NEITHER THIS NOTE NOR THE SECURITIES INTO WHICH THIS NOT IS CONVERTIBLE HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE. THESE SECURITIES HAVE BEEN SOLD IN RELIANCE UPON AN
EXEMPION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AME (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERE SOLD EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATE UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMP FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRA
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE APPLICABLE STATE SECURITIES
LAWS.

 

IDS INDUSTRIES, INC.

 

CONVERTIBLE NOTE

 

Issuance Date: March 5, 2014 Original Principal Amount: $250,00 Note No. IDST-1
Consideration Paid at Cost: $25,000

 

 

FOR VALUE RECEIVED, IDS Industries, Inc., a Nevada corporation (the "Company"),
hereby promises to pay to the order of Black Mountain Equities, Inc. or
registered assigns (the "Holder") the amount set out above as the Original
Principal Amount (as reduced pursuant to the terms hereof pursuant to
redemption, conversion or otherwise, the "Principal") when due, whether upon the
Maturity Date (as defined below), acceleration, redemption or otherwise (in each
case in accordance with the terms hereof) and to pay interest ("Interest") on
any outstanding Principal at the applicable Interest Rate from the date s t out
above as the Issuance Date (the "Issuance Date") until the same becomes due and
payable upon the Maturity Date or acceleration, conversion, redemption or
otherwise (in each case in accordance with the terms hereof).

 

The Original Principal Amount is $250.000 (two hundred fifty thousand accrued
and unpaid interest and any other fees. The Consideration is $225,000 (two h
twenty five thousand) payable by wire transfer (there exists a $25,000 original
issue discount (the '"OID)). The Holder shall pay $25.000 of Consideration upon
closing of this Note Holder may pay additional Consideration to the Company in
such amounts and at such d Holder may choose in its sole discretion. For
purposes hereof the term "Outstanding Balance means the Original Principal
Amount as reduced or increased as the case may be, pursuant the terms hereof for
conversion breach hereof or otherwise plus any accrued but unpaid interest
collection and enforcements costs, and any other fees or charges incurred under
this Not. The Principal Sum due to Holder shall be prorated based on the
Consideration paid by Holder (plus an approximate 10% Original Issue Discount
that is prorated based on the Consideration p id by the Holder as well as any
other interest or fees) such that the Company is only required to repay the
amount funded and the Company is not required to repay any unfunded portion of
this Note.

 

(1) GENERAL TERMS

 

(a)                Payment of Principal. The "Maturity Date" shall be one year
from the date of each payment of Consideration as may be extended at the option
of the Holder in the event that and for so long as. an Event of Default (as
defined below) shall not have occurred and be continuing on the Maturity Date
(as may be extended pursuant to this Section l) or any shall not have occurred
and be continuing on the Maturity Date (as may be extended pursuant to this
Section 1) that with the passage of time and the failure to cure would result in
an Event of Default.

 

(b)                   Interest. A one-time interest charge of ten percent (10%)
("Interest Rate") shall be applied on the Issuance Date to the Original
Principal Sum. Interest her shall be paid on the Maturity Date (or sooner as
provided herein) to the Holder or its assignee whose name this Note is
registered on the records of the Company regarding registration transfers of
Notes in cash or converted into Common Stock at the Conversion Price provided
the Equity Conditions are satisfied.

 

 

 

(c)                    Security. This Note shall not be secured by any
collateral or any assets pledged to the Holder

 

(2)                   EVENT S OF DEFAULT

 

(a)                   An "Event of Default", wherever used herein, means any one
of the following events (whatever the reason and whether it shall be voluntary
or involuntary or effected by operation of law or pursuant to any judgment.
decree or order of any court, order. rule or regulation of any administrative or
governmental body):

 

(i)                    The Company's failure to pay to the Holder any am
Principal. Interest, or other amounts when and as due under this Note
(including, limitation, the Company's failure to pay any redemption payments or
amounts hereunder) other Transaction Document;

 

(ii)                  A Conversion Failure as defined in section 3(b)(ii)

