Exhibit 10.3

 

NEITHER THIS CONVERTIBLE PROMISSORY NOTE NOR THE SECURITIES UNDERLYING THIS
CONVERTIBLE PROMISSORY NOTE, NOR ANY SECURITIES ISSUABLE UPON ITS CONVERSION, IF
ANY, HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS AND MAY
ONLY BE ACQUIRED FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. THIS CONVERTIBLE PROMISSORY
NOTE AND THE SECURITIES UNDERLYING THIS CONVERTIBLE PROMISSORY NOTE, OR THE
SECURITIES ISSUABLE UPON ITS CONVERSION, IF ANY, MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO SUCH SECURITIES UNDER THE SECURITIES ACT AND QUALIFICATION UNDER
APPLICABLE STATE LAW WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED UNDER THE SECURITIES
ACT OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION
(THE “SEC”).

 

URBAN-GRO, INC.

 

CONVERTIBLE PROMISSORY NOTE

 

Dated: November __, 2020

(“Issuance Date”)

 

FOR VALUE RECEIVED URBAN-GRO, INC., a company organized under the laws of the
state of Delaware (the “Company”), hereby promises to pay to [ ________] (the
“Payee”), or its registered permitted assigns, the principal amount of [
_______________] ($ .00      USD) together with interest thereon calculated from
the Issuance Date (“Interest Commencement Date”) in accordance with the
provisions of this Convertible Promissory Note (as amended, modified and
supplemented from time to time, this “Note”).

 

Certain capitalized terms are defined in Section 10 hereof.

 

1.   Payment of Interest. Interest on the unpaid principal amount of this Note
shall accrue at a rate equal to twelve percent (12%) per annum (the “Interest
Rate”), beginning on the Interest Commencement Date; provided, that the interest
rate shall increase to fourteen percent (14%) so long as any Event of Default
has occurred and is continuing. Interest on this Note shall be payable only (x)
on the Maturity Date pursuant to Section 2, (y) upon any conversion pursuant to
Section 3, or (z) on the date of any prepayment pursuant Section 4 (subject at
all times to Payee’s right to convert pursuant to Section 3(d) below), in each
case only in the form of the Company’s Common Stock, Conversion Securities or
Non-Qualified Conversion Securities as provided in the relevant Section. In no
event shall any interest to be paid under the Notes exceed the maximum rate
permitted by law. In any such event, the Note shall automatically be deemed
amended to permit interest charges at an amount equal to, but not greater than,
the maximum rate permitted by law. Interest shall be computed on the basis of
the actual number of days elapsed and a 365-day year.

 

2.  Maturity Date. The entire principal amount of this Note shall be due and
payable in full on December 31, 2021 (such date, the “Maturity Date”) upon the
tender of such Note by Payee, as provided in Section 3(b). The accrued but
unpaid interest on this Note through the Maturity Date, and so long thereafter
until payment is tendered in full, shall be due and payable in the form of the
Company’s Common Stock upon the Maturity Date or any earlier prepayment date, in
which case the conversion price shall be the Alternative Conversion Price (as
defined below).

 

 

 

 1 

 

 

3.Conversion.

 

(a)  Mandatory Conversion upon Qualified Offering. The principal and interest
evidenced by this Note shall be mandatorily converted upon the closing of a
Qualified Offering into the identical security (the “Conversion Security”)
issued at such Qualified Offering as set forth in this Section 3(a). Upon the
closing of a Qualified Offering the outstanding principal amount of, and all
accrued but unpaid interest through the date of such closing on, this Note will
automatically be converted into a number of shares of the Conversion Security
equal to the number derived by dividing (x) the principal amount of the Note
plus any accrued and unpaid interest through the date of such closing thereon by
(y) 75% of the price paid for the Conversion Security by investors in connection
with the Qualified Offering. Notwithstanding anything to the contrary in this
Section 3(a), if the Conversion Security in the case of a Qualified Offering
ranks junior to the Common Stock in the event of a liquidation, dissolution or
winding up of the Company, then the principal and interest shall not
automatically convert upon the closing of such Qualified Offering and all the
terms of this Note shall continue (including the terms of this Section 3 with
respect to one or more subsequent Qualified Offerings).

 

(b)   Mandatory Conversion upon Alternative Conversion Event. In the event that
a Qualified Offering has not occurred, the principal and interest evidenced by
this Note shall be mandatorily converted on the earlier of: (A) the Maturity
Date; or (B) immediately prior to (but subject to consummation of) a Business
Combination (such event, an “Alternative Conversion Event”). Upon the occurrence
of the applicable Alternative Conversion Event, the outstanding principal amount
of, and all accrued but unpaid interest through the Alternative Conversion Event
on, this Note will automatically be converted into a number of shares of Common
Stock equal to the number derived by dividing (x) the principal amount of the
Note plus any accrued and unpaid interest through the Alternative Conversion
Event thereon by (y) the Alternative Conversion Price.

 

(c)      Voluntary Conversion upon Non-Qualified Offering. If the Company
consummates an offering of securities that constitutes a Non-Qualified Offering,
Payee may elect, in the exercise of its sole discretion, to convert this Note
into a number of shares of the identical security (the “Non-Qualified Conversion
Security”) issued pursuant to such Non- Qualified Offering equal to the number
derived by dividing (x) the principal amount of the Note plus any accrued and
unpaid interest through the date of such closing thereon by (y) 75% of the price
paid for the Non-Qualified Conversion Securities by investors in connection with
the Non- Qualified Offering.

