FORBEARANCE AGREEMENT



FORBEARANCE AGREEMENT 

 

IN CONSIDERATION
of the covenants and conditions hereafter expressed, this Forbearance Agreement
is entered into between Private Capital Group, Inc., a Utah corporation ("Lender"), NorthCut Refining,
LLC, a Wyoming limited liability company ("Borrower"), Interline Resources
Corporation, a Utah corporation ("Guarantor"), and Michael R Williams (as an
individual "Investor"). The parties represent and agree as follows: 

 

I.
REPRESENTATIONS


 

A. Borrower and
Guarantor executed and delivered to Lender a Construction Loan Agreement, Deeds
of Trust, All Assets Security Agreement, Guaranty Agreement, Promissory Note and
other loan documents related to a loan ("Loan") in the original amount of
$11,500,000.00 (collectively "Loan Documents"), all dated on or about September
10, 2007. The Deeds of Trust were amended on April 30, 2008. Interline Resources
Corporation ("Interline") executed and delivered to Lender Deeds of Trust also
dated September 10,2007 and amended April 30, 2008. The Loan Documents were
amended to increase the amount available to $12,700,000.00. 

 

B. The loan has
been fully drawn. 

 

C. Michael R.
Williams is an Investor in Borrower and Guarantor, either directly or
indirectly. 

 

D. On July 14,
2008, Lender declared a default on the Loan. 

 

E. The principal
balance due is $12,700,000.00 as of July 31,2008, together with interest, costs,
fees and attorneys' fees. 

 

F. One or more
Events of Default (as defined in the Loan Documents) have occurred and are
continuing under the Loan because Borrower has failed to make payment of either
principal or interest when due on the Note. 

 

G. Lender had the
present right, pursuant to the terms of the Loan, to declare the indebtedness
evidenced by the Loan Documents to be immediately due and payable, to collect
the indebtedness due to Lender, to make demand upon the Guarantor to honor its
Guaranty, and to exercise any legal or equitable remedies available to Lender
against the security, Borrower, or the Guarantor. 

 

H. Borrower
requested on August 4, 2008 that Lender forbear, for a period of time, from
exercising its respective rights and remedies available at law, in equity, by
agreement, or otherwise as a result of the Event of Default. 

 

I.
Borrower and
Lender entered into a forbearance agreement on August 6, 2008 and pursuant to
such agreement, Borrower or Guarantor were required to pay in full all
employees, mechanics, materialmen and all persons or entities owed money related
to the Property (as defined in the Loan Documents) by September 8,2008.


 

J. Borrower failed
to satisfy the tenns of the forbearance agreement dated August 6, 2008 and
therefore Lender had the present right, pursuant to the terms of the Loan, to
declare the indebtedness evidenced by the Loan Documents to be immediately due
and payable, to collect the indebtedness due to Lender, to make demand upon the
Guarantor to honor its Guaranty, and to exercise any legal or equitable remedies
available to Lender against the security, Borrower, or the Guarantor. 

 

K. Borrower again
requested on September 3, 2008 that Lender forbear, for a period of time, from
exercising its respective rights and remedies available at law, in equity, by
agreement, or otherwise as a result of the Event of Default. 

 

L.
Borrower and Lender
entered into a forbearance agreement on September 3, 2008 and pursuant to such
agreement, Borrower or Guarantor were required to: (i) pay in full all employees,
mechanics, materialmen and all persons or entities owed money related to the
Property (as defined in the Loan Documents) by September 5, 2008; and (ii) cause
crude oil to be delivered to the crude oil refinery located on the Property and
refined thereon, on or before October 1,2008. 

 

M. Borrower and
Guarantor were unable to pay the required amounts on or before September 5,
2008, and have failed to cause crude oil to be delivered to the crude oil
refinery located on the Property and refined thereon, on or before October 1,
2008, and therefore have requested that Lender forbear again, for a period of
time, from exercising its respective rights and remedies available at law, in
equity, by agreement, or otherwise as a result of the Event of Default. 

 

N. Upon the terms
and conditions contained herein, Lender is prepared, for a limited period of
time, to forbear from the exercise of such rights and remedies. 

 

O. The forbearance
by Lender from the current exercise of its respective rights and remedies, as
described in this Forbearance Agreement, shall result in a direct and tangible
benefit to Borrower, Guarantor and Investor. 