 

(iii)                 The Company or any subsidiary of the Company commence, or
there shall be commenced against the Company or any subsidiary of the Company
under any applicable bankruptcy or insolvency laws as now or hereafter in effect
successor thereto or the Company or any subsidiary of the Company commences an
proceeding under any reorganization, arrangement, adjustment of debt relief of
debtors, dissolution insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company or any
subsidiary of the Company or there is commenced against the Company or any
subsidiary of the Company any such bankruptcy, insolvency or other proceeding
which remains undismissed for a period of 61 days: or the Company or any
subsidiary of the Company is adjudicated insolvent or bankrupt; or any order of
relief o other order approving any such case or proceeding is entered; or the
Company or any subsidiary of the Company suffers any appointment of any
custodian, private or court appointed receiver or the like for it or any
substantial part of its property which continues undischarged or unstayed period
of sixty one (61) days; or the Company or any subsidiary of the Company makes
general assignment for the benefit of creditors; or the Company or any
subsidiary of the Company shall fail to pay, or shall state that it is unable to
pay, or shall be unable to pay debts generally as they become due; or the
Company or any subsidiary of the Company shall call a meeting of its creditors
with a view to arranging a composition, adjustment or restructure its debts; or
the Company or any subsidiary of the Company shall by any act or failure act
expressly indicate its consent to, approval of or acquiescence in any of the
foregoing; any corporate or other action is taken by the Company or any
subsidiary of the Company for the purpose of effecting any of the foregoing;

 

(iv)                The Company or any subsidiary of the Company shall default
in any of its obligations under any other Note or any mortgage, credit agreement
or other facility indenture agreement factoring agreement or other instrument
under which there may be issued or by which there may be secured or evidenced
any indebtedness for borrowed money or money due under any long term leasing or
factoring arrangement of the Company o any subsidiary of the Company in an
amount exceeding $100.000, whether such indebtedness now exists or shall
hereafter be created; and

 

(v)                  The Common Stock is suspended or delisted for trading on
the Over the Counter Bulletin Board market (the "Primary Market").

 

(vi)                The Company loses its ability to deliver shares via
"OWAC/FAST' electronic transfer.

 

(vii)              The Company loses its status as DTC Eligible.'·

 

(viii)             The Company shall become late or delinquent in its fi ·ng
requirements as a fully-reporting issuer registered with the Securities &
Exchange Commission.

 

(b)                  Upon the occurrence of any Event of Default the Outstanding
Balance shall immediately increase to 120% of the Outstanding Balance
immediately prior to the occurrence of the Event of Default (the ..Default
Effect"). The Default Effect shall automatically apply upon the occurrence of an
Event of Default without the need for any party to give any notice or take any
other action.

2

 

 

(3)                   CONVERSION OF NOTE. This Note shall be convertible into
shares the Company's Common Stock on the te1ms and conditions set forth in this
Section 3.

 

(a)                   Conversion Right. Subject to the provisions of Section
3(c) time or times on or after the Issuance Date the Holder shall be entitled to
convert any portion the outstanding and unpaid Conversion Amount (as defined
below) into fully paid and nonassessable shares of Common Stock in accordance
with Section 3(b) at the Conversion Price (as defined below). The number of
shares of Common Stock issuable upon conversion f any Conversion Amount pursuant
to this Section 3(a) shall be equal to the quotient of dividing the Conversion
Amount by the Conversion Price. The Company shall not issue any fraction of a
share of Common Stock upon any conversion. If the issuance would result in the
issuance of a fraction of a share of Common Stock the Company shall round such
fraction of a s e of Common Stock up to the nearest whole share. The Company
shall pay any and all transfer fees legal fees, costs and any other fees or
costs that may be incurred or charged in connection with the issuance of shares
of the Company’s Common Stock to the Holder arising out relating to the
conversion of this Note.

(i)           "Conversion Amount" means the portion of the Or Principal Amount
and Interest to be converted plus any penalties redeemed or otherwise respect to
which this determination is being made.