 

(d)  Voluntary Conversion upon Prepayment. In the event that the Company elects
to prepay this Note, in whole or in part, pursuant to Section 4 hereof, Payee
may elect, in the

exercise of its sole discretion, to convert this Note into a number of shares of
Common Stock equal to the number derived by dividing (x) the principal amount of
the Note plus any accrued and unpaid interest through the date of prepayment by
(y) the Alternative Conversion Price.

 

(e)   Elective Voluntary Conversion. At any time after the one hundred twentieth
(120th) day following the Issuance Date, and with five (5) business days
advanced written notice to the Company, Payee may elect, in the exercise of its
sole discretion, to convert this Note into a number of shares of Common Stock
equal to the number derived by dividing (x) the principal amount of the Note
plus any accrued and unpaid interest through the date of conversion by (y) the
Alternative Conversion Price.

 

(f)   Fractional Shares. No fractional shares shall be issued upon a conversion.
In lieu of any fractional shares to which Payee would otherwise be entitled, the
Company shall round up to the nearest whole share.

 

(g)    Notice of Conversion. Upon the conversion of this Note into Conversion
Securities, Non-Qualified Conversion Securities or Common Stock, as applicable,
pursuant hereto, the Payee shall deliver a dated and signed notice of conversion
(the “Notice of Conversion”), a copy of which is attached to this Note as
Exhibit A, acknowledging the conversion of the full principal amount of this
Note and any accrued but unpaid interest through the date of such conversion
into Conversion Securities, Non-Qualified Conversion Securities or Common Stock,
as applicable. Notices of Conversion shall be deemed delivered on the date sent,
if personally delivered, to the Company’s Chief Executive Officer at the
Company’s principal place of business, or when actually received if sent by
another method. The Notice of Conversion shall be accompanied by the original
Note.

 

 

 

 2 

 

 

(h)    Issuance of Conversion Securities, Non-Qualified Conversion Securities or
Common Stock. As soon as possible after the conversion has been effected (but in
any event within two (2) Business Days), the Company shall deliver to the
converting Payee a certificate or certificates representing the Conversion
Securities, Non-Qualified Conversion Securities or Common Stock, as applicable,
issuable by reason of such conversion in such name or names and such
denomination or denominations as the converting Payee has specified. The
issuance of Conversion Securities, Non-Qualified Conversion Securities or Common
Stock upon conversion of this Note shall be made without charge to the holder
hereof in respect thereof or other cost incurred by the Company or acquirer in
connection with such conversion. Upon conversion of this Note, the Company shall
take all such actions as are necessary in order to ensure that the Conversion
Securities, Non-Qualified Conversion Securities or Common Stock issuable upon
conversion of the Note shall be validly issued, fully paid and nonassessable.

 

(i)   Reservation of Common Stock. The Company shall at all times reserve and
keep available out of its authorized but unissued shares of capital stock,
solely for the purpose of issuance upon conversion hereunder or pursuant to the
terms of any Conversion Securities or Non-Qualified Conversion Securities, such
number of shares of Common Stock or other capital stock issuable upon
conversion. All shares of such capital stock which are so issuable shall, when
issued, be duly and validly issued, fully paid and non-assessable and free from
all taxes, liens and charges. The Company shall take all such actions as may be
necessary to assure that all such shares of capital stock may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which such shares of
capital stock.

 

4.  Prepayment. The principal amount of this Note may be prepaid, in whole or in
part, at any time from time to time at the option of the Company, together with
accrued interest through the date of prepayment, which interest shall be paid in
the form of the Company’s Common Stock, in which case the conversion price shall
be the Alternative Conversion Price; provided, that any prepayment will at all
times be subject to Payee’s conversion right set forth in Section 3(d) hereof;
provided, further, that in no event shall the Company be required or permitted
to pay the principal amount of this Note in cash without the prior written
consent of Bridging Finance Inc. (“Bridging”).

 

