FIRST AMENDMENT TO OPERATING AGREEMENT OF NORTHCUT REFINING, LLC



FIRST AMENDMENT TO OPERATING AGREEMENT OF NORTHCUT REFINING, LLC


 

This FIRST AMENDMENT ("Amendment") to the OPERATING AGREEMENT of
NORTHCUT REFINING, LLC, a Wyoming limited liability company (the "Company")
is made effective this 14th day of October, 2008 (the "Effective
Date") by and among Interline Resources Corporation, a Utah corporation, in its
capacity as Manager and a Member ("Interline"), PCG Midstream, LLC, a Utah
limited liability company in its capacity as Co-Interim Manager and a Member
("PCG"), and Northcut Holdings, LLC, a Utah limited liability company in its
capacity as Co-Interim Manager and a Member ("Northcut Holdings").

 

RECITALS

 

A. 

The parties entered into an Operating Agreement for the Company
dated September 13, 2007 (the "Original Agreement"). 

 

B. 

The Company requires additional funding and has arranged to borrow
$3.5 MM from parties that have a relationship with PCG. In connection with the
additional funding, the parties have agreed to certain changes to the Company's
structure. To reflect this, the parties wish to amend the Operating Agreement to
(i) amend defined terms to encompass additional loans and advances to the
Company; (ii) change the respective
Membership Interest and Percentage Interest of the Members; (iii) provide for
amended allocations of Profits and Losses and distributions of the Available
Cash to the Members and to repay the Company's indebtedness; and (iv) to make
other changes on which the Managers and Members agree.

 

NOW THEREFORE in consideration of the foregoing premises, the
Original Agreement is hereby amended and certain other agreements are made as
follows:

 

1.

 Amendment to Defined Terms. Except as specifically
amended by this Amendment, all capitalized terms used herein shall have the same
meaning ascribed to such terms in the Original Agreement. The definition of Loan
Obligation set forth in Article 1.2(m) in the Operating Agreement is hereby
amended to read as follows:

 

(s) Loan Obligation. "Loan Obligation" means the collective
reference to all indebtedness and other liabilities and obligations of every
kind and description owed by the Company to any lender under any of (i) the Construction Loan
Agreement dated September 13, 2007; (ii) the First Amendment to Construction
Loan Agreement dated April 29, 2008, and (iii) the Second Amendment to
Construction Loan Agreement dated October 14, 2008, including any promissory
notes, security documents, and other loan documents or instruments executed and
delivered pursuant thereto or in connection therewith, however evidenced,
created, or incurred, fixed or contingent, now or hereafter existing, due or to
become due, and including any subsequent extensions of credit, additional
advances, or additional charges in relation to any ofthe foregoing.

 

2. 

Amendment of Extraordinary Matters. Article 3.4(m) of the
Operating Agreement, is hereby amended in its entirety to provide as follows:


(m)
Voluntary dissolve the Company or take any action, directly through any of the
Managers or indirectly through any of the Managers or any Member, to institute
or seek to have instituted any Bankruptcy proceeding. 

 

3. 

Amendment to Article 4.4. The first paragraph of Article
4.4 of the Operating Agreement is hereby amended to read as follows: 

 

4.4

 Loan
Obligation Payment/ Distributions. "Pre-Debt Service Cash" means the gross
cash proceeds of the Company realized from and after the Operating Date less the
portion thereof used to pay or establish reserves for all Company expenses, debt
payments (including any payments on the Loan Obligation not provided for in this Article 4.4, but excluding any
payments on the Loan Obligation made under the provisions of this Article 4.4),
capital improvements, replacements, and contingencies, all as determined by the
Managers, but not reduced by depreciation, amortization, cost recovery
deductions or similar allowances, but increased by any reduction of reserves
previously established by the Managers. Commencing with the first full calendar
month following the Operating Date (the "Commencement Month") and for each
calendar month thereafter through the end of the Payoff Month (the "Loan
Period"), the Managers shall apply within 30 days following the end of each such
calendar month to repayment of all amounts owing under the Loan Obligation an
amount equal to the difference between eighty percent (80%) of the cumulative
Pre-Debt Service Cash for the period beginning with the Commencement Month
through the end of the current calendar month in the Loan Period in respect of
which the payment is being made, and the amount of Pre ­Debt Service Cash
previously paid on the Loan Obligation under this Article 4.4. For example, if
Pre-Debt Service Cash for the Commencement Month is $200,000, within 30 days the
Company would pay on the Loan Obligation a total of $160,000, and if cumulative
Pre-Debt Service Cash for the Commencement Month and the following month totals
$360,000, the Company would pay on the Loan Obligation within 30 days after the
end of the second month a total of $128,000 ($288,000-$160,000). The Managers
and Members acknowledge that this paragraph is their agreement regarding the
application of the Company's cash to repayment of the Loan Obligation and is not
intended to modify, amend, limit or otherwise affect the timing or amount of any
payment obligations arising under the written agreements, instruments, and other
documents establishing the Loan Obligation, or any of the rights of the holders
of the Loan Obligation to declare defaults and enforce any remedies contemplated
thereby. 