(ii)         "Conversion Price" shall equal the lesser of (a) $0.025 or (b) 60%
of the lowest trade occurring during the twenty five (25) consecutive Trading
days immediately preceding the applicable Conversion Date on which the Holder
elects to convert all or part of this Note, subject to adjustment as provided in
this Note.

 

(b)                                Mechanics of Conversion.

 

(i)                 Optional Conversion. To convert any Conversion Amount into
shares of Common Stock on any date (a "Conversion Date"), the Holder shall (A)
transmit by email facsimile (or otherwise deliver) for receipt on or prior to
11:59 p.m. New York, NY Time on such date a copy of an executed notice of
conversion in the form attached her to as Exhibit A (the "Conversion Notice") to
the Company. On or before the third Business Day following the date of receipt
of a Conversion Notice (the ·"Share Delivery Date"), the Co shall (A)'.if
legends are not required to be placed on certificates 'of Common Stock pursuant
the then existing provisions of Rule 144 of the Securities Act of 1933 (Rule
144) and provided that the Transfer Agent is participating in the Depository
Trust Company's ("DTC") Fast Automated Securities Transfer Program. credit such
aggregate number of shares of Common Stock to which the Holder shall be entitled
to the Holder's or its designee's balance account with OTC through its Deposit
Withdrawal Agent Commission system or (B) if the Transfer A not participating in
the OTC Fast Automated Securities Transfer Program , issue and deli the address
as specified in the Conversion Notice a certificate. registered in the name
Holder or its designee, for the number of shares of Common Stock to which the
Holder s entitled which certificates shall not bear any restrictive legends
unless required pursuant the 144. If this Note is physically surrendered for
conversion and the outstanding Principal Note is greater than the Principal
portion of the Conversion Amount being converted, then the Company shall. upon
request of the Holder, as soon as practicable and in no event later than three
(3) Business Days after receipt of this Note and at its own expense, issue and
deliver to the holder a new Note representing the outstanding Principal not
converted. The Person or Persons entitled to receive the shares of Common Stock
issuable upon a conversion of this Note shall be treated for all purposes as the
record holder or holders of such shares of Common Stock upon transmission of a
Conversion Notice.

(ii)               Company's Failure to Timely Convert. If within two (2)
Trading Days after the Company's receipt of the facsimile or email copy of a
Conversion Notice the Company shall fail to issue and deliver to Holder via
"DWAC/FAST" electronic transfer the number of shares of Common Stock to which
the Holder is entitled upon such holder's conversion of any Conversion Amount (a
"Conversion Failure"), the Original Principal Amount of the Note shall increase
by $2.000 per day until the Company issues and delivers a certificate to the
Holder or credit the Holder's balance account with DTC for the number of shares
Common Stock to which the Holder is entitled upon such holder's conversion of
any Conversion Amount (under Holder’s and Company's expectation that any penalty
amounts will tack the Issuance Date). Company will not be subject to any
penalties once its transfer agent processes the shares to the DWAC system. If
the Company fails to deliver shares in accordance with the timeframe stated in
this Section, resulting in a Conversion Failure, the Holder, any time prior to
selling all of those shares, may rescind any portion. in whole or in part, of
that particular conversion attributable to the unsold shares and have the
rescinded conversion a returned to the Principal Sum with the rescinded
conversion shares returned to the Co any (under Holder’s and Company’s
expectations that any returned conversion amounts will tack back to the original
date of the Note).

3

 

 

(iii)             DWAC/FAST Eligibility. If the Company fails for reason to
deliver to the Holder the Shares by DWAC/FAST electronic transfer (such
delivering a physical stock certificate), or if there is a Conversion Failure as
defined in S 3(b)(ii) and if the Holder incurs a Market Price Loss then at any
time subsequent to incurring the loss the Holder may provide the Company written
notice indicating the amounts payable to the Holder in respect of the Market
Price Loss and the Company must make the Holder while by either of the following
options at Holder's election:

 

Market Price Loss = [(High trade price for the period between the day of
conversion and the day the shares clear in the Holders brokerage account) x
(Number of shares receivable from the conversion)] - [(Net Sales price realized
by Holder) x (Number of shares receivable from the conversion)].