5.   Subordination. Payee agrees, by its acceptance of this Note, for itself and
for each future permitted holder (if any) of this Note, that the obligations
evidenced by this Note (the “Subordinated Obligations”) are expressly
subordinate and junior in right of payment to all principal amounts of, and
accrued interest on (including, without limitation, any interest that accrues
after the commencement of any case, proceeding or other action relating to the
bankruptcy, insolvency or reorganization of the Company), (x) Bridging or its
successors or assigns, (y) James Lowe and (z) Cloud9 Support Inc. (collectively,
the “Senior Obligations”). For purposes of this Note, “subordinate and junior in
right of payment” shall mean that no part of the Subordinated Obligations shall
have any claim to the Company’s assets on parity with or prior to the claim of
the Senior Obligations. In the event the Payee receives payment in respect of
the Senior Obligations in contravention of the previous sentence on account of
not having knowledge of the continuance of an event of default in respect of any
of the Senior Obligations, the Payee shall pay over to the Company, or a
receiver or trustee of the Company as applicable, an amount equal to the amount
so received promptly upon request therefor. Payee further agrees that (1) upon
any distribution of money or assets, or readjustment of the indebtedness of the
Company, whether by reason of foreclosure, liquidation, composition, bankruptcy,
arrangement, receivership, assignment for the benefit of creditors or any other
action or proceeding involving the Subordinated Obligations, or the application
of the assets of the Company to the payment or liquidation thereof, the
creditors holding Senior Obligations shall be entitled to receive payment in
full of all of the Senior Obligations prior to the payment of any part of the
Subordinated Obligations; and (2) during the continuance of any default under
this Note, Payee shall not ask for, demand, sue for, take or receive any
payments with respect to all or any part of the Subordinated Obligations or any
security therefor, whether from the Company or any other source, unless Payee
shall have provided Bridging with at least ninety (90) day’s advanced written
notice or the Senior Obligations owing to Bridging have been paid in full or
otherwise satisfied. Bridging is intended to be a third party beneficiary of
Section 4 hereof and this Section 5 and may enforce the provisions of Section 4
and this Section 5 including against the Company and the Payee jointly or
severally, and Section 4 hereof and this Section 5 may not be amended at any
time while any Senior Obligations are owing to Bridging, without the prior
written consent of Bridging. For the avoidance of doubt, (i) the obligations
evidenced by this Note are not hereby subordinated to any other indebtedness of
the Company other than the Senior Obligations and (ii) except as expressly set
forth in this Section 5, nothing in this Note limits or restricts Payee’s right
to enforce its rights and remedies under this Note, it being understood and
agreed by Payee that its rights to payment or collateral, if any, as a remedy to
any default hereunder shall be junior to that of the Senior Obligations.

 

 

 

 3 

 

 

6.Method of Payments.

 

(a)  Payment. Subject to the terms of this Note, the Company shall pay all sums
for principal, interest, or otherwise becoming due on this Note held by the
Payee not later than 5:00 p.m. Colorado time, on the date such payment is due,
in immediately available funds, in accordance with the payment instructions that
the Payee may designate in writing, without the presentation or surrender of
such Note or the making of any notation thereon. Any payment made after 5:00
p.m. Colorado time, on a Business Day will be deemed made on the next following
Business Day. If the due date of any payment in respect of this Note would
otherwise fall on a day that is not a Business Day, such due date shall be
extended to the next succeeding Business Day, and interest shall be payable on
any principal so extended for the period of such extension. All amounts payable
under this Note shall be paid free and clear of, and without reduction by reason
of, any deduction, set-off or counterclaim.

 

(b)    Replacement. Upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Note and, in the
case of any such loss, theft or destruction of this Note, upon receipt of an
indemnity reasonably satisfactory to the Company or, in the case of any such
mutilation, upon the surrender and cancellation of this Note, the Company, at
its expense, will execute and deliver, in lieu thereof, a new Note of like tenor
and dated the date of such lost, stolen, destroyed or mutilated Note.

 

7.   Representations, Warranties and Agreements of the Company. The Company
represents, warrants and covenants to Payee as of the date hereof and, with
respect to Sections 7(l), (m) and (n) only, for so long as this Note remains
outstanding, as follows:

 

(a)    Due Incorporation, Corporate Power, Qualification. The Company (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware; (ii) has the power and authority to own, lease and
operate its properties and carry on its business as now conducted; and (iii) is
duly qualified, licensed to do business and in good standing as a foreign
corporation in each jurisdiction where the failure to be so qualified or
licensed would reasonably be expected to have a material adverse effect.

 

(b)   Authority. The execution, delivery and performance by the Company of this
Note and the consummation of the transactions contemplated hereby (i) are within
the power of the Company and (ii) have been duly authorized by all necessary
actions on the part of the Company.

 

(c)     Enforceability. This Note and each other document executed, or to be
executed, by the Company in connection with this Note has been, or will be, duly
executed and delivered by the Company and constitutes, or will constitute, a
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as limited by bankruptcy,
insolvency, or other laws of general application relating to or affecting the
enforcement of creditors’ rights generally and general principles of equity.

 

(d)   Non-Contravention. The execution and delivery by the Company of this Note
and the performance and consummation of the transactions contemplated hereby do
not and will not: (i) violate the Company’s Certificate of Incorporation or
Bylaws; (ii) violate in any material respect any provision of, or result in the
breach or the acceleration of, or entitle any other Person to accelerate
(whether after the giving of notice or lapse of time or both), any material
mortgage, indenture, agreement, instrument or contract to which the Company is a
party or by which it is bound; (iii) result in the creation or imposition of any
lien upon any property, asset or revenue of the Company, or the suspension,
revocation, impairment, forfeiture, or nonrenewal of any material permit,
license, authorization or approval applicable to the Company, its business or
operations, or any of its assets or properties; or (iv) violate any law
applicable to the Company or by which any of its properties or assets may be
bound.

 

 

 

 4 

 

 

(e)    Approvals. No consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental authority or other
Person (including, without limitation, the shareholders of any Person) is
required in connection with the execution and delivery of this Note executed by
the Company and the performance and consummation of the transactions
contemplated thereby, other than such as have been obtained and remain in full
force and effect and other than such qualifications or filings under applicable
securities laws as may be required in connection with the transactions
contemplated by this Note.