 

"Available Cash" means, until the end of the Loan Period, the
difference between Pre-Debt Service Cash and the amount paid on the Loan
Obligation under the preceding paragraph of this Article 4.4, and after the Loan
Period "Available Cash" means the gross cash proceeds of the Company realized
from its operations less the portion thereof used to payor establish reserves
for all Company expenses, debt payments, capital improvements, replacements, and
contingencies, all as determined by the Managers, but not reduced by
depreciation, amortization, cost recovery deductions or similar allowances, but
increased by any reduction of reserves previously established by the Managers.


 

3. 

Amendment to Article 4.4(a). Article 4.4(a) of the
Operating Agreement is hereby amended to read as follows: 

 

(a) 

During the Loan Period, the Managers shall distribute Available
Cash 75% to Interline, 13.65% to Northcut Holdings, and 11.35% to PCG, within 30
days following the end of each calendar month in an amount equal to the
difference between the cumulative Available Cash for the period beginning with
the Commencement Month through the end of the current calendar month in the Loan
Period in respect of which the distribution is being made, and the total amount
of Available Cash previously distributed to Interline, Northcut Holdings and
PCG. For example, if Available Cash for the Commencement Month is $100,000,
within 30 days the Company would distribute to Interline $75,000, to Northcut
Holdings $13,650, and to PCG $11,350, and if cumulative Available Cash for the
Commencement Month and the following month is $180,000, the Company would
distribute to Interline within 30 days after the end of the second month $60,000
($135,000-$75,000), to Northcut Holdings $10,920 ($24,570-$13,650), and to PCG
$9,080 ($20,430-$11,350). No other Distributions shall be made during the Loan
Period without the unanimous approval of the Managers. 

 

4. 

Amendment to Membership Interest and Percentage Interest of the
Members. Exhibit A is amended to provide that, effective as of the date of
this Amendment, (a) Interline Resources Corporation has a 68% Membership
Interest and 68% Percentage Interest; 

(b)
PCG has a 15% Membership Interest and 15% Percentage Interest; and (c) Northcut
Holdings has a 17% Membership Interest and 17% Percentage Interest. 

 

5. 

No Other Changes. Except as otherwise explicitly set forth
herein the Original Agreement shall remain in full force and effect without
other modification or amendment. 

 

(SIGNATURE PAGE TO FOLLOW) 

 

SIGNED by the Members to be effective as of
the Effective Date. 

Interline
Resources Corporation 

160
West Canyon Crest Road

Alpine,
Utah 84004




By: /s/
Michael Williams__________

Title: Michael
Williams




PCG
Midstream, LLC

486
West 50 North

American
Fork, Utah 84003




By: /s/
Michael R. Burke__________

Title: Michael R.
Burke




Northcut
Holdings,LLC

486
West 50 North

American
Fork, Utah 84003




By: /s/
Michael R. Burke__________

Title: Michael R.
Burke







AGREED
and accepted as of the Effective Date by the Manager and Co-Interim

Managers.




Interline
Resources Corporation

160
West Canyon Crest Road

Alpine,
Utah 84404




By: /s/
Michael Williams

Title: Michael
Williams




PCG
Midstream, LLC

486
West 50 North

American
Fork, Utah 84003 




By: /s/
Michael R. Burke

Title: Michael R.
Burke




Northcut
Holdings, LLC

486
West 50 North

American
Fork, Utah 84003




By: /s/
Michael R. Burke

Title: Michael R.
Burke