 

Option A - Pay Market Price Loss in Cash. The Company must pay the Market Price
Loss by cash payment. and any such cash payment must be made by the third
business day from the time of the Holders written notice to the Company.

 

Option B -Add Market Price Loss to Principal Sum. The Company must pay the
Market Price Loss by adding the Market Price Loss to the balance of the
Principal Sum (under Holder's and the Company's expectation that any Market
Price Loss amounts will tack back to the Issuance Date).

 

In the case that conversion shares are not deliverable by DWAC/FAST electronic
transfer an additional 5% discount to the Conversion Price will apply.

 

(iv)             DTC Eligibility. If the Company fails to maintain its status as
DTC Eligible'' for any reason the Principal Amount of the Note shall increase y
ten thousand dollars ($15.000) (under Holders and company’s expectation that any
Principal Amount increase will tack back to the Issuance Date). In addition the
Conversion Price s II be redefined to equal the lesser of (a) $0.020 or (b) 50%
of the lowest trade occurring during twenty five (25) consecutive Trading Days
immediately preceding the applicable Conversion Date on which the Holder elects
to convert all or part of this Note, subject to adjustment as provided in this
Note.

 

(v)               Book-Entry. Notwithstanding anything to the contrary set forth
herein. upon conversion of any portion of this Note in accordance with the terms
hereof, the Holder shall not be required to physically surrender this Note to
the Company unless (A) t e full Conversion Amount represented by this Note is
being converted or (B) the Holder has provided the Company with prior written
notice (which notice may be included in a Conversion Notice) requesting
reissuance of this Note upon physical surrender of this Note. The Holder the
Company shall maintain records showing the Principal and Interest converted and
the da s of such conversions or shall use such other method, reasonably
satisfactory to the Holder the Company, so as not to require physical surrender
of this Note upon conversion.

 

(c)                                  Limitations on Conversions or Trading.

 

                                                                                 
Beneficial Ownership. The Company shall not effect any conversions of this Note
and the Holder shall not have the right to convert any portion ·this Note or
receive shares of Common Stock as payment of interest hereunder to the extent
that giving effect to such conversion or receipt of such interest payment, the
Holder together any affiliate thereof, would beneficially own (as determined in
accordance with Section 13 the Exchange Act and the rules promulgated
thereunder) in excess of 4.99% of the sum shares of Common Stock outstanding
immediately after giving effect to such conversion receipt of shares as payment
of interest. Since the Holder will not be obligated to report Company the number
of shares of Common Stock it may hold at the time of a conversion hereunder
unless the conversion at issue would result in the issuance of shares of Common
Stock in excess of 4.99% of the then outstanding shares of Common Stock without
regard to other shares which may be beneficially owned by the Holder or an
affiliate thereof, the shall have the authority and obligation to determine
whether the restriction contained in Section will limit any particular
conversion hereunder and to the extent that the determines that the limitation
contained in this Section applies, the determination of portion of the principal
amount of this Note is convertible shall be the responsibility obligation of the
Holder. If the Holder has delivered a Conversion Notice for a principal amount
of this Note that, without regard to any other shares that the Holder or its
affiliates may beneficially own, would result in the issuance in excess of the
permitted amount hereunder, the Company shall notify the Holder of this fact and
shall honor the conversion for the max um principal amount permitted to be
converted on such Conversion Date in accordance with Section 3(a) and, any
principal amount tendered for conversion in excess or the permitted a hereunder
shall remain outstanding under this Note. The provisions of this Section may
waived by a Holder (but only as to itself and not to any other Holder) upon not
less than 65 prior notice to the Company Other Holders shall be unaffected by
any such waiver.

4

 

 

(d)                                 Other Provisions.