 

(f)   Completeness of Disclosures. The Company has made available to Payee all
the information reasonably available to the Company that Payee has requested for
deciding whether to purchase this Note and the Company has disclosed to Payee
all other matters known to it that, either individually or in the aggregate,
would reasonably be expected to have a material adverse effect. Any information
furnished by or on behalf of the Company to Payee in connection with the
transactions contemplated hereby and the negotiation of this Note or delivered
hereunder or in connection herewith (as modified or supplemented by other
information so furnished), taken as a whole, do not contain any material
misstatement of fact or omit to state any material fact necessary to make the
statements therein (when taken as a whole), in the light of the circumstances
under which they were made, not misleading; provided, that, with respect to any
projected or pro forma financial information, the Company represents only that
such information was prepared in good faith based upon assumptions believed to
be reasonable at the time of preparation and delivery (it being understood that
such projected or pro forma information may vary from actual results and that
such variances may be material).

 

(g)   Issuance of the Securities. The securities issued upon the conversion of
this Note will, when issued, be duly and validly issued, fully paid and
nonassessable, free and clear of all liens imposed by the Company other than
restrictions on transfer provided for under applicable law or hereunder.

 

(h)SEC Reports; Financial Statements.

 

(i)     As of its filing date, the Form 10-K filed by the Company with the SEC
on May 18, 2020 (the “Form 10-K Date”), the Form 10-Qs filed by the Company
following the Form 10-K Date, the Form 8-Ks filed by the Company following the
Form 10-K Date, and all other reports filed by the Company with the SEC pursuant
to the Securities Act and the Securities and Exchange Act of 1934, as amended
(the “Exchange Act”), following the Form 10-K Date (such filings, collectively,
the “Company SEC Reports”) complied in all material respects with the applicable
requirements of the Securities Act, the Exchange Act, and the Sarbanes-Oxley Act
of 2002, as the case may be, including, in each case, the rules and regulations
promulgated thereunder.

 

(ii)   Except to the extent that information contained in the Company SEC
Reports has been revised or superseded by a document the Company subsequently
filed with the SEC, the Company SEC Reports do not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.

 

(iii)  The financial statements (including the related notes thereto) included
in the Company SEC Reports comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with Generally
Accepted Accounting Principles applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) (“GAAP”) and fairly
present in all material respects the consolidated financial position of the
Company and its subsidiaries as of the dates thereof and their respective
consolidated results of operations and cash flows for the periods then ended,
all in accordance with GAAP and the applicable rules and regulations promulgated
by the SEC. Since November 3, 2020, the Company has not made any change in the
accounting practices or policies applied in the preparation of its financial
statements, except as required by GAAP, the rules of the SEC or policy or
applicable law.

 

(iv)   Subsequent to the filing of the Company SEC Reports with the SEC, there
has been no material and adverse change or development, or event involving such
a prospective change, in the condition, business, properties or results of
operations of the Company and its Subsidiaries.

 

 

 

 5 

 

 

(i)     Capitalization. The capitalization of the Company is as set forth in the
Company’s SEC Reports, and the Company has not issued any material amount of
capital stock since November 3, 2020. Except as set forth in the Company’s SEC
Reports, the issuance and sale of the securities upon the conversion of this
Note will not obligate the Company to issue shares of Common Stock or other
securities to any Person (other than Payee) and will not result in a right of
any holder of Company securities to adjust the exercise, conversion, exchange or
reset price under any of such securities. All of the outstanding shares of
capital stock of the Company are duly authorized, validly issued, fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, and none of such outstanding shares was issued in violation of
any preemptive rights or similar rights to subscribe for or purchase securities.
No further approval or authorization of any stockholder, the Board of Directors
of the Company or others is required for the issuance and sale of the securities
upon the conversion of this Note. There are no stockholders agreements, voting
agreements or other similar agreements with respect to the Company’s capital
stock to which the Company is a party or, to the knowledge of the Company,
between or among any of the Company’s stockholders.

 

(j)    Exchange Act Registration. The Common Stock is registered pursuant to
Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action
designed to, or which to its knowledge is likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act nor has
the Company received any notification that the SEC is contemplating terminating
such registration.

 

(k)   Private Placement. Assuming the accuracy of the Payee’s representations
and warranties set forth below, no registration under the Securities Act is
required for the offer and sale of this Note.

 

(l)     Negative Covenants. For so long as the Note remains outstanding, the
Company shall not, without the prior written approval of Payee:

 

(i)    directly or indirectly, purchase or redeem any shares of capital stock of
the Company other than repurchases of stock from former employees, officers,
directors, consultants or other persons who performed services for the Company
or any subsidiary in connection with the cessation of such employment or service
at the lower of the original purchase price or the then current fair market
value thereof (as determined in good faith by the Board of Directors of the
Company);

 

(ii)   pay or declare any dividend or make any distribution on any shares of
capital stock of the Company; or

 

(iii)   subordinate this Note to any other obligation of the Company, except for
the Senior Obligations.

 

(m)    Notices. The Company will promptly notify Payee in writing of (1) the
occurrence of any Event of Default, (2) any proposed Qualified Offering,
Non-Qualified Offering or Business Combination, and (3) any material action,
suit or proceeding at law or in equity or by or before any governmental
instrumentality or other agency.

