

WHEREAS, the Loan is secured by certain assets of Borrowers including, but not limited to,

a first lien position against all Accounts Receivable of RTG, a 1^st Deed of Trust on all oil wells owned by Daybreak, and a first position lien on the vessel commonly known as the Arthur K. Atkinson.

WHEREAS, Borrower RTG has already entered into an agreement with Metal Recycling Corporation for MRC to purchase 5,500 tons of steel for $400 per ton.

WHEREAS, Lender shall be entitled to 7.5% of the gross revenues received by RTG from the sale of steel and scrap metal removed from the Arthur K. Atkinson.   Lender’s 7.5% royalty payment shall not be applied to the Loan Principal or interest due and owing on the Loan.

NOW, THEREFORE, in consideration of the mutual promises, terms, covenants and conditions set forth in this Agreement and the performance of each, and for good and valuable consideration, the receipt and sufficiency of which is acknowledged, the parties agree as follows:

A.  Commencement, Interest, and Terms of Repayment of Loan

1.

This Agreement shall be effective as of the Effective Date.

2.

Lender agrees to loan Borrowers One Million Five Hundred Thousand Dollars ($1,500,000.00) on the Effective Date.

1 of 5

3.

Loan Terms:

a.

Borrowers agree to repay the Loan by pledging at least 50% of all accounts receivable received by RTG after the Effective Date.  Borrowers tender payment to Lender totaling at least 50% of any payment received by RTG within three (3) business days after RTG’s receipt of payment on any such receivable.

b.

The Loan shall bear interest at a rate of five (5) percent per month.  

c.

The Loan shall bear minimum interest totaling One Hundred Fifty Thousand Dollars ($150,000.00).  

d.

Notwithstanding the payments made pursuant to subparagraph (a) above, Borrowers shall repay all principal and interest due on the Loan within 120 days after the Effective Date of this Agreement.

4.

Royalty Payments.  In further consideration of providing financial accommodations to Borrowers, RTG agrees to grant Lender a 7.5% interest in the Gross revenues received by RTG from the sale of steel and scrap metal removed from the Arthur K. Atkinson.   The 7.5% royalty payment paid by Borrower RTG to Lender shall not be applied to the Loan Principal and/or the interest due and owing on the Loan.  The 7.5% royalty payment shall be paid independently of the Loan until all removable steel and scrap metal on the vessel commonly known as the Arthur K. Atkinson has been sold.  

5.

Reporting Requirement. Upon Lender’s written request, Borrowers shall provide written evidence of all outstanding accounts receivable due Borrowers and all outstanding accounts receivable received by Borrowers since the Effective Date.  Lender shall also have the right to request an accounting of all steel removed from the Arthur K. Atkinson to be sold to third parties.  Borrowers shall have three (“3”) business days to provide all documentation requested by Lender under this paragraph.

6.

Place of Payment.  Payments shall be deemed paid when received by Lender.  All payments are to be made payable to Luberski, Inc. and shall be mailed to Lender’s address located at 310 N. Harbor Blvd., Ste 205, Fullerton, CA 92832.

7.

This Loan is contingent upon Borrowers executing any and all documents necessary to grant and perfect Lender’s security interest in certain assets of Borrowers including, but not limited to, a first lien position in all Accounts Receivable of RTG, a 1^st Deed of Trust on all oil wells owned by Borrowers, and a first position lien on the vessel commonly known as the Arthur K. Atkinson.

8.

Borrowers agree to provide

-- END OF PREVIEW --