Exhibit 10.1

 

 

CONVERTIBLE NOTE PURCHASE AGREEMENT

This Convertible Note Purchase Agreement (this "Agreement"), dated as of January
14, 2020, is entered into among DAYBREAK OIL AND GAS, INC., a Washington
corporation (the "Company"), and James F. Westmoreland (the "Purchaser").

WHEREAS, subject to the terms and conditions set forth herein, the Company
wishes to issue and sell to the Purchaser, and the Purchaser wishes to purchase
from the Company, a convertible promissory note in exchange for the
consideration described herein (the "Consideration").

NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:

1.            Definitions. Capitalized terms not otherwise defined in this
Agreement will have the meanings set forth in this Section 1.

1.1             "Common Stock" means the Company's common stock, par value
US$0.001.

1.2             "Conversion Shares" means shares of Common Stock.

1.3             "Conversion Price" means $0.004 per share.

1.4             "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

1.5             "Maturity Date" means July 12, 2020.

1.6             "Note" means the promissory note issued to the Purchaser
pursuant to Section 2, the form of which is attached hereto as EXHIBIT A.

1.7             "Securities Act" means the Securities Act of 1933, as amended.

2.            Purchase and Sale of Note. As Consideration for the Note, the
Purchaser as of the Closing will have paid funds of $27,835.03 to the Company,
including $10,000 paid in December 2019 and $17,835.03 paid as of the Closing.
Further, the Purchaser agrees to pay up to $22,164.97 in additional funding, in
one or more tranches, as and when agreed upon. The Note will have a principal
balance equal to the total amount of the Consideration paid by the Purchaser at
any given time, and may be adjusted as necessary to reflect changes to such
principal balance.

3.            Closing. The closing of the sale of the Note (the "Closing") will
take place remotely via the exchange of documents and signatures on the date of
this Agreement, or at such other time and place as the Company and the Purchaser
agree upon orally or in writing. At the Closing, the Purchaser shall deliver the
portion of any unpaid Consideration to be paid on or before Closing and the
Company shall sell and deliver the Note to the Purchaser.

4.            Conversion upon Maturity. If the Note is not repaid in full on or
before the Maturity Date then, on the day following the Maturity Date, the Note
will automatically convert into that number of Conversion Shares equal to the
quotient obtained by dividing (x) the outstanding principal balance of the Note
on the date of such conversion by (y) the Conversion Price. As promptly as
practicable after the conversion of the Note and the issuance of the Conversion
Shares, the Company (at its expense) will issue and deliver to the holder
thereof a certificate or certificates evidencing the Conversion Shares (if
certificated), or if the Conversion Shares are not certificated, will deliver a
true and correct copy of the Company's share register reflecting the Conversion
Shares held by such holder. The Company will not be required to issue or deliver
the Conversion Shares until the holder of such Note has surrendered the Note to
the Company (or provided an instrument of cancellation or affidavit of loss).

 

 

 

 

5.            Representations and Warranties of the Company. In connection with
the transactions contemplated by this Agreement, the Company hereby represents
and warrants to the Purchaser as follows:

5.1             Due Organization; Qualification and Good Standing. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Washington and has all requisite corporate power and
authority to carry on its business as now conducted. The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure to so qualify or to be in good standing would have a material
adverse effect on the Company.

5.2             Authorization and Enforceability. Except for the authorization
and issuance of the Conversion Shares, all corporate action has been taken on
the part of the Company and its officers, directors and stockholders necessary
for the authorization, execution and delivery of this Agreement and the Note.
Except as may be limited by applicable bankruptcy, insolvency, reorganization or
similar laws relating to or affecting the enforcement of creditors' rights, the
Company has taken all corporate action required to make all of the obligations
of the Company reflected in the provisions of this Agreement and the Note valid
and enforceable in accordance with their terms.

6.            Representations and Warranties of the Purchaser. In connection
with the transactions contemplated by this Agreement, the Purchaser hereby
represents and warrants to the Company as follows:

6.1             Authorization. The Purchaser has full power and authority (and,
if such Purchaser is an individual, the capacity) to enter into this Agreement
and to perform all obligations required to be performed by it hereunder. This
Agreement, when executed and delivered by the Purchaser, will constitute the
Purchaser's valid and legally binding obligation, enforceable in accordance with
its terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and any other laws of general
application affecting enforcement of creditors' rights generally, and (b) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies.