 

(n)    Legend Removal. As of, and at any time following, the date upon which
the: (i)    securities issuable upon conversion of the Note are eligible to be
sold without restriction under Rule 144 promulgated under the Securities Act
(“Rule 144”); and (ii) Payee has held the Note, or securities issued upon the
conversion of the Note, for an aggregate period of twelve (12) months, at
Payee’s request the Company will cause the Company’s transfer agent to remove
any legends affixed to such securities at the Company’s sole cost and expense.
In connection therewith, if required by the Company’s transfer agent, the
Company will, at the Company’s expense, promptly cause an opinion of counsel to
be delivered to and maintained with its transfer agent, together with any other
authorizations, certificates and directions required by the transfer agent that
authorize and direct the transfer agent to issue such securities without any
such legend.

 

 

 

 6 

 

 

8.   Representations, Warranties and Agreements of Payee. Payee represents and
warrants to the Company as of the date hereof and covenants and agrees as
follows:

 

(a)   Authority. The execution, delivery and performance by Payee of this Note
and the consummation of the transactions contemplated hereby (i) are within the
power of Payee and (ii) have been duly authorized by all necessary actions on
the part of Payee.

 

(b)     Enforceability. This Note and each other document executed, or to be
executed, by Payee in connection with this Note has been, or will be, duly
executed and delivered by Payee and constitutes, or will constitute, a legal,
valid and binding obligation of Payee, enforceable against Payee in accordance
with its terms, except as limited by bankruptcy, insolvency, or other laws of
general application relating to or affecting the enforcement of creditors’
rights generally and general principles of equity.

 

(c)    Securities Law Compliance. Payee has been advised that the Note and the
underlying securities have not been registered under the Securities Act and any
applicable state securities laws and, therefore, cannot be resold unless it or
they are registered under the Securities Act and applicable state securities
laws or unless an exemption from such registration requirements is available.
Payee is aware that the Company is under no obligation to affect any such
registration with respect to the Note or the underlying securities or to file
for or comply with any exemption from registration. Payee has not been formed
solely for the purpose of making this investment and is purchasing the Note for
its own account for investment, not as a nominee or agent, and not with a view
to, or for resale in connection with, the distribution thereof, and Payee has no
present intention of selling, granting any participation in, or otherwise
distributing the same. Payee has such knowledge and experience in financial and
business matters that Payee is capable of evaluating the merits and risks of
such investment, is able to incur a complete loss of such investment without
impairing Payee’s financial condition and is able to bear the economic risk of
such investment for an indefinite period of time. Payee is an “accredited
investor” as such term is defined in Rule 501 of Regulation D under the
Securities Act and shall submit to the Company such further assurances of such
status as may be reasonably requested by the Company. The residency of Payee
(or, in the case of a partnership or corporation, such entity’s principal place
of business) is correctly set forth beneath Payee’s name on the signature page
hereto.

 

(d)    No “Bad Actor” Disqualification Events. Neither (i) Payee, (ii) any of
its directors, executive officers, general partners or managing members, nor
(iii) any beneficial owner of any of Payee’s voting equity securities (in
accordance with Rule 506(d) of the Act) if such beneficial owner is deemed to
own 20% or more of Payee’s outstanding voting securities (calculated on the
basis of voting power) is subject to any disqualifications described in Rule
506(d)(1)(i) through (viii) of the Securities Act (“Disqualification Events”),
except for Disqualification Events covered by Rule 506(d)(2)(ii) or (iii) or
(d)(3) under the Securities Act and disclosed reasonably in advance of the date
hereof in writing in reasonable detail to the Company.

 

(e)    Investigation. Payee has conducted its own independent investigation and
analysis of the Company. In entering into this Note, Payee has relied solely
upon its own

investigation and analysis and the representations and warranties of the Company
contained herein. Payee acknowledges that, other than as expressly set forth in
this Note, neither the Company nor any of its respective directors, officers,
employees, Affiliates, agents or representatives make any representation or
warranty, either express or implied, as to the accuracy or completeness of any
of the information provided or made available to Payee or its agents or
representatives prior to the execution of this Note. Payee is not relying upon
any representation, warranty or agreement with respect to the accuracy or
completeness of the information (written or oral) provided to Payee in
connection with the transactions contemplated hereby, or with respect to the
appropriateness, suitability or sufficiency of such information for the purpose
of enabling Payee to evaluate such investment, other than the representations,
warranties and agreements of the Company expressly contained in this Note. Payee
acknowledges that it has received all information requested by it to make an
investment decision.

 

 

 

 7 

 

 

(f)    No General Solicitation. Neither Payee, nor any of its directors,
officers, employees, Affiliates, agents or representatives has either directly
or indirectly, including, through a broker or finder: (a) engaged in any general
solicitation or (b) published any advertisement in connection with the offer and
sale of this Note. Payee either has a preexisting personal or business
relationship with the Company or its directors, officers, employees, Affiliates,
agents or representatives.

 

(g)   Legends. Payee understands that any Conversion Securities, Non-Qualified
Conversion Securities or Common Stock issued pursuant to this Note may be
notated with one or all of the following legends:

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF
ANY STATE. THE SECURITIES MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR
PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH
ACT AND SUCH LAWS.”

