SIDE LETTER AGREEMENT RE REAL PROPERTY COLLATERAL AND SUBORDINATION December 5, 2016

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1 SIDE LETTER AGREEMENT RE REAL PROPERTY COLLATERAL AND SUBORDINATION December 5, 2016 Michael Newell Black Hawk III, LLC 1950 Bellerive Ln., Suite 109 Coeur d'alene, ID Re: Side Letter Agreement re Pleiades LP Dear Mr. Newell: Concurrently with this letter agreement ( Side Agreement ), Propcorp, Inc. and its principals, Paul Pavao and John Kearney (collectively, Propcorp ), have entered into a series of transactions to develop and operate a Coachella Cannabis Cultivation Center and other similar centers in the City of Coachella, California (collectively, the Transactions ) with Pleiades, LP, a Delaware limited partnership, and its affiliates and subsidiaries, or any other business entity that may be created for the purpose of conducting the Transactions (collectively, Pleiades ). The purpose of this Side Agreement is to specify the manner in which Propcorp and Black Hawk III, LLC ( Lender ) may proceed to protect their interests in the event of default by Pleiades under the terms of its Loan ( Loan ) from Lender. (The documents pertinent to the Loan are collectively referred to as Loan Documents. ) Among other things, the Transactions: (1) require Pleiades to lease from Propcorp certain unimproved real property located on Avenue 48 in Coachella, California known to the parties as Lot 1 (the Property ); (2) require Propcorp to grant to Pleiades certain options to purchase that Property (the Options ); and (3) contemplate that Pleiades will issue ownership interests to Propcorp representing 4% of Pleiades, or any of its entities, successors, assignees, or subsidiaries that conduct the Transactions, total outstanding partnership interests. Subject to issuance of the pertinent Conditional Use Permit, approved engineering plans, and Phase I environmental report, Lender has agreed to lend funds to Pleiades to construct improvements on the Property. In exchange for that lending commitment, among other things, Lender will acquire a security interest in Pleiades assets, including its leasehold interest in the Property, and a present and absolute assignment of both of the Options to Lender, which assignments shall be exercised only if Pleaides defaults under the lease with Propcorp or the Loan. Terms of the Loan from Black Hawk to Pleiades are set forth in a Loan Agreement and associated documents ( Loan Documents ) executed on the same date as this Side Agreement. This Side Agreement is incorporated into the Loan Documents between Pleiades and Lender. The parties to this Side Agreement further agree as follows: (a) Propcorp agrees that upon execution of the Loan Documents, the Lot 1 lease, the Pleiades limited partnership and all related documents and the payment of the first

2 rent payment on the Lot 1 lease, it will execute and deliver to Lender a first deed of trust (the Propcorp Deed of Trust ) on the parcel known to the parties as Lot 1 to secure the performance of Pleiades obligations under the Loan Documents. The Propcorp Deed of Trust shall be recorded immediately upon execution of all Loan Documents between Lender and Pleiades, and the lease/option documents between Pleiades and Propcorp and the payment of the first rent payment on the Lot 1 lease. Recordation of the Propcorp Deed of Trust in first position shall be deemed a condition for Lender s obligation to perform under the Loan Documents. In the event that Pleiades defaults under the Loan Documents with Lender, and Lender pursues legal action against the Property leased by Pleiades, obtains the Property through foreclosure, and then sells the Property, any amounts collected that exceed the Lien Amount, plus all accrued interest thereon, attorney fees, taxes paid, and costs of holding and maintaining the Property after default until the sale, including insurance, security for premises, appraisals, repairs, and all other out-of-pocket costs reasonably incurred by Lender during the aforesaid period of holding, shall be paid to Propcorp. (b) In the event Pleiades defaults under the Loan Documents with Lender, Lender may foreclose on the Property under the Propcorp Deed of Trust for amounts owing to Lender under the Loan Agreement including costs, fees, accrued interest, and other charges pursuant to the Loan Documents, subject to the rights of Propcorp set forth herein. Lender s right to foreclose, execute and/or levy upon default is not limited to the Property, but includes personal guaranties, security interests in the leases and equipment, and assignment of rights to the lease between Propcorp and Pleiades. Upon default, Lender may exercise any or all legal methods of recovering or perfecting its interests in Pleiades and the Transactions. It is understood that Lender may take any remedy available by contract or law to proceed against the Borrower or its property interest or may proceed against the subject Property, or against all collateral as it deems necessary to obtain satisfaction of its Loan balance. The exercise of Lender s rights and remedies, however, are limited to 96% of ownership interests in Pleiades or any other entity that may be created to conduct the Transactions. Propcorp s ownership interest in Pleiades or any other entity created for the Transactions is not subject to Lender s foreclosure, execution or levy rights and shall continue to be owned by Propcorp in the event of Pleiades default and any enforcement or collection action by Lender free and clear of any lien or encumbrance created by the Propcorp Deed of Trust in favor of Lender. Lender will not exercise any such right upon default until it has given written notice of such act, omission or default to Propcorp and given Propcorp 30 days in which to cure such default. Upon Pleiades default and after Lender obtains a judgment against Pleiades and notice of sale is made (the date on which all such conditions are satisfied, the Redemption Date ), Propcorp has the right, but not the obligation, to redeem the Propcorp Deed of Trust by paying Lender an amount (the Redemption Amount ) equal to two-thirds of the then outstanding principal on the loan, plus 2