6.2             Purchase Entirely for Own Account. The Purchaser acknowledges
that this Agreement is made with the Purchaser in reliance upon the Purchaser's
representation to the Company, which such Purchaser confirms by executing this
Agreement, that the Note, and the Conversion Shares (collectively, the
"Securities") will be acquired for investment for the Purchaser's own account,
not as a nominee or agent, and not with a view to the resale or distribution of
any part thereof, and that the Purchaser has no present intention of selling,
granting any participation in, or otherwise distributing the same. By executing
this Agreement, the Purchaser further represents that the Purchaser does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third person,
with respect to the Securities.

6.3             Disclosure of Information; Non-Reliance. The Purchaser
acknowledges that it has received all the information it considers necessary or
appropriate to enable it to make an informed decision concerning an investment
in the Securities. The Purchaser further represents that it has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of the Securities. The Purchaser confirms
that the Company has not given any guarantee or representation as to the
potential success, return, effect or benefit (either legal, regulatory, tax,
financial, accounting or otherwise) of an investment in the Securities. In
deciding to purchase the Securities, the Purchaser is not relying on the advice
or recommendations of the Company and such Purchaser has made its own
independent decision that the investment in the Securities is suitable and
appropriate for the Purchaser. The Purchaser understands that no federal or
state agency has passed upon the merits or risks of an investment in the
Securities or made any finding or determination concerning the fairness or
advisability of this investment.

6.4             Investment Experience. The Purchaser is an investor in
securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Securities.

6.5             Accredited Investor. The Purchaser is an "accredited investor"
within the meaning of Rule 501 of Regulation D promulgated under the Securities
Act. The Purchaser agrees to furnish any additional information requested by the
Company to assure compliance with applicable U.S. federal and state securities
laws in connection with the purchase and sale of the Securities.

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6.6             Restricted Securities. The Purchaser understands that the
Securities have not been, and will not be, registered under the Securities Act
or any state securities laws, by reason of specific exemptions under the
provisions thereof which depend upon, among other things, the bona fide nature
of the investment intent and the accuracy of the Purchaser's representations as
expressed herein. The Purchaser understands that the Securities are "restricted
securities" under U.S. federal and applicable state securities laws and that,
pursuant to these laws, the Purchaser must hold the Securities indefinitely
unless they are registered with the Securities and Exchange Commission ("SEC")
and registered or qualified by state authorities, or an exemption from such
registration and qualification requirements is available. The Purchaser
acknowledges that the Company has no obligation to register or qualify the
Securities for resale and further acknowledges that, if an exemption from
registration or qualification is available, it may be conditioned on various
requirements including, but not limited to, the time and manner of sale, the
holding period for the Securities, and on requirements relating to the Company
which are outside of the Purchaser's control, and which the Company is under no
obligation, and may not be able, to satisfy.

6.7         No General Solicitation. The Purchaser has not either directly or
indirectly, including through a broker or finder, solicited offers for or
offered or sold the Securities by means of any form of general solicitation or
general advertising within the meaning of Rule 502 of Regulation D under the
Securities Act or in any manner involving a public offering within the meaning
of Section 4(a)(2) of the Securities Act. The Purchaser acknowledges that
neither the Company nor any other person offered to sell the Securities to it by
means of any form of general solicitation or advertising within the meaning of
Rule 502 of Regulation D under the Securities Act or in any manner involving a
public offering within the meaning of Section 4(a)(2) of the Securities Act.

6.8             Residence. The Purchaser resides in the state of Texas.

7.            Miscellaneous.

7.1             Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement will inure to the benefit of, and be
binding upon, the respective successors and assigns of the parties. This
Agreement is for the sole benefit of the parties hereto and their respective
successors and permitted assigns, and nothing herein, express or implied, is
intended to or will confer upon any other person or entity any legal or
equitable right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement.

7.2             Choice of Law. This Agreement and the Note, and all matters
arising out of or relating to this Agreement, whether sounding in contract,
tort, or statute will be governed by and construed in accordance with the
internal laws of the State of Washington, without giving effect to the conflict
of laws provisions thereof to the extent such principles or rules would require
or permit the application of the laws of any jurisdiction other than those of
the State of Washington.