 

Subject to the market stand-off provisions set forth below in Section 8(h), the
requirement that the Conversion Securities, Non-Qualified Conversion Securities
or Common Stock contain the legend set forth above shall cease and terminate as
provided in Section 7(n) above or when such securities are transferred pursuant
to Rule 144. In connection with the consummation of any transfer of shares
pursuant to Rule 144, the Company shall, upon surrender of certificates
containing such legend and, if reasonably required by the Company, subject to
receipt of an opinion of counsel reasonably acceptable to the Company (at
Company’s expense), cause to be delivered to the holder of any such securities
as to which the requirement for such legend shall have terminated, one or more
new certificates evidencing such securities not bearing such legend.

 

(h)   Market Stand-Off. In connection with any underwritten public offering by
the Company of its equity securities pursuant to an effective registration
statement filed under the Securities Act (including, without limitation, a
Qualified Offering or a Non-Qualified Offering), Payee agrees that it shall not,
directly or indirectly, sell, make any short sale of, loan, hypothecate, pledge,
offer, grant or sell any option or other contract for the purchase of, purchase
any option or other contract for the sale of, or otherwise dispose of or
transfer, or agree to engage in any of the foregoing transactions with respect
to (“Transfer”) any shares of Conversion Securities, Non-Qualified Conversion
Securities or Common Stock (including Common Stock underlying Conversion
Securities or Non-Qualified Conversion Securities) acquired pursuant to this
Note without the prior written consent of the Company or its managing
underwriter(s). Such restriction (the “Market Stand-Off”) shall be in effect for
such period of time following the date of the final prospectus for the
applicable offering as may be requested by the Company or such underwriter(s).
In no event, however, shall such period exceed 180 days, plus such additional
period as may reasonably be requested by the Company or such underwriter(s) to
accommodate regulatory restrictions on (i) the publication or other distribution
of research reports or (ii) analyst recommendations and opinions, including
(without limitation) the restrictions set forth in FINRA Rule 2711(f)(4) or NYSE
Rule 472(f)(4), or any successor provisions or amendments thereto.
Notwithstanding the forgoing, in the event that any beneficial owner of one
percent (1%) or more of the Company’s Common Stock shall be subject to a market
stand-off period that is less restrictive than the Market Stand-Off period
provided for herein, then Payee shall be afforded the benefits of such less
restrictive Market Stand-Off period on a pro rata basis (based on the total
number of shares of Common Stock beneficially held by all holders of the
Company). The Market Stand-Off shall in any event terminate two years after any
Qualified Offering or Non-Qualified Offering. In the event of the declaration of
a stock dividend, a spin- off, a stock split, an adjustment in conversion ratio,
a recapitalization or a similar transaction affecting the Company’s outstanding
securities without receipt of consideration, any new, substituted or additional
securities which are by reason of such transaction distributed with respect to
any Conversion Securities, Non-Qualified Conversion Securities or Common Stock
subject to the Market Stand-Off, or into which such Conversion Securities,
Non-Qualified Conversion Securities or Common Stock thereby becomes convertible,
shall immediately be subject to the Market Stand-Off. In order to enforce the
Market Stand-Off, the Company may impose stop-transfer instructions with respect
to the Conversion Securities, Non-Qualified Conversion Securities or Common
Stock acquired pursuant to this Note until the end of the applicable stand-off
period. The Company’s underwriters shall be intended third-party beneficiaries
of the agreement set forth in this Section 8(h) and shall be entitled to enforce
the provisions hereof as if they were a party hereto. Payee further agrees to
execute such agreements as may be reasonably requested by the underwriters in
connection with an underwritten public offering that are consistent with this
Section 8(h) or that are necessary to give further effect thereto.

 

 

 

 8 

 

 

9.   Events of Default. If any of the following events take place prior to the
earlier of (x) any conversion pursuant to Section 3 or (y) the payment in full
of the obligations evidenced by this Note (each, an “Event of Default”), Payee
at its option may, so long as such event exists, declare all principal and
accrued and unpaid interest thereon and all other amounts payable under this
Note immediately due and payable; provided, that this Note shall automatically
become due and payable without any declaration in the case of an Event of
Default specified in clause (b), (c), (d), or (e), below:

 

(a) The Company shall fail to pay when due any principal payment on the due date
hereunder and such payment shall not have been made within two (2) Business Days
thereafter;

 

(b)

 

The Company files a petition in voluntary bankruptcy or requests reorganization
under any provision of any bankruptcy, reorganization or insolvency law or
consents to the filing of any petition against it under such law;

 

(c)

Proceedings for the appointment of a receiver, trustee or custodian of the
Company or of all or a substantial part of the assets or property thereof, or an
involuntary case or other proceedings seeking liquidation, reorganization or
other relief with respect to the Company or the debts thereof under any
bankruptcy, insolvency or other similar law now or hereafter in effect shall be
commenced and an order for relief entered or such proceeding shall not be
dismissed or discharged

within sixty (60) days of commencement;

 

(d)

The Company makes a formal or informal general assignment for the benefit of its
creditors, or admits in writing its inability to pay debts generally when they

become due, or consents to the appointment of a receiver or liquidator of the
Company or of all or substantially all of its property;

 

(e)

The Company dissolves, liquidates or ceases business activity, or transfers all
or

substantially all of its assets to an unaffiliated third party;

 

(f) Any material inaccuracy of any representation or warranty of the Company set
forth in this Note; or     (g) The Company materially breaches any of its
agreements set forth in this Note, unless such breach is capable of cure, in
which case the Company shall have fifteen (15) days to cure such breach
following written notice from Payee.