II. BORROWER'S,
GUARANTOR'S AND INVESTORS' ACKNOWLEDGMENTS 




A.
Borrower, Guarantor and Investor
acknowledge that: (i) material Events of Default exists under the
Loan in that Borrower has failed to cure the defaults and comply with the prior
agreements, and (ii) Guarantor has also failed to cure the same defaults and
honor its Guaranty. 




B. Borrower,
Guarantor and Investor acknowledge that: (i) material Events of Default exists
under the preceding forbearance agreements in that Borrower has failed to comply
with the terms of the prior agreements and therefore all prior agreements and
the terms contained therein are superseded by the terms contained herein. 




C. Timely, adequate,
and proper notice of the occurrence of such Event of Default under the Loan has
been given by Lender and received by Borrower, Guarantor and Investor (or
Borrower, Guarantor and Investor waive any requirements of notice). 

 

D. The Event of
Default is continuing and has not been timely cured by Borrower or Guarantor.





E. Lender has not
waived its respective rights and remedies with respect to the Loan. 




F. Lender has the present right to accelerate the
principal balance due and owing on the Loan. 




G. Borrower,
Guarantor and Investor acknowledge that Lender shall record notices of default
and deliver them to all parties required by statute and this Agreement in no way
shall restrict Lender from taking such actions. 




H. Borrower's and
Guarantor's liabilities are in full force and effect. 




I. Borrower,
Guarantor and Investor acknowledge that the current fair market value of the
Property (as such term is defined in the Loan Documents) is approximately Twenty
Million and Noll 00 Dollars ($20,000,000.00). 







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FORBEARANCE BY
LENDER 

Pursuant
to the request of Borrower and Guarantor, Lender agrees to forbear from the
exercise of its rights and remedies under the Loan to foreclose the security, at
law or in equity or otherwise available to Lender as a result of the Event of
Default under the Loan, excepting Lender's right to record a notice of default
which is expressly authorized hereunder, until the earliest to occur of the
following times: 




1. January 30, 2009; 




2. The occurrence
of any default under this Forbearance Agreement and the failure of Borrower or
Guarantor to timely cure any default after any written notice; 




3. The occurrence
of any Event of Default under the Loan (other than continuation of Events of
Default as described in the paragraph entitled "Representations") and the
failure of Borrower or Guarantor to timely cure any default after written
notice. 




From the
execution of this Forbearance Agreement to the earliest of the above dates is
referred to as the "Forbearance Period." Notwithstanding anything to the
contrary contained herein, Late Fees shall be charged retroactively back to the
date any payments became due if any Event of Default occurs hereunder or under
the Loan. 

B. During the
Forbearance Period, except to declare any default under this Forbearance
Agreement and to protect the Lender's security interest, neither Lender, nor
Borrower, nor Guarantor shall take any action toward each other to file any
lawsuit or arbitration proceedings to enforce the rights under the Loan. 

C. During the
Forbearance Period and as a condition to the continuation of the forbearance,
Borrower and Guarantor covenant and agree as follows: 

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1. Borrower and
Guarantor shall provide copies of invoices paid along with all supporting
documents including copies of checks, credit receipts or fund transfer
notifications related to any use of any funds received by Borrower or Guarantor.
Borrower or Guarantor shall provide this financial information each Friday
commencing on October 17, 2008 the last report being required on January 23,
2008. 




2. Borrower or
Guarantor shall pay in full all employees, insurance premiums and other costs
associated with the operation and maintenance of the Property by October 17,
2008. Further, Borrower or Guarantor shall continue to pay in full all
employees, mechanics, materialmen and all persons or entities owed money related
to the Property during the term of this Forbearance Agreement. 




3. Borrower or
Guarantor shall cause crude oil to be delivered to the crude oil refinery
located on the Property and refined thereon, on or before October 17,2008. 




4. Borrower shall
make payments to Lender of at least Two Hundred Fifty Thousand and No/100
Dollars ($250,000.00) on December 1, 2008 and again on January 1, 2009. 




5. Lender shall have
access to inspect, audit, and copy Borrower's and Guarantor's records, files,
and books and to examine and inspect collateral granted as security for the
Loan. Borrower shall reimburse Lender for all of Lender's out-of-pocket expenses
associated with its audit, inspection, and examination. 