7.3             Counterparts. This Agreement may be executed in counterparts,
each of which will be deemed an original, but all of which together will be
deemed to be one and the same agreement. Counterparts may be delivered via
facsimile, email (including PDF or any electronic signature complying with the
U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission
method, and any counterpart so delivered will be deemed to have been duly and
validly delivered and be valid and effective for all purposes.

7.4             Titles and Subtitles. The titles and subtitles used in this
Agreement are included for convenience only and are not to be considered in
construing or interpreting this Agreement.

7.5             Notices. All notices and other communications given or made
pursuant hereto will be in writing and will be deemed effectively given: (a)
upon personal delivery to the party to be notified; (b) when sent by email or
confirmed facsimile; (c) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or (d) one (1) day
after deposit with a nationally recognized overnight courier, specifying next
day delivery, with written verification of receipt. All communications will be
sent to the respective parties at the addresses shown on the signature pages
hereto (or to such email address, facsimile number or other address as
subsequently modified by written notice given in accordance with this Section
7.5).

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7.6             No Finder's Fee. Each party represents that it neither is nor
will be obligated to pay any finder's fee, broker's fee or commission in
connection with the transactions contemplated by this Agreement. The Purchaser
agrees to indemnify and to hold the Company harmless from any liability for any
commission or compensation in the nature of a finder's or broker's fee arising
out of the transactions contemplated by this Agreement (and the costs and
expenses of defending against such liability or asserted liability) for which
the Purchaser or any of its officers, employees or representatives is
responsible. The Company agrees to indemnify and hold the Purchaser harmless
from any liability for any commission or compensation in the nature of a
finder's or broker's fee arising out of the transactions contemplated by this
Agreement (and the costs and expenses of defending against such liability or
asserted liability) for which the Company or any of its officers, employees or
representatives is responsible.

7.7             Expenses. Each party will pay all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance of
this Agreement.

7.8             Attorneys' Fees. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the prevailing party will
be entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.

7.9             Entire Agreement; Amendments and Waivers. This Agreement, the
Note and the other documents delivered pursuant hereto constitute the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof.

7.10          Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provisions will be excluded from
this Agreement and the balance of the Agreement will be interpreted as if such
provisions were so excluded and this Agreement will be enforceable in accordance
with its terms.

7.11          Transfer Restrictions.

(a)              Limitations on Disposition. Without in any way limiting the
representations and warranties set forth in this Agreement, the Purchaser agrees
not to make any disposition of all or any portion of the Securities unless and
until the transferee has agreed in writing for the benefit of the Company to
make the representations and warranties set out in Section 6 and the Purchaser
has (i) notified the Company of the proposed disposition; (ii) furnished the
Company with a detailed statement of the circumstances surrounding the proposed
disposition; and (iii) if requested by the Company, furnished the Company with
an opinion of counsel reasonably satisfactory to the Company that such
disposition will not require registration under the Securities Act. The
Purchaser agrees that it will not make any disposition of any of the Securities
to the Company's competitors, as determined in good faith by the Company.

(b)             Legends. The Purchaser understands and acknowledges that the
Securities may bear the following legend:

THIS INSTRUMENT AND THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
OR UPON RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.

7.12          Acknowledgment. For the avoidance of doubt, it is acknowledged
that the Purchaser will be entitled to the benefit of all adjustments in the
number of shares of the Company's capital stock as a result of any splits,
recapitalizations, combinations or other similar transactions affecting the
Company's capital stock underlying the Conversion Shares that occur prior to the
conversion of the Note.

7.13          Further Assurances. From time to time, the parties will execute
and deliver such additional documents and will provide such additional
information as may reasonably be required to carry out the terms of this
Agreement and the Note and any agreements executed in connection herewith or
therewith.

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7.14          Waiver of Jury Trial. EACH PARTY HEREBY WAIVES ITS RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT, THE SECURITIES OR THE SUBJECT MATTER HEREOF OR THEREOF. THE SCOPE OF
THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY
BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION,
INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS (INCLUDING
NEGLIGENCE), BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY
CLAIMS. THIS SECTION HAS BEEN FULLY DISCUSSED BY EACH OF THE PARTIES HERETO AND
THESE PROVISIONS WILL NOT BE SUBJECT TO ANY EXCEPTIONS. EACH PARTY HERETO HEREBY
FURTHER REPRESENTS AND WARRANTS THAT SUCH PARTY HAS REVIEWED THIS WAIVER WITH
ITS LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.