 

(i)              Share Reservation. The Company shall at all times reserve and
keep available out of its authorized Common Stock the full number of shares of
Common Stock issuable upon conversion of all outstanding amounts under this
Note; and within five (5) Business Days following the receipt by the Company of
a Holder's notice that such minimum number of Underlying Shares is not so
reserved, the Company shall promptly res e a sufficient number of shares of
Common Stock to comply with such requirement. The Company will at all times
reserve at least 50,000,000 shares of Common Stock for conversion.

 

(ii)            Prepayment. At any time within the 90 day immediately following
the Issuance Date, the Company shall have the option, upon 10 business days'
notice to Holder, to pre-pay the entire remaining outstanding principal amount
of this Note in cash, provided that (i) the Company shall pay the Holder l50% of
the Outstanding Balance (ii) such amount must be paid in cash on the next
business day following such 10 business day notice period and (iii) the Holder
may still convert this Note pursuant to the terms hereof at all times until such
prepayment amount has been received in full. Except as set forth in this Section
the Company may not prepay this Note in whole or in part.

 

(iii)           Terms of Future Financings. So long as this Note is outstanding
upon any issuance by the Company or any of its subsidiaries of any security with
any term more favorable to the holder of such security or with a term in favor
of the holder of such security that was not similarly provided to the Holder in
this Note then the Company shall notify the Holder of such additional or more
favorable tem1 and such term, at Holder's option shall become a part of the
transaction documents with the Holder. The types of terms contained in another
security that may be more favorable to the holder of such security include, but
a not limited to, terms addressing conversion discounts conversion lookback
periods, interest original issue discounts stock sale price, private placement
price per share, and warrant coverage.

 

(iv)           All calculations under this Section 3 shall be rounded the
nearest $0.0000 l or whole share.

 

(v)             Nothing herein shall limit a Holder's right to pursue damages or
declare an Event of Default pursuant to Section 2 herein for the Company's fail
deliver ce11ificates representing shares of Common Stock upon conversion within
the specified herein and such Holder shall have the right to pursue all remedies
available to it law or in equity including without limitation a decree of
specific performance and/or injunctive relief in each case without the need to
post a bond or provide other security. The exercise such rights shall not
prohibit the Holder from seeking to enforce damages pursuant to any Section
hereof or under applicable law.

 

(4)                  SECTION 3(A)(9) OR 3(A)(10) TRANSACTION. So long as this N
e is outstanding, the Company shall not enter into any transaction or
arrangement structure in accordance with based upon or related or pursuant to,
in whole or in part, either Section 3(a)(9) of the Securities Act (a "3(a)(9)
Transaction") or Section 3(a)(10) of the Securities Act (a ''3(a)(l 0)
Transaction"). In the event that the Company does enter into, or makes any
issuance of Common Stock related to a 3(a)(9) Transaction or a 3(a)(10)
Transaction while this n e is outstanding, a liquidated damages charge of 25% of
the outstanding principal balance of this Note but not less than $25.000, will
be assessed and will become immediately due and payable to the Holder at its
election in the form of cash payment or addition to the balance of this Note.

5

 

 

(5)                  PIGGYBACK REGISTRATION RIGHTS. The Company shall include on
the next registration statement the Company files with SEC (or on the subsequent
registration statement if such registration statement is withdrawn) all shares
issuable upon conversion of this Note. Failure to do so will result in
liquidated damages of 25% of the outstanding principal balance of this Note but
not less than $25,000 being immediately due and payable to the Holder at its
election in the form of cash payment or addition to the balance of this Note.

 

(6)                  REISSUANCE OF THIS NOTE.

 

(a)                Assignability. The Company may not assign this Note. This
Note will be binding upon the Company and its successors and will inure to the
benefit of the Holder and its successors and assigns and may be assigned by the
Holder to anyone of its choosing without Company's approval.

 

(b)                Lost, Stolen or Mutilated Note. Upon receipt by the Company
of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Note, and, in the case of loss, theft or
destruction, of any indemnification undertaking the Holder to the Company in
customary form and, in the case of mutilation, upon surrender cancellation of
this Note the Company shall execute and deliver to the Holder a new Note
representing the outstanding Principal.