3 unpaid interest (not including default rate or penalties, or attorney fees or foreclosure costs). Upon Propcorp s exercise of its redemption right, Lender and Pleiades agree to take all steps reasonably necessary to terminate/reconvey the Propcorp Deed of Trust. (c) (d) (e) Pleiades obligations under the Loan Documents and Propcorp s obligations under the Propcorp Deed of Trust shall be entirely nonrecourse to Paul Pavao, John Kearney and any assets of Propcorp other than Lot 1 of the Property. If any Loan Documents are amended after the date hereof without Propcorp s written approval (which may not be unreasonably withheld only with reasonable discretion) in a manner that materially affects the collateral position of the second deed of trust, there must be written consent among the parties; if modifications are made without Propcorp s written consent, such modifications would not affect any of Propcorp s rights under the original Loan Documents. If and when Pleiades exercises its Options to purchase the Property, and thereby becomes the owner of the Property, Propcorp may record a second position deed of trust in its favor to secure payments on the purchase by Pleiades. If and when Pleiades exercises its Options to purchase the Property and Propcorp records a second position deed of trust, Lender may file a third position deed of trust securing the remaining one-third (1/3) of its Loan to Pleiades, plus unpaid interest, default fees, costs and attorney fees. (f) Lender agrees, as a condition to Propcorp s consent to the assignability of the Options, that in the event either or both of the Options (the Assigned Options ) are assigned to Lender (an Assignment ) and Lender later acquires the Property through exercise of an Assigned Option, Propcorp shall be placed in the same position vis-à-vis the Property subject to such Assigned Option as it was prior to the Assignment as to its interest in Pleiades. To that end, Lender agrees that (1) in the event of an exercise of an Assigned Option, it and Propcorp shall form a Delaware limited partnership (the Partnership ), with a limited partnership agreement substantially identical to Pleiades limited partnership agreement at the time of the Assignment (except that Lender and Propcorp shall be the only partners thereunder) and providing Propcorp with the same limited partnership interests as it holds in Pleiades at the time of the Assignment, and in all respects in form and substance satisfactory to Propcorp, and (2) the Partnership shall be the owner of the Property purchased pursuant to the Assigned Option. If Lender elects to foreclose and after foreclosure continues to operate all or any part of the Pleiades business, Lender and Propcorp shall form the Partnership on the foregoing terms. 3

4 (g) (h) This agreement shall terminate automatically upon the expiration or earlier termination of the Options. This agreement shall be governed by, construed and enforced in accordance with the laws of the State of California, without regard for conflicts of laws principles. In the event of a disagreement among parties as to any issue arising under this Side Agreement, the parties agree to conduct arbitration in Riverside County, California pursuant to the American Arbitration Associations commercial rules. Venue in any action or proceeding arising out of or related to this agreement shall lie exclusively in the courts in Riverside County, California, and the parties shall be deemed to consent to the jurisdiction of the state and federal courts located in Riverside County, California (and of the appropriate appellate courts therefrom) in any such action or proceeding and waive any objection to venue. In the event of any arbitration or litigation relating to this agreement, the prevailing party shall be entitled to recover from the other party its reasonable attorneys fees and costs. This agreement shall be binding and enforceable against all of the parties respective successors and assigns and all assignees of the Loan or any part thereof. [remainder of page intentionally left blank] 4

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7 Please sign below to indicate your agreement to the terms and conditions set forth above. Sincerely, Propcorp, Inc. By Its Accepted and Agreed: Black Hawk III, LLC By: Its: Pleiades, LP By: Pleiades Management Corp., its general partner By: Its: 5