[signature page followS]

 

 

 

 

 

 

 

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date set forth above.

 

COMPANY:         DAYBREAK OIL AND GAS, INC.         By /s/ Karol L. Adams Name:
Karol L. Adams Title:   Chief Compliance Officer and Corporate Secretary        
Address: 1101 N. Argonne Road, Suite A 211 Spokane Valley, WA 99212            
PURCHASER:         /s/ JAMES F. WESTMORELAND Name: James F. Westmoreland        
Address:  1414 S. Friendswood Dr, Suite 212        Friendswood, TX 77546    

 

 

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EXHIBIT A

Form of Convertible Promissory Note

THIS INSTRUMENT AND THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
OR UPON RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.

 

CONVERTIBLE PROMISSORY NOTE

 

No. CN-[01142020] Date of Issuance US$50,000 January 14, 2020

 

FOR VALUE RECEIVED, DAYBREAK OIL AND GAS, INC., a Washington corporation (the
"Company"), hereby promises to pay to the order of James F. Westmoreland (the
"Holder"), the principal sum of US$50,000 or the outstanding principal amount
advanced hereunder, whichever is less. This Note shall not bear interest.
Pursuant to that certain Convertible Note Purchase Agreement dated January 14,
2020, by and among the Company and the Holder (the "Purchase Agreement"), the
principal of this Note will be due and payable by the Company on or before the
Maturity Date and, if not paid in full by the Maturity Date, will be subject to
conversion as set forth in the Purchase Agreement. Capitalized terms not defined
herein will have the meanings set forth in the Purchase Agreement.

1.            Adjustments to Principal Amount. The principal sum of this Note is
$27,835.03 as of the date of issuance, but may be increased to $50,000 pursuant
to the terms of the Purchase Agreement. The Company shall at all times maintain
an accurate record of the outstanding principal balance of this Note based on
the amount of funds paid by the Holder.

2.            Payment. All payments will be made in lawful money of the United
States of America at the principal office of the Company, or at such other place
as the Holder may from time to time designate in writing to the Company. The
Company may prepay the Note at any time.

3.            Security. This Note is a general unsecured obligation of the
Company.

4.            Conversion of the Note. This Note and any amounts due hereunder
will be convertible into Conversion Shares in accordance with the terms of
Section 4 of the Purchase Agreement.

5.            Amendments and Waivers; Resolutions of Dispute; Notice. The
amendment or waiver of any term of this Note, the resolution of any controversy
or claim arising out of or relating to this Note and the provision of notice
among the Company and the Holder will be governed by the terms of the Purchase
Agreement.

6.            Successors and Assigns. This Note applies to, inures to the
benefit of, and binds the respective successors and assigns of the parties
hereto; provided, however, that the Company may not assign its obligations under
this Note without the written consent of the Requisite Noteholders. Any transfer
of this Note may be effected only pursuant to the Purchase Agreement and by
surrender of this Note to the Company and reissuance of a new note to the
transferee. The Holder and any subsequent holder of this Note receives this Note
subject to the foregoing terms and conditions, and agrees to comply with the
foregoing terms and conditions for the benefit of the Company.

7.            Officers and Directors not Liable. In no event will any officer or
director of the Company be liable for any amounts due and payable pursuant to
this Note.

 

 

 

8.            Choice of Law. This Note, and all matters arising out of or
relating to this Note, whether sounding in contract, tort, or statute, will be
governed by and construed in accordance with the internal laws of the State of
Washington, without giving effect to the conflict of laws provisions thereof to
the extent such principles or rules would require or permit the application of
the laws of any jurisdiction other than those of the State of Washington.

9.            Approval. The Company hereby represents that its board of
directors, in the exercise of its fiduciary duty, has approved the Company's
execution of this Note based upon a reasonable belief that the principal
provided hereunder is appropriate for the Company after reasonable inquiry
concerning the Company's financing objectives and financial situation. In
addition, the Company hereby represents that it intends to use the principal of
this Note primarily for the operations of its business.

 

DAYBREAK OIL AND GAS, INC.         By /s/ Karol L. Adams Name: Karol L. Adams
Title:   Chief Compliance Officer and Corporate Secretary