 

10.Definitions.

 

“Affiliate” means, with respect to any specified Person, any other Person who,
directly or indirectly, controls, is controlled by, or is under common control
with such Person, including without limitation any general partner, managing
member, officer, director or trustee of such Person, or any venture capital fund
or registered investment company now or hereafter existing that is controlled by
one or more general partners, managing members or investment adviser of, or
shares the same management company or investment adviser with, such Person.

 

 

 

 9 

 

 

“Alternative Conversion Price” means US $0.60 (sixty cents US), which price
shall be adjusted for any stock split (reverse or forward), stock dividend,
combination, or other recapitalization or reclassification of the Common Stock
effected after the date hereof but prior to the repayment or conversion of the
Note in accordance with the terms hereof; provided, that if Payee reasonably
believes that the fair market value per share of the Common Stock as of the
applicable date of determination is less than US $0.60 (sixty cents US), then
Payee shall have the right to require a Fair Valuation of the Company’s Common
Stock and the price resulting from such Fair Valuation shall be the “Alternative
Conversion Price”.

 

“Business Combination” means (i) the consummation of a merger or consolidation
of the Company with or into another entity (except a merger or consolidation in
which the holders of capital stock of the Company immediately prior to such
merger or consolidation continue to hold a majority of the outstanding voting
securities of the capital stock of the Company or the surviving or acquiring
entity immediately following the consummation of such transaction); (ii) the
closing of the transfer (whether by merger, consolidation or otherwise), in a
single transaction or series of related transactions, to a “person” or “group”
(within the meaning of Section 13(d) and Section 14(d) of the Exchange Act) of
the Company's capital stock if, after such closing, such person or group would
become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act)
of more than 50% of the outstanding voting securities of the Company (or the
surviving or acquiring entity); or (iii) the closing of the sale, transfer or
other disposition, in a single transaction or series of related transactions, of
all or substantially all of the Company's assets. For the avoidance of doubt, a
transaction will not constitute a “Business Combination” if its sole purpose is
to change the state of the Company's incorporation or to create a holding
company that will be owned in substantially the same proportions by the persons
who held the Company's securities immediately prior to such transaction.

 

“Business Day” means a day (other than a Saturday or Sunday) on which banks
generally are open in New York, New York for the conduct of substantially all of
their activities.

 

“Common Stock” means the common stock of the Company, par value $0.001 per
share.

 

“Fair Valuation” means, (a) if the Common Stock is then listed and trading on a
domestic securities exchange, (x) the volume weighted average of the closing
sales prices of the Common Stock for such day on all domestic securities
exchanges on which the Common Stock may at the time be listed, or (y) if there
have been no sales of the Common Stock on any such exchange on any such day, the
average of the highest bid and lowest asked prices for the Common Stock on all
such exchanges at the end of such day; or (b) if at the applicable time of
determination, the Common Stock is not listed on any domestic securities
exchange, the “Fair Valuation” of the Common Stock shall be the fair market
value per share as determined by a nationally recognized investment banking,
accounting or valuation firm selected by the Company and reasonably acceptable
to Payee. The determination of such firm shall be final and conclusive, and the
fees and expenses of such valuation firm shall be borne by the Company unless
the fair market value per share of the Common Stock, as determined by such firm
is US $0.60 (fifty cents US) or more, in which case the fees and expenses of
such valuation firm shall be borne by Payee.

 

“Non-Qualified Offering” means the closing of the sale of the securities of the
Company, whether in a private offering or pursuant to an effective registration
statement under the Securities Act, resulting in less than $2,500,000.00 of
gross proceeds to the Company.

 

“Person” means any person or entity of any nature whatsoever, specifically
including an individual, a firm, a company, a corporation, a partnership, a
limited liability company, a trust or other entity.

 

“Qualified Offering” means the closing of the sale of the securities of the
Company, whether in a private placement or pursuant to an effective registration
statement under the Securities Act resulting in at least $2,500,000.00 of gross
proceeds to the Company.

 

 

 

 10 

 

 

11.Successors and Assigns; Transfer of this Note.

 

(a)                Subject to the restrictions on transfer described in this
Section 11, the rights and obligations of the Company and Payee shall be binding
upon and benefit the permitted successors, assigns, heirs, administrators and
transferees of the parties.

 

(b)               Neither this Note nor any of the rights, interests or
obligations hereunder may be assigned, by operation of law or otherwise, in
whole or in part, by either party without the prior written consent of the other
party; provided, that notwithstanding the forgoing, Payee may at any time and
from time to time assign to one or more Affiliates of Payee all or any portion
of its rights and obligations under this Note.

 

(c)   Payee may not pledge or grant a security interest in all or any portion of
its rights under this Note to secure any obligations of the Payee.

 

12.   Waiver and Amendment. Subject to Section 5 hereof, any provision of this
Note may be amended, waived or modified only upon the written consent (including
by electronic mail) of the Company and Payee.