 

(7)                NOTICES. Any notices, consents waivers or other
communications required or permitted to be given under the terms hereof must be
in writing and will be deemed to have been delivered: (i) upon receipt when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically gen rated and
kept on file by the sending party) (iii) upon receipt when sent by email; or
(iv) one (l) Trading Day after deposit with a nationally recognized overnight
delivery service, in each case properly addressed to the party to receive the
same. The addresses and facsimile numb s for such communications shall be those
set fo11h in the communications and documents that each party has provided the
other immediately preceding the issuance of this Note or at such other address
and/or facsimile number and/or to the attention of such other person as the
recipient party has specified by written notice given to each other party three
(3) Business Days p or to the effectiveness of such change. Written confirmation
of receipt (i) given by the recipient of such notice consent waiver or other
communication (ii) mechanically or electronically generated by the sender's
facsimile machine containing the time, date recipient facsimile number and an
image of the first page of such transmission or (iii) provided by a nationally
recognized overnight delivery service, shall be rebuttable evidence of personal
service, receipt by facsimile or receipt from a nationally recognized overnight
delivery service in accordance with clause (i), (ii) or (iii) above,
respectively.

 

The addresses for such communications shall be:

 

If to the Company to:

 

Brian Barthlow

Empire Stock Transfer

1859 Whitney Mesa Dr.

Henderson, NV 89014

Telephone (702) 818-5895

Facsimile (702) 974-1444

 

Cane Clark LLP

3273 E Warm Springs Rd

Las Vegas, NV 89120

Attn: Joe Laxague

Email:

 

If to the Holder:

Black Mountain Equities, Inc.

13366 Greenstone Ct

San Diego, CA 92131

Attn: Adam Baker

Email:

6

 

 

(8)                  APPLICABLE LAW AND VENUE. This Note shall be governed b and
construed in accordance with the laws of the State of California, without giving
effect to conflicts of laws thereof. Any action brought by either pa11y against
the other concerning the transactions contemplated by this Agreement shall be
brought only in the state courts of California or in the federal courts located
in the city and county of San Diego, in the St e of California. Both parties and
the individuals signing this Agreement agree to submit to the jurisdiction of
such com1s.

 

(a)                 WAIVER. Any waiver by the Holder of a breach of any
provision of this Note shall not operate as or be construed to be a waiver of
any other breach of such provision or of any breach of any other provision of
this Note. The failure of the Holder to insist upon strict adherence to any term
of this Note on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Note. Any waiver must be in writing.

 

[Signature Page Follows]

7

 

 

 

IN WITNESS WHEREOF, the Company has caused this Convertible Note to be duly
executed by a duly authorized officer as of the date set forth above.

 

 

COMPANY: IDS INDUSTRIES, INC. By: /s/ Scott Plantinga Name: Scott Plantinga
Title: Chief Executive Officer HOLDER: BLACK MOUNTAIN EQUITIES, INC. By: /s/
Adam Baker Name: Adam Baker Title: President

 

8

 

 

EXHIBIT A

NOTICE OF CONVERSION

 

IDS Industries, Inc,

c/o: Pam Mckeown, Controller

533 Birch Street

Lake Elsinore, CA 92540

pmckeown@idsindustries.com

 

The undersigned hereby elects to convert a portion of the $________ Convertible
Note ________ issued to Black Mountain Equities, Inc. on ________ into Shares of
Common Stock of _________ according to the conditions set forth in such Note as
of the date written below.

 

By accepting this notice of conversion, you arc acknowledging that the number of
shares to be delivered represents less than 5% (five percent) of the common
stock outstanding. If the number of shares to be delivered represents more than
4.99% of the common stock outstanding, this conversion notice shall immediately
automatically extinguish and debenture Holder must be immediately notified.

 

 

Date of Conversion

Conversion Amount:

Conversion Price:

Shares to be Delivered:

 

Shares delivered in name of:

 

BLACK MOUNTAIN EQUITIES, INC.

 

By:

Title:

Black Mountain Equities, Inc

 

 

Signature:

9