IV. MISCELLANEOUS


No amendment,
modification, termination, or waiver of any provision of this Forbearance
Agreement shall be effective unless the same shall be in writing and signed by
both parties. 

A. Notices. All
notices and other communication provided for under this Forbearance Agreement
shall be in writing and mailed, transmitted, or delivered to the respective
party at the address shown below their respective signature to this Forbearance
Agreement or at such other addresses as should be designated by such parties in
a written notice to the other party complying with the delivery terms of this
section. 

B.
No Waiver. No failure or delay on the
part of Lender in exercising any right, power or remedy hereunder shall operate
as a waiver. 

C. Costs,
Expenses, and Taxes. Borrower agrees to pay, upon demand, all costs and expenses
incurred by Lender in connection with the preparation, execution, delivery,
filing, and administration of this Forbearance Agreement and any amendment,
modification, or supplement to this Forbearance Agreement including, without
limitation, the fees and out-of-pocket expenses of counsel for Lender incurred
in connection with advising Lender as to its rights and responsibilities
hereunder. If Borrower is not able to timely pay these expenses, Borrower
authorizes Lender to add such expenses to the principal balance due and owing
under the Loan. 

D. No Lien
Termination Without Release. In recognition of Lender's right to have all of its
attorneys' fees and expenses incurred in connection with this Forbearance
Agreement 

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secured by the
collateral, notwithstanding payment in full of obligations by Borrower to
Lender, Lender shall not be required to record any termination or satisfaction
of any of its liens on the collateral for the Loan unless and until Borrower,
Guarantor and Investor have executed and delivered to Lender general releases
releasing Lender from any liability that is connected to the credit extended
hereunder. 

E. Disclaimer for
Negligence. Lender shall not be liable for any claims, demands, losses or
damages, made or claimed, suffered by Borrower, Guarantor or Investor, except as
such may arise through or could be caused by Lender's gross negligence or
willful misconduct. 

F. Limitation of
Consequential Damages. No party shall be responsible for lost profits of the
other arising from any breach of contract, tort, or for any wrong arising from
the negotiation ofthis Forbearance Agreement or under the Loan Documents. 

G. Notices to
Third Party. Lender shall have the right, at any time, to give any affiliated
company, guarantor, participant or subordinated creditor notice of any
information or act relating to this Forbearance Agreement or the underlying Loan
that Lender may deem necessary or desirable in Lender's sole discretion
including, without limitation, Borrower's financial condition. 

H. Negotiations
with Purchasers of the Security. As a result of Borrower's, Guarantor's and
Investor' financial condition, Lender may inquire or may receive inquiries
concerning the security for the Loan. Borrower hereby authorizes and directs
Lender to convey any information about the Loan and to discuss any information
Lender has concerning the collateral for the Loan. Borrower, Guarantor and
Investor hereby state that it is in their best interest that Lender openly
discuss the Loan and the collateral and, therefore, they hereby waive any claim
that they may have against Lender and release it from any liability as a result
of discussions concerning the Loan or Borrower's, Guarantor's or Investor'
financial condition or the collateral for the Loan. 

I. Information to Participants. Lender may furnish any
financial or other information concerning Borrower or any of its subsidiaries to
any participant. 

J. Governing Law.
This Forbearance Agreement shall be governed and construed in accordance with
the laws of the State of Utah. 

K.
Jurisdiction.
Borrower, Guarantor and Investor submit themselves and their property to the
jurisdiction and venue of the Third Judicial District Court in and for Salt Lake
County, State of Utah. 

L. Waiver of Jury
Trial. Borrower, Guarantor and Investor waive any right to trial by jury and
consent to the granting of such legal and equitable relief as being deemed
reasonable by a judge of the Third Judicial District Court in and for Salt Lake
County, State of Utah. 

M. Rule of
Construction. This Forbearance Agreement has been fully reviewed and negotiated
between the parties and no uncertainty or ambiguity in any term or provision of
this Forbearance Agreement shall be construed strictly against Lender, Borrower,
Guarantor or Investor under any rule of construction or otherwise. 

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N. Operating
Agreement. Borrower, Guarantor and Investor waive any rights they may have under
the Articles of Organization or Operating Agreement of Borrower to require
Lender or its participants to provide any capital or pay any expenses to or for
Borrower. 

