exv10w46






EXHIBIT 10.46




WAREHOUSING LINE OF CREDIT PROMISSORY NOTE



INTRODUCTION. This Warehousing Line of Credit Promissory Note (the “NOTE”), governs your line of
credit (the “CREDIT LINE”) with Genesis Financial Inc., a Washington corporation. The words
“BORROWER,” “you,” mean Daybreak Oil and Gas, Inc., a Washington corporation. The words “LENDER,”
“we,” “us,” and “our,” means Genesis Financial Inc., a Washington corporation, the entity that is
making the loan and advances described in this NOTE. The CREDIT LINE will provide BORROWER with
financing to fund operational expenses, in accordance with the procedures described in this NOTE
and the attached exhibits (if any).



MAXIMUM CREDIT. The unpaid principal balance under the CREDIT LINE may not exceed $180,000.00
outstanding at any given time during the term of the NOTE.



PROMISE TO PAY. You promise to pay LENDER the total of all loan advances and finance charges,
together with all costs and expenses for which you are responsible under this NOTE. You will pay
the CREDIT LINE according to the payment terms set forth below.



DUE DATE. You promise to pay the balance of this NOTE on or before June 30, 2006, or, should any
of the agreed upon terms be breached by the BORROWER, at the option of LENDER on demand. So long
as this NOTE is in good standing, you may obtain advances on the CREDIT LINE in accordance with the
procedures described in this NOTE and the attached exhibits (if any).




INTEREST. This Note carries zero (0%) interest.



COMMITMENT FEE. BORROWER will give LENDER thirty-six thousand (36,000) shares of Daybreak Oil and
Gas, Inc. common stock as a Loan Origination or Commitment Fee. This stock is to be delivered to
LENDER on or before the date of this note.



ADVANCES AND REPAYMENTS. BORROWER will receive an advance on the CREDIT LINE of sixty thousand
dollars ($60,000) at closing. BORROWER may request a portion, or all, of the remaining one hundred
twenty thousand dollars ($120,000) upon notice, and LENDER’s verification, that the Ginny South
well has reached completion. BORROWER may make payments against the outstanding principle balance
at any time during the term of the CREDIT LINE, subject to LENDER’s conversion option rights.



CONVERSION OPTION. LENDER and BORROWER agree that LENDER has the option, and the right, at any
time during the term of this NOTE, to convert all, or a portion of, the principle balance
outstanding, to shares of common stock in Daybreak Oil and Gas, Inc. LENDER and BORROWER agree
that the conversion rate will be twenty-five cents ($.25) per share. LENDER will notify BORROWER
in writing of any conversion request, and those amounts converting will be deducted from the
principle balance outstanding on this NOTE, upon receipt of the appropriate stock certificates.



PERSONAL GUARANTEES. This NOTE is partially personally guaranteed by Terrence J. Dunne, and
individual residing in Spokane, Washington. Dunne is guaranteeing only the initial




 









 








EXHIBIT 10.46



sixty thousand dollar ($60,000) advance. The personal guarantee agreement is attached as Exhibit D
(attached).



DEFAULT. If BORROWER defaults in timely payment of any amount due under this NOTE, including
non-payment upon LENDER’S demand, or is in default as a result of non-compliance with the Financial
Covenant requirements, and such default continues without cure for ten days, LENDER may pursue any
legal or equitable remedies for collection of the amounts due. BORROWER waives presentment, demand
for payment, protest, and notice of nonpayment. BORROWER agrees to pay LENDER all costs and
expenses of collection of the amounts due or to become due under this NOTE, including reasonable
attorneys’ fees. Upon Lender’s declaration of a default, and Borrower’s failure to cure the
default within ten days, the interest rate charged on this NOTE shall be the lesser of 18% per
annum, or the highest rate then allowed by law.



ASSIGNMENT. This NOTE and the Personal Guarantees may be assigned by LENDER to an affiliate
entity, and BORROWER consents to the assignment to such an affiliated entity. Assignment to an
unaffiliated entity may only be done after written consent of BORROWER.



SIGNATURES. This NOTE is executed on December 19, 2005 in Spokane, Washington.




DAYBREAK OIL AND GAS, INC.




/s/
 Thomas C. Kilbourne, Treasurer




WITNESS:




/s/ T. Hayes




Accepted this                     , 2005




GENESIS FINANCIAL, INC.




/s/
 Michael A. Kirk, President/CEO




WITNESS:




/s/ T. Hayes




 









 





EXHIBIT 10.46




Exhibit B




PERSONAL GUARANTY



The undersigned, Terrence J. Dunne, jointly and severally personally and unconditionally guaranties
a portion of the warehousing credit line loan made December 19, 2005 by Genesis Financial Inc.
(Lender) to Daybreak Oil and Gas, Inc. (Borrower) in the original amount of One Hundred Eighty
Thousand Dollars ($180,000). That portion is only the initial draw against the credit line of
Sixty Thousand Dollars ($60,000).



Guarantor is primarily and independently liable for this portion of the debt.



This is not a collateralized loan, and the Lender’s only security is the personal guarantee,
therefore there are no collateral deficiencies to prove prior to calling this guarantee.



This guaranty shall be in effect as long as there is an outstanding balance on the credit line.



Any petition for bankruptcy by the original makers of the loan, or by the Guarantor, shall not make
this guarantee invalid or unenforceable.



Guarantor and Lender hereby knowingly and voluntarily and intentionally waive the right to trial by
jury of all issues related to this guaranty.



This guaranty may be executed/signed in counterparts, each of which shall be deemed an original and
together shall constitute one in the same instrument.



In witness whereof we have set our hands and seals this 19th day of December 2005.




	 	 	 	 	 
	/s/
T. Hayes 

Witness

	 	/s/
 Terrence
J. Dunne