 

13.       Notices. All notices, requests, demands, consents, instructions or
other communications required or permitted hereunder shall be in writing and
faxed, transmitted via electronic mail message, mailed or delivered to each
party at the respective addresses, facsimile numbers, or email addresses of the
parties as set forth on the signature page hereto, or at such other address,
facsimile number, or email address as the Company or Payee shall have furnished
to the other party in writing. All such notices and communications will be
deemed effectively given upon the earlier of actual receipt or (a) personal
delivery to the party to be notified; (b)  when sent, if sent by electronic mail
or facsimile during the recipient’s normal business hours, and if not sent
during normal business hours, then on the recipient’s next business day; (c) 
five (5) days after having been sent by registered or certified mail, return
receipt requested, postage prepaid; or (iv) one (1) Business Day after the
Business Day of deposit with a nationally recognized overnight courier, freight
prepaid, specifying next-day delivery, with written verification of receipt.

 

14.  Payment. Any payment required pursuant to the terms of this Note shall be
made in lawful tender of the United States and in immediately available funds.

 

15.   Waivers. Subject to the notice requirements set forth in Section 13, the
Company hereby waives notice of default, presentment or demand for payment,
protest or notice of nonpayment or dishonor and all other notices or demands
relative to this instrument.

 

16.   Governing Law. This Note and all actions arising out of or in connection
with this Note shall be governed by and construed in accordance with the laws of
the State of New York, without regard to the conflicts of law provisions of the
State of New York, or of any other state, providing for the application of the
laws of any other jurisdiction.

 

17.   Waiver of Jury Trial. Each of the Company and Payee hereby agrees to waive
its respective rights to a jury trial of any claim or cause of action based upon
or arising out of this Note.

 

18.   Fees and Expenses. Each party shall be responsible for its own fees and
expenses incurred in connection with the negotiation, execution and delivery of
this Note. The Company shall pay (a) all reasonable and documented out of pocket
expenses incurred by Payee (including the reasonable fees, charges and
disbursements of one firm of counsel for Payee) in connection with any
amendments, modifications or waivers of the provisions hereof which are made at
the request of the Company, and (b) all reasonable and documented out of pocket
expenses incurred by Payee (including the fees, charges and disbursements of one
firm of counsel for the Payee) in connection with the enforcement or protection
of its rights (i) in connection with this Note or (ii) in connection with the
indebtedness hereunder, including all such reasonable and documented out of
pocket expenses incurred during any workout, restructuring or negotiations in
respect of such indebtedness.

 

 

 

 11 

 

 

19.    Headings. The headings of the sections and paragraphs of this Note are
inserted for convenience only and do not constitute a part of this Note.

 

20.    Severability. If any provision of this Note is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Note will remain in full force and effect. Any provision of this Note held
invalid or unenforceable only in part or degree will remain in full force and
effect to the extent not held invalid or unenforceable.

 

21.    Cancellation. After all principal, premiums (if any) and accrued interest
at any time owed on this Note have been paid in full, or this Note has been
converted this Note will be surrendered to the Company for cancellation and will
not be reissued.

 

22.   Counterparts; Electronic Signature. This Note may be executed in any
number of counterparts and with counterpart signature pages delivered via
facsimile or other electronic transmission, and each such counterpart and
counterpart signature page shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement.

 

**********************************************

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 12 

 

 

IN WITNESS WHEREOF, the Company has executed and delivered this Convertible
Promissory Note on the date first written above.

 

  COMPANY:       URBAN-GRO, INC.       By:                                 
Name: Bradley Nattrass   Title: Chief Executive Officer       ADDRESS:      
1751 Panorama Point, Unit G   Lafayette, CO 80026   Email: brad@urban-gro.com

 

 

PAYEE:

 

 

By:___________________________

Name:

Title:

 

ADDRESS:

 

__________________________

__________________________

 

Email: _____________________

 

 

Signature Page to Convertible Promissory Note

 

 13 

 

 

EXHIBIT A

 

NOTICE OF CONVERSION

 

(To Be Signed Only Upon Conversion of the Convertible Promissory Note)

 

The undersigned, the holder of the enclosed Convertible Promissory Note (the
“Note”) hereby surrenders such Note for conversion into shares of [_] Common
Stock, [_] Conversion Securities or [_] Non-Qualified Conversion Securities
[check one] of urban-gro, Inc. (the “Shares”) to the extent of $ ______ unpaid
principal amount and any accrued and unpaid interest of such Note, and requests
that the certificates for such shares be issued in the name of, and delivered
to:

 

 

 

  Name:             Address                                      

 

Acknowledgement and Agreement. The undersigned, acknowledges and agree that the
undersigned: (a) is purchasing the Shares in accordance with and subject to the
terms and conditions of the Note, a copy of which the undersigned has read and
understands and to which the undersigned hereby expressly assents, and (b) that
the Shares shall remain subject to the legend and market stand-off obligations
set forth in Section 8(g) and Section 8(h) of the Note following conversion.
This understanding, acknowledgment and agreement shall inure to the benefit of
and be binding on my heirs, executors, administrators, successors and assigns.

 

Dated:__ /__ / 20__ PAYEE:               (Signature must conform in all respects
to name of Payee as specified on the face of the Note)               (Address)

 

 

 

 

 14