O. Counterparts.
This Forbearance Agreement may be executed in multiple counterparts, each of
which shall be original, and all of which, taken together, shall constitute but
one and the same agreement among the parties, successors, and assigns. This
Forbearance Agreement shall be binding upon the parties, successors, and
assigns. The parties agree to accept facsimile and electronic signatures as
originals. 

P. Time is of
the Essence. Time is of the essence under this Forbearance Agreement. 

Q. No
Partnership. The parties do not by this Agreement, in any way or for any
purpose, become partners or joint venture’s of each other in the conduct of
their respective businesses or otherwise. 

R. Severability.
If any provision of this Agreement shall be held to be invalid or unenforceable
for any reason, the remaining provisions shall continue to be valid and
enforceable. If a court finds that any provision of this Agreement is invalid or
unenforceable, but that by limiting such provision it would become valid and
enforceable, then such provision shall be deemed to be written, construed, and
enforced as so limited. 

S. Exhibits.
Each exhibit attached to and referred to in this Agreement is hereby
incorporated by reference as though set forth in full where referred to (by
letter or description) herein. 

T. Waiver of
Claims. Borrower, Guarantor and Investor hereby waive and release any known or
unknown claims, counterclaims, causes of action, or suits ("Claims") of any
kind, character, or nature whatsoever, fixed or contingent, which Borrower,
Guarantor or Investor may have or claim against Lender which may arise out of or
be connected with any acts of commission or omission by Lender existing or
occurring on or prior to the date of this Forbearance Agreement including,
without limitation, any Claims arising which are in any way related to the Loan,
collateral for the Loan, or the Guaranty, NorthCut Refining, LLC or the
operation thereof. This Section V Paragraph T shall survive the termination of
this Forbearance Agreement. 

 

(SIGNATURE PAGE TO FOLLOW) 

 

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IN WITNESS
WHEREOF, the parties hereto represent that this Forbearance Agreement was signed
by authority duly given this 10th
day of October, 2008. 

 

LENDER: 

PRIVATE CAPITAL
GROUP, INC., a Utah corporation 

Signature:
/s/ Jared L. Lucero


Name: Jared L.
Lucero, President Address: 486 West 50 North American Fork, Utah 84003

 

INVESTOR: 

MICHAEL
R. WILLIAMS,

 

BORROWER: 

NORTHCUT
REFINING, LLC, a Wyoming limited liability company 

Signature: /s/ Michael R.
Williams

Michael R.
Williams, President of Interline Resources Corporation, Manager of Borrower




Michael R. Burke,
Manager" of PCG Midstream, LLC, Manager of Borrower




 

Signature: /s/ Michael R.
Burke

Michael R. Burke,
Manager of Northcut Holdings, LLC, Manager of Borrower 

 

Signature: /s/
Michael R. Burke

Address: 160 West
Canyon Crest Alpine, Utah 84004 

 

GUARANTOR: 

INTERLINE
RESOURCES CORPORATION By:




Signature: /s/
Michael Williams 

By: Michael Williams, President

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IN
WITNESS WHEREOF, the parties hereto represent that this Forbearance Agreement


was signed by
authority duly given this l0th day of
October, 2008. 

 

LENDER: BORROWER:


PRIVATE CAPITAL
GROUP, INC., a Utah 

NORTHCUT
REFINING, LLC, a Wyoming corporation limited liability company 

By: /s/ Jared L.
Lucero

By:
/s/ Michael R. Williams      

Name: Jared L. Lucero, President 

Michael
R. Williams, President of Interline Address: 486 West   50 North 

By:
/s/ Michael R. Burke

 

Michael R. Burke,
Manager of PCG Midstream, LLC, Manager of Borrower 




By: /s/ Michael R.
Burke

Michael R. Burke, Manager of Northcut
Holdings, LLC, Manager of Borrower




Address: 160 West Canyon Crest Alpine,
Utah 84004 

INVESTOR: 

GUARANTOR:




/s/  Michael
R. Williams

INTERLINE
RESOURCES CORPORATION

MICHAEL  R.
WILLIAMS, Individually

Address: 160 West
Canyon Crest

By:
/s/ Michael R. Williams

Alpine, Utah 

Michael
R. Williams, President

 

Address:
160 West Canyon Crest

Alpine,
